A Guide to Mining Bitcoin

In this guide we explain what exactly bitcoin mining is and how to get started.

What is Mining?

Mining is the term used to refer to the process of bringing bitcoin into existence. While a bitcoin does not exist in a physical form, computers around the world mine bitcoin, which basically means that they verify transactions and record it onto the public distributed ledger, also known as the blockchain.

In this the ledger, we have blocks which contain transactions connected together by a chain, with new blocks of transactions continuously added in line with demand. Since it is a distributed ledger, everyone who runs the bitcoin software will have access to the updated version of the blockchain.

To ensure that the network is trusted, miners take information from transactions once a block is created and apply a formula to turn this into a ‘hash,’ a random sequence of letters and numbers. This hash is then stored at the end of that particular block, where it is impossible to ascertain information on the transactions. Every hash is unique and information on the transaction in the block, as well as the hash from the previous block, are both used to generate this hash; this allows everyone to know if the blockchain has been tampered with as the hashes will not be valid from the previous block. If a transaction was amended in the block, the hash would change, alerting everyone in the ecosystem of an attempt to counterfeit the blockchain.

To cryptographically seal each block with a hash, miners compete with each using software specifically developed for mining bitcoin. It is compared to a lottery, where everyone pays in in the form of hardware and electricity costs and those miners that find a block first obtain the block reward, which is currently 12.5 BTC; it will continue to halven over time until the block reward is zero and there are 21 million bitcoin in circulation.

The block reward provides the incentive for mining to continue and to encourage new miners into the ecosystem. But as more hashing power is exerted, the difficulty rises due to bitcoin’s blockchain consensus protocol, proof of work. It is known as proof of work since energy is required to obtain bitcoin and the cryptocurrency cannot be created out of thin air. Secondly, behind each block is a transaction history that energy was used to confirm. If an attacker tried to change a transaction in the past, they would have to change every transaction before that to fool the network, which is almost impossible considering the amount of resources required to do so.

Mining bitcoin was easier in the early days, where some individuals even mined using their computer’s CPU. GPU miners then become popular to mine bitcoin as the difficulty shot up and eventually ASICs took over. To mine bitcoin today is not recommended unless you have significant resources at your disposal, free electricity, or unless you want to do it as a hobby or learn as a stepping stone for altcoin mining.

Comparison of ASIC Miners

ASICs can be bought from various companies and they are specialized computer chips built just to mine the cryptocurrency. The important factors to look out for are; the hash rate, which is how powerful the machine is. Efficiency, that is how much power your machine consumes relative to its hash rate. Lastly, the price; mining is a long-term investment and it will take at least one to two years to recover your initial outlay and to enter into profit, so it is important to factor in the price. Do not forget additional equipment as well as the machine such as power supply units (PSU), cooling devices and other accessories, which are often not included with the miner.

Also, you will need bitcoin mining software for some miners. For Windows, there is Bitcoin Miner, BTCMiner, CGMiner, BFGMiner and EasyMiner. For Linux, there is CGMiner, BFGMiner, and EasyMiner. Finally, for Mac users, there are all the options mentioned as well as RPC Miner.

eBay lists various new and preowned ASIC miners, with Bitmain being the most prominent brand. Most miners would recommend the Antminer 9 but the Avalon machines offer a good alternative.

The Antminer 9 claims to offer a very high hash rate and is the most efficient miner on the market. However, one drawback is that the power supply is sold separately. But the backward compatibility of the miner is decent, as older power units can used given that they are the right wattage. Assuming a constant bitcoin price, you would expect to be in profit in under 16 months with the Antminer S9.

Another business you can buy from to start a mining venture is Canaan Creative, with their Avalon6 model rivalling the Antminer. It is the second most efficient miner on the market, with a 3.5 TH/s hash rate. Another advantage compared to other miners is that it is reportedly quieter, making it more suitable for a home-run operation. The Avalon6 can be controlled with a Raspberry Pi, with up to 50 units being able to run off of a single device. Avalon’s control panel or CG miner can be used to set it up and it is user friendly. However, the drawback of this model is that it is less energy efficient than some of the Antminers.

The Avalon741 is more powerful than its predecessor, with more than double the hash rate. The Avalon Miner Controller, which is sold separately, is required too and when connecting to the Avalon Miner USB Convertor 3 you can link five Avalon miners, with a maximum combined hash rate exceeding 35 TH/s.

Also, there is the Antminer R4, which is built for home-run mining with the producers aiming for the quietest miner without compromising the hash rate, however, it comes with a higher price tag.

Mining calculators can be used to play around with return on investment under possible scenarios. The key things to note are that the difficulty will always increase over time whereas the price of bitcoin is pretty much unpredictable over the long term.

Many of the new miners are produced with a 16 nanometer fabrication process, as part of the miniaturization of semiconductors allowing greater computing power and efficiency. Ten nanometer fabrication processes are not expected to play a part in the production of bitcoin miners until late 2018.