You may well have caught wind of someone saying that they would like to get into Bitcoin mining. You might have even heard that there can be a lot of money to be made in mining Bitcoin. You probably imagined a little man in the computer going to work on something akin to a gold mine. Bitcoin mining isn’t anything like real mining though.
It’s not a physical process – it’s done by machines, and it is not “uncovering” bitcoin by theoretically chipping away at something – it’s something far more useful.
What is Bitcoin mining?
Bitcoin mining is the process whereby a machine in the Bitcoin network gives validity to a block of Bitcoin transactions by solving hashing its contents.
Each block is made up of one or more Bitcoin transactions. The network attempts to form a block from current transactions every ten minutes.
Each block makes up part of the blockchain, the electronic ledger of all Bitcoin transactions since its inception. The blockchain is stored on all systems across the network, in chronological order.
What is the theory behind Bitcoin mining?
One miner and one miner only is able to solve a single block. There will never be more than one miner solving a single block at once. Solving the block involves the miner completing a computationally heavy problem that results in a produced hash.
This hash is a SHA2 hash, a type of cryptographic hash function originally developed by the NSA. Running a hashing function over data of any length will result in 256 bit number.
The target is a 256 bit number that miners need to find a hash of the block’s header below that number. The lower the target, the more difficult it is to find a hash below it. The target number (or difficultly) changes once every 2016 blocks, or about once every two weeks. The difficulty changes on how long it actually took to make the blocks compared to the projected forecast. It is because of this that no matter how much, or how little, computing power is thrown at mining Bitcoin, the time to mine them will remain roughly the same.
To solve a block takes a great deal of computing power if there are many people chasing it. Each block contains a nonce, which is a 32 bit field that will affect the value of the hash. If there is no smaller hash than the target, the nonce is incremented, and each miner must try again incorporating the new nonce.
So each block that is mined will reward a lot of Bitcoins?
When Bitcoin was a young currency, Bitcoin mining was a lucrative field. For each block that was mined, miners were grabbing 50 Bitcoins (BTC). 50 BTC these days is worth around US$20,000! Currently, the Bitcoin reward per block mined in 25 BTC. This is set to decrease in years to come – it operates on a halving schedule.
Since there will only ever be approximately 21 million Bitcoins in existence, the reward will decrease over time until each block that is uncovered only rewards a tiny amount of BTC.
Should I start mining Bitcoin then?
When Bitcoin was in its infancy, there were less people around the world doing Bitcoin mining, and the target was relatively easy to reach. Since there has been significant uptake of the BTC currency over the past five years or so, there have been more people that have gotten involved in Bitcoin mining, and thus more hardware thrown at the problem.
In the beginning, all you would need is a piece of dedicated hardware at home, a low electricity cost to power your machine, and some time devoted to setting up and maintaining your equipment.
Since then, to be the first to uncover a block takes a great deal more dedicated hardware, and significantly lower electricity costs to be profitable. Since large companies and Bitcoin farms have this power to devote to Bitcoin mining, they have generally been the ones to uncover each block first.
The hardware used to mine Bitcoin has progressed from CPUs, to GPUs, to FPGA, to ASIC. ASIC dedicated circuits are far faster but more expensive to purchase than their relative counterparts, making ASIC mining the method most likely to uncover blocks currently.
So how can I get involved in Bitcoin mining?
Since it is almost impossible to create your own setup capable of uncovering blocks these days, the easiest way to get involved in Bitcoin mining currently is via pools or cloud mining.
There are various different pooled mining techniques, but the basic assumption is that everyone in a pool uses their hardware to work towards a block, and if the pool wins the block, then each miner in the pool will receive a comparative fraction of the reward.
Cloud mining is where you rent resources from large-scale Bitcoin mining farms. These mining farms rent their resources to people all over the world who can then expect returns on their investment over certain periods of time. If you decide to opt out of the program, all you have to do is cancel your subscription.
It must be said that you should carefully look into any pool or cloud mining service before signing up, as there are a significant number of Bitcoin mining scams that exist. Scour forums for any mention of a pool or cloud services reputation. If they have been accused of being scammers or have no reputation to speak of, then it’s best to stay away.
Unfortunately, the regular person on the street is no longer able to just set up their second laptop to dedicate to mining Bitcoin and expect it to be successful. Bitcoin mining is now a legitimate business, and various methods of mining have popped up to reflect this.
If you’re interested in mining Bitcoin, make sure you read all about the process and fully understand it before checking out some Bitcoin mining pools or cloud services. There is still money to be made in Bitcoin mining but due to all the interest in the cryptocurrency, it isn’t as simple as it once was.