When bitcoin was first introduced, anyone with a computer could mine the cryptocurrency and receive a block reward of 50 bitcoins. These days, bitcoin mining isn’t as easy. Block rewards have dropped to 6.25 BTC a block, and mining machinery has become more expensive.
But don’t despair if you are hoping to start mining Bitcoin; there are still several ways you can mine cryptocurrency without losing an arm and a leg. We’ll look at these ways in a short while but before then, let’s explore the process of mining bitcoin.
Bitcoin Mining Process
Since Bitcoin is decentralized, transactions are broadcasted to the network before they are verified and recorded on the public transaction database known as the Bitcoin blockchain. Miners are responsible for processing, verifying, and recording transactions on the Bitcoin blockchain. They are rewarded in BTC for the work that they do.
On the Bitcoin blockchain, transactions are verified using the proof of work consensus algorithm. This means that the Bitcoin protocol requires miners to provide proof that they expanded a scarce resource. The scarce resource in Bitcoin mining is the processing power of the computers used to verify transactions.
Miners compete with each other to verify transactions and earn rewards in bitcoin. The more processing power a miner’s mining hardware has, the more attempts they can make to complete the transaction, and the higher their likelihood of verifying the next block and earning bitcoin.
To verify a block, miners have to solve complex mathematical problems. Each time a miners’ machine attempts to solve the problem, the software uses different numbers as the random element. The number is referred to as the nonce.
Proof of work is produced when the software calculates different nonces and finally discovers the correct nonce. A new block is then created, verified, and agreed upon on the decentralized network. The miner is rewarded with bitcoin.
Currently, the reward for mining one block on the Bitcoin blockchain is 6.25, although the amount will be reduced by half after every 210,000 blocks (approximately every four years). This process is known as halving. Halving reduces the supply of new bitcoin therefore causing the prices of bitcoin to appreciate quickly. The process of halving will continue until all the 21 million Bitcoin are mined.
The Bitcoin blockchain is self-evolving. This ensures that the time taken to mine one block on the network will always be approximately ten minutes.
Now that you understand the process of mining bitcoin, let’s look at how to get started.
Get a Bitcoin Mining Rig
The first step towards becoming a bitcoin miner is getting a bitcoin mining rig. A mining rig is a machine that is designed explicitly for minting new crypto coins. The best mining rigs have the highest hash rate since they enhance a miner’s chance of being the first to solve mathematical problems.
A hash rate is the speed of processing power of a mining rig. The processing power of a rig is called the hash power.
You can choose to buy or build your own bitcoin mining rig. When buying, the main features you should consider are electricity consumption, a reliable graphics card, a cooling solution, the motherboard, and a resilient power supply.
There are different types of mining rigs, including Scrypt, GPU, CPU, and ASIC mining. However, your best bet is getting an ASIC mining rig since it guarantees better and faster results than all other mining rigs.
Before purchasing an ASIC mining rig, you should calculate its profitability using an online calculator. This will give you a good idea of whether it is worth the price. Keep in mind that the efficiency of the rig you choose as we’ll as the current price of bitcoin will play a role in the amount of profits you can make.
Get a Bitcoin Wallet
A bitcoin wallet is where you will store the bitcoin you receive as block rewards. There are numerous wallets, including paper wallets, hardware wallets, software wallets, and desktop wallets. Hardware and paper wallets are the safest since they store your private keys offline types, so you might want to consider them when choosing.
Join a Mining Pool
Even with a powerful ASIC mining rig, it is still doubtful that you will make any profit from bitcoin mining. The solution is to join a pool of miners. This way, you combine your computational power and share the rewards you get.
Get a Mining Software
Before you start mining bitcoin, the final step is to get a mining software installed on your computer. Mining software will connect you to the Bitcoin blockchain, deliver work to you, collect the results of your work, and add the information to the blockchain. It will also monitor your mining activities and show you basic statistics such as hash rate, temperature, average mining speed, and cooling.
Cloud Mining
Instead of investing in mining hardware, you can purchase processing power from a remote mining farm. It’s somehow like investing in a mining operation so you can receive part of the profits they make.
However, if you choose to go this route, you should be extra careful when deciding who to invest your money with, as there are numerous scams out there posing as legitimate mining pools. It would be best if you also were wary of the monthly fees you will have to pay as they might end up eating into your profits.
Final Word
Although bitcoin mining is an expensive and difficult process, you can still make profits if you have access to cheap electricity. However, most of your profits are more likely to come from the value of bitcoin appreciating than from mining itself. That being said you can make better use of your mining hardware by mining altcoins on the side. Some of your best options are Monero, Zcash and Litecoin since they all use the proof of work consensus algorithm.
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