Against all odds, Bitcoin is still around. People remain interested in learning what Bitcoin is, how to get them, whether as a currency to buy or an investment to hold or trade. It hasn't been easy, and you could reasonably argue it's still a struggle as Bitcoin continues to crater the way it's been doing all of 2018, but somehow it is surviving.
The Bitcoin industry has advanced so much that owning Bitcoin is now as simple as downloading a Bitcoin wallet and making a purchase. That works well for small investments. But not everyone is content with buying a little bit of Bitcoin. Some would rather be more hands-on in their approach, and that is when they turn to Bitcoin mining.
Bitcoin mining isn't easy, and it's not for everyone. It is expensive, so you will need to make sure you have the necessary funds before you give it a shot. It's time-consuming, so you'll need patience. And it's a process that could have tremendous ramifications for the environment, so you have to ask yourself: is it worth all that?
It's costly, and making money off of it can take years, if it happens at all, but it's still possible to break even or potentially make a profit (Bitcoin value as of this writing is hovering near $6,610). But you do need that patience. You're not the only one who has decided to get into mining, and so many different miners and pools means this will take some time.
But let's start from the beginning: what even is Bitcoin mining?
Table of contents:
1: What Is Bitcoin Mining?
2: Types of Mining
3: History of Bitcoin Mining
4: Is Bitcoin Mining Profitable?
5: Bitcoin Mining and the Environment
What Is Bitcoin Mining?
You may have heard about people getting rich quick through mining, but the intended purpose of mining isn't just acquiring Bitcoins. Bitcoin mining is the process of validating transactions on the blockchain network. For a block to be added to the blockchain, a computer currently mining Bitcoin (a "node") has to successfully solve math puzzles. Once it's successfully solved, the block and its hash can be added to the blockchain, and the node that solved it is rewarded with Bitcoins.
So the goal of mining is actually to take part in the verification and make sure transactions run smoothly. The mining keeps the network going and expanding, and verifies transactions that occur on the network. But that reward is an incredible incentive and in large part why people choose to give mining a try. In 2018, the reward for successfully mining a block is 12.5 Bitcoins. As of this writing, that translates to approximately $82,625. That's pretty good walking-around money.
If you're looking to get in, though, get in while the reward is still 12.5 BTC. There are supposedly 21 million Bitcoins, and after every 210,000 blocks mined, the number of Bitcoins released is halved. It happens roughly every four years, and that means in the next few years, it'll go down to 6.25 BTC.
With the potential for a payday so tempting, more and more people every day decide to start mining. That has made it more difficult to actually mine Bitcoins, but it has also meant that there are more ways than ever to break into mining. Though many people use ASIC miners, expensive hardware designed specifically for mining Bitcoin, companies like Nvidia (NVDA) - Get Report have been improving their graphics processing units (GPUs) to such an extent that GPUs are now nearly as commonly associated with cryptocurrency mining as they are for actual graphics. It's a cheaper (though still pricey) option that many miners have come to use instead - even though they're not as powerful as an ASIC miner. You'll also need mining software to work in tandem with your miner or GPU.
What is the Proof-of-Work System?
The supposed math puzzles that are being solved in the mining process are done via the "proof-of-work" system. This process is designed to be an integral part of the blockchain network, essentially creating the hashes that connect blocks and keep the network secure.
Using a sort of trial-and-error system, the nodes all go to work trying to successfully find the right computation, trying to determine the right number or "nonce" that is lower than or equal to a target. The target chances periodically to make solving it either easier or harder; whichever one keeps the pace of a successful mine every 10 minutes. The block being mined once the right number is computed is hashed, the hash is announced to the network, and the other nodes will verify the hash. Once verified, that block is now on the blockchain, and the miner gets their reward.
This proof-of-work system has faced a lot of scrutiny of late. It's designed to make things challenging for Bitcoin miners, and nodes go through a massive number of computations before finding the right value - assuming they do at all. The result, especially as more and more people became interested in Bitcoin mining, was an intense number of computers and mining hardware using an increasingly large amount of energy. It has led many to question if it's the best course of action for mining cryptocurrency as opposed to ways that could be more energy-efficient.
Types of Mining
If you're looking to do your own Bitcoin mining, what are the best ways to go about doing it? You're certainly welcome to try and do it on your own, in your own home, if you think you can manage to successfully mine there. If you think you have a better chance of a successful mine with assistance from others, you can try your hand there as well.
Generally, the three most common ways people will try to mine Bitcoins are through personal mining, cloud mining, or participating in mining pools.
Personal mining is pretty much what it sounds like: Bitcoin mining using your own personal computer and equipment, oftentimes right in your own home. Though it's possible to attempt mining on a laptop or home PC, it takes up quite a lot of energy and space on the computer, and it won't be powerful enough to bring in Bitcoins anytime soon. GPUs and ASIC miners are often used in cases like these, as well as the necessary software.
What keeps some people from doing this, though, is the running cost of maintaining your own equipment -- not to mention the absurd electricity bill mining can cause. In addition, you're also one single person with one single computer, often going up against larger and larger swaths of people who have combined forces.
Is it worth it? Maybe if you can afford the equipment and just want to do it as a hobby. If you're committed to mining a lot of Bitcoins, though, joining forces via cloud mining or a pool may be a more preferable option.
What is cloud mining? It's Bitcoin mining via rented equipment, often stored at a database. The cloud mining providers get paid for their assistance, and you potentially get Bitcoins.
Cloud mining comes with pros and cons. The pros -- not having to worry about electricity costs and maintenance -- are solid. But the biggest negative is a real killer: It's very easy to scam people via cloud mining. If you're interested in it, do as much research as is humanly possible to know that you will be working with a reputable cloud mining service, and that you are not being defrauded. TechRadar listed some of the more popular, respected outlets for cloud mining; if you can't find something similarly reputable about the cloud mining service you're researching, run.
It has become increasingly common for miners to join mining pools, where resources are pooled together and the nodes are combined to try and successfully solve proof-of-work calculations. Many pools, as they've grown in size and power, require membership fees. When Bitcoins have been successfully mined, the reward is spread out among pool members.
That does mean you won't be getting the full 12.5 BTC, instead receiving a much smaller payout. You may not be thrilled with that.
Any miner would love to just mine by themselves and get that massive reward, but with the massively increased difficulty of successfully mining a block, many don't see it as worth the effort to try this alone. Having one mining rig by yourself now could mean you go years without a single reward, and having multiple rigs is going to cost you tens of thousands of dollars, along with however much it costs to run your air conditioner 24/7.
Mining pools mean smaller rewards, but they also mean a far greater chance of a reward at all. And as electricity costs rise, many miners have sought pools in areas like eastern Washington that have more power at an affordable rate.
You'll still need high-quality mining hardware. Many of the ways rewards are divided -- such as pay per share, or PPS -- are gauged by proof that your rig is effectively contributing to the pool's success in mining that block. And don't forget to attach your Bitcoin wallet, as it's where your reward will go. Like with cloud mining, do your due diligence with research to try to avoid scams. Larger pools may mean you're getting a smaller payout, but it's at least a legitimate operation.
History of Bitcoin Mining
Mining isn't what it was in the late 2000's, when the mysterious Bitcoin founder known as "Satoshi Nakamoto" mined the first 50 Bitcoins. That block was first mined on January 3rd, 2009, mere months after Bitcoin's whitepaper was published. The first Bitcoin mining software was released to the public not long after. Back then, mining was something a person could do using only their CPU.
Now, enough people are mining and the hardware has developed at such a rapid pace that Bitcoin mining as an industry takes up an entire country's worth of electricity. More on that later.
But as more people got involved, the calculations got more difficult to solve and added more competition, and more firepower was required for miners to realistically compete. Quickly this shifted to aforementioned GPUs, and mining was suddenly something that could bring in other businesses; the need for powerful GPUs set large companies like Nvidia to developing them, turning them into intriguing investment options.
It was only a matter of time before hardware built specifically for mining was developed, and thus "application-specific integrated circuit" miners were born. The first successful ASIC miners, designed specifically to perform the calculations necessary for mining cryptocurrency, were released in 2013 and continue to be a mainstay.
These advances require more power, more electricity, more space to hold them. Additional expenses and competition made Bitcoins harder to mine than ever, and not everyone has room in their home to run everything. For these reasons, many miners began combining their resources.
Is Bitcoin Mining Profitable?
Honestly? These days it's pretty doubtful. In February 2018, EliteFixtures published the findings of a study determining the cost to mine 1 BTC in different countries. To mine just one Bitcoin in the United States, it costs $4,758. Hardware, software, electricity and maintenance add up awfully fast in the mining world.
If it isn't already clear, the biggest roadblock many people have with mining is the costs. Whether you use a GPU or ASIC to mine, it'll cost you. And that's assuming you're just getting that and not also getting or building a new computer capable of handling such an intense workload.
The attempts to solve the puzzle and mine a block take up an absurd amount of processing power and heat, so in addition to the power running up your electric bill, the air conditioning you'll be running to keep the house temperate is there to rub salt in the wound. By the time you've finally managed to mine an entire Bitcoin, will you have broken even? It's far from a guarantee.
It's also, as more and more people delve into the world of Bitcoin mining, way harder to be the one who successfully mines Bitcoins first. One person in an ever-growing sea of miners and mining pools is fairly limited in how successful they can actually be, especially if they can't afford the unbelievable manpower required.
Besides the financial issues, there's also the general inconvenience of it. Heating your home to such an extent for an investment that might not even work out can wear on you. That's why, despite the potential that comes with mining, it isn't for everyone.
Bitcoin Mining and the Environment
Bitcoin's value is nowhere near what it was at the beginning of the year, but people continue to mine it. How is all that mining and the energy output required to do it impacting the environment?
Some fear that the energy consumption required to mine Bitcoin is a deep concern. Information on Bitcoin energy consumption from Digiconomost suggests that Bitcoin is expected to consume 73.12 TWh of energy, comparable to the entire country of Austria. That's quite a bit more from the already troubling estimate at the beginning of the year, which had it at under 40 TWh.
This consumption is due to the aforementioned proof-of-work system inherent in Bitcoin. Mining nodes guess billions upon billions of numbers to try and successfully mine Bitcoin, and miners have used more and more energy to try and keep pace and succeed. Not every cryptocurrency uses proof-of-work, many as a response to the environmental concerns. One alternative is proof-of-stake, where there is no reward; creation of the block is determined by how powerful they are in the system. They merely receive a transaction fee from the transaction in the block. Without a need to mine for a reward, there is far, far less power needed.