Updated: Sep 2, 2020
This how-to guide will explore the process of Bitcoin mining, take a look at the equipment that you will need to get started, and share some valuable resources for you to use on your journey! Before we explore personal hobby mining, let's go inside a professional Bitcoin mine to see what Bitcoin mining looks like on an industrial scale!
Although a professional Bitcoin mine may look overwhelming, fret not! You can mine Bitcoin on small scale right from your home.
Before we dive in, let's have a brief introduction on the history of mining and an update on where we are today. Before Bitcoin was traded on exchanges, it could only be earned from mining on computers. This was done as early as 2009, shortly after the Bitcoin whitepaper was released by the pseudonymous creator, Satoshi Nakamoto. Using powerful GPU (Graphics Processing Unit) cards, computers solved complex algorithms to win part of a block reward. This process of solving the "puzzles" and validating the blockchain is called Proof of Work mining, or PoW for short, and is still in use today! Blocks are mined at an average of about one per 10 minutes. If the blocks are being solved faster, the algorithm adjusts, making mining more difficult. If blocks are being solved slower, the algorithm adjusts to make mining easier.
In the early days, the block reward was 50 Bitcoin (BTC) per block. Today, due to the block reward halving approximately every 4 years, the block reward has reduced drastically. In 2012 it was reduced to 25 BTC per block. In 2016, 12.5 BTC per block. And recently, just this year in May, 2020, the block reward was halved to 6.25 BTC per block. The supply shock caused by the halving event (reduction of new BTC being injected into the market every 10 minutes) is historically followed by an increase in the price of the Bitcoin. Because of this halving process, Bitcoin is deflationary in nature. Less and less is available each year. There are currently about 17 million BTC that have already been mined. The total cap, according to the Bitcoin algorithm, is 21 million. This means that, according to the code, there can only be 21 million BTC ever mined! The last of these is predicted to be mined in the year 2140.
In the early days, when the popularity of Bitcoin grew, the demand rose with it. High demand and the reduction in supply yielded a higher price. The higher the price of Bitcoin became, the more resources people and corporations dedicated to mining Bitcoin. More powerful GPU's were developed, capable of beating out the old ones to solve the algorithms at a faster rate and win more of the block reward. People started combining computing power of multiple GPU's and building giant mining farms to win larger mining rewards. By mining Bitcoin you are helping to make the Bitcoin network more secure by providing more computing power.
As much of a fan as I am of Bitcoin, it is not without its flaws. First, running powerful computers and huge mining farms to mine Bitcoin uses an enormous amount of electricity. The electricity consumed worldwide to mine Bitcoin is more than some entire countries! More that Switzerland for example. Moving forward, it is important that we use green and renewable energy to mine Bitcoin.
Second, if one mining farm was to become so powerful that they acquired 51% of the entire Bitcoin hash rate, they could perform a double spend attack. This could be reversed, but it would require forking the Blockchain. This is a problem of PoW, but could be solved by switching to a Proof of Stake (PoS) system. However, due to the size of the Bitcoin network, an attack is very unlikely.
And third, the network is slow and expensive to use. This is due to heavy network traffic and limitations on the block size (how much data one block can contain). Do to the slow speed, it takes a long time to confirm transactions. There are solutions (like the lightning network among others) that are being worked on and will eventually be scaled out.
And now, on to the mining! To mine Bitcoin, you will need the following:
1) Mining equipment with Application Specific Integrated Circuit (ASIC) Sha-256 mining capability. A great tool to use is asicminervalue.com. This website lets you look at many of the different miners that are available and sort them by profitability per kilowatt hour (kwh), using USA electricity prices at the current price of Bitcoin. The site also has info on the amount of power the miner consumes, the hash rate of the miner, the noise that the miner produces, and when the miner was or will be released. It's the best site I've found for this type of information by far!
2) Although there are hardware costs involved (the miner, other accessories), it is crucial that you consider the energy costs in your country before getting started. For example, in Venezuela, energy cost less than $0.01 per kwh. Germany however, energy costs $0.37 per kwh! Electricity is needed to both run the hardware and run cooling devices. The miners can get hot, especially if the room's ambient temperature is already high. Make sure you choose a miner that can be profitable in your region. To see a list of the miners available on BitMerch visit our miners section. We offer a few different AntMiners (like this S9) from Bitmain, the most popular brand of miners. Please keep in mind that new miners are coming out all the time, with even more powerful specs, and more efficient hardware. We also have a wide selection of mining accessories, including cooling fans and power supplies.
3) After you have selected, ordered, and received your miner, you will want to follow the instructions in the box for the specific miner to set up the hardware. For the AntMiner S9 as mentioned above, check out this video:
4) After the hardware is set up, you will want to join a mining pool. This is beneficial as it combines your computing power with the pool and shares the block reward amongst the connected miners according to the contributed hash rate. This makes your mining rig more competitive and more likely to receive a reward! Some of the top mining pools are AntPool, F2Pool, Btc.com, and Poolin.
If after reading this, you'd rather invest in Bitcoin rather than mine Bitcoin, check out Coinbase! You can download the app from Google Play or the App Store to purchase your first Bitcoin. Don’t worry, you can buy fractions of a Bitcoin too ;) You'll get $10 for FREE if you buy $100 or more using the Coinbase link above.
For more information on how to use Coinbase, check out our blog post, Coinbase - The Best Place to Get Started With Crypto!
Check out our Mining Gear section to get some sweet BitMerch and start mining today!