In the olden days, if you wanted to take advantage of a gold rush, you might have moved to California, grown out a long beard, maybe even put on a funny hat, and grabbed a pick in search of gold. Mining back then meant long hours in a deep and dank mine searching for the one vein of ore that would lead to fortune and fame.
Recently, there’s been a new gold rush—sort of. At the very least there’s been a rush of new folks trying their hands at mining. Except instead of a rusty mining pick and a dank mine, these modern-day miners come armed with GPUs and cooling fans. The beards and the funny hats might still be a thing, though.
These new miners aren’t chasing veins of gold deep in the earth—they’re mining Bitcoin.
Bitcoin mining might seem a little more complicated than trudging off to a mine and swinging a pick.
It’s not even really mining. It’s actually a huge network of computers that process and secure every Bitcoin transaction (and get rewarded in the process).
But how does Bitcoin mining work?
How Bitcoin Mints New Coins through Mining
Bitcoin works differently than conventional money. Traditionally, when new money needs to be made, a government usually goes ahead and prints or mints more.
But there’s no government running Bitcoin—just a whole bunch of computers, users, and software. And though new Bitcoins can be “minted” through a process called mining, there’s a limit to how many can be produced—just 21 million . That may seem like a lot, but as of early Aug. 2019 , there were only about 3 million bitcoins left to be mined. And about an average of 1,800 new Bitcoins are mined every day.
When you take into account that Bitcoin has been trading between $8,000 to $12,000 per coin per coin over the past few months, you might understand why so many people are rushing to get their piece of the pie.
But how does mining mint new coins? And why is there a limit on how many exist?
It all goes back to the technology that Bitcoin is built on—Blockchain.
Since no government body is issuing or regulating currency, there’s no one—like a bank—making sure transactions are legitimate.
Imagine you write a check for $5 or send a friend $5 with an app. When that happens, your bank takes a look at your account and confirms you have $5 to spend. Then your friend’s bank confirms that $5 went into their account. With Bitcoin, there’s no bank or app, there’s just the network to confirm transactions. This is where mining comes in.
Every Bitcoin transaction gets recorded in the Blockchain—a massive public ledger of every bitcoin transaction ever. Anyone running bitcoin can see all of the transactions and download the whole Blockchain.
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When a Bitcoin transaction gets executed, it gets sent to the miners for verification.
Bitcoin.org explains how these transactions are checked by miners . “For new transactions to be confirmed, they need to be included in a block along with a mathematical proof of work. Such proofs are very hard to generate because there is no way to create them other than by trying billions of calculations per second.
“This requires miners to perform these calculations before their blocks are accepted by the network and before they are rewarded.”
Put simply, miners are all racing to solve complex mathematical problems. When they do, the transaction is confirmed and added to the Blockchain and the miners get rewarded with new Bitcoin.
The process of mining helps secure the network, and the transactions that fly across it every day. For a hacker to take control of the Blockchain, to commit fraudulent charges, and to steal Bitcoin, they’d have to control over 51% of the network.
Rewarding miners creates a competitive environment that, ideally, encourages more miners to join the network. This increases the size of the network, making it harder to get more than 51% control of it, which in turn makes transactions more secure for users who are sending Bitcoins back and forth.
Considering grabbing your “pick” and descending into the world of Bitcoin mining?
How Do You Mine Bitcoins?
Anyone can mine Bitcoin. You just need a Bitcoin wallet and a PC and you’re probably good to go. The catch? Bitcoin mining is competitive, really competitive, because of the rewards at stake and the complex mathematical problems. And though you could mine bitcoin on your PC, it might not be the most effective strategy.
When Bitcoin was first announced in 2009, all miners needed was a sturdy PC and they could potentially get in the game. Things progressed quickly, though. In 2010, software was released that let miners mine with graphics processing units (GPUs).
GPU is just a technical name for a video card. If you’ve ever played games on a computer or have a friend who’s a gamer, the video card is the long card inside their PC that processes the graphics. This was a major shift in Bitcoin mining because a single GPU was 100 times faster than a central processing unit (CPU), which was how most people were initially mining.
Then miners started getting fancy. They built computers specifically for mining Bitcoin, as well as other cryptocurrencies. These “crypto mining rigs” could feature motherboards, the main hub of a computer, that supported four to eight graphics cards.
If a single card was 100 times faster than a CPU, it’s easy to see how the average user looking to mine Bitcoin might be left in the dust by a high-powered crypto rig that featured anywhere from four to eight GPUs churning away at Blockchain calculations.
This rush to build Bitcoin mining machines with a bunch of GPUs drove up video card prices for their primary market: gamers. In 2018, GeForce GTX 1070 cards that should have cost close to $400 were being sold for more than $700 on secondary markets. Crypto miners had snapped up the cards at retail prices, creating a shortage and driving up prices.
From there, as is the case with many things tech, the hardware got better, faster, and more specialized. In 2013 -ish the first Bitcoin ASIC miners hit the scene. ASIC stands for application-specific integrated circuit. These mining tools are built to do one thing—mine cryptocurrencies (including Bitcoin).
They’re not processors inside a desktop or laptop or video cards repurposed in order to score freshly-minted Bitcoin. These are machines built and tuned specifically for mining.
ASICs are an option if you’re thinking about getting into mining. While they’re more effective at processing Bitcoin transactions than their GPU and CPU predecessors, and they’re more energy efficient, they can come with some upfront costs, running anywhere from $1,000 to $3,000 . And this doesn’t include the potentially high utility costs needed to maintain them (read: keep them cool enough to function).
Another option to consider may be a mining pool.
How Bitcoin Mining Pools Work
A mining pool is a group of users who have decided to join forces to try and validate bitcoin transactions (create a new block). Users who join mining pools contribute their own CPUs, GPUs, or ASICs to a network and when rewards are paid out, they all get a share.
Joining a mining pool isn’t too difficult. The first thing a user may want to have is a Bitcoin wallet. A Bitcoin wallet is a digital or physical place where you keep your Bitcoin, private keys (codes) and addresses.
There are many options when it comes to a bitcoin wallet, from software solutions, to sites, to wallets that come in the form of hardware in secure USB sticks. A wallet makes a good first step because it’s where shares of rewards (new Bitcoins) would be sent and stored.
A next good step to joining a mining pool may be grabbing some Bitcoin mining software. Even if you’re thinking about going it alone, this software may be key to getting started.
If you are going solo, this software will try to verify transactions with just the processing power of whatever hardware (CPU, GPU, or ASIC) that you’ve got, though many folks agree that the computations have gotten so complex, it’s less likely that a solo miner will create a new block on their own. If you’re joining a pool, the mining software will help you connect to your pool.
Once miners have their wallets and software situation sorted, a good next step would likely be finding a mining pool they like and joining it. Many mining pools these days are located in China because of the cheaper electricity. Some of these pools are actually companies, including F2Pool, AntPool, BTCC, and BW. While these are some of the biggest pools, there are pools based in the US and Europe as well.
While pools might seem appealing to miners with less computing horsepower, there may be some things to consider before joining. Pools may charge users a fee.
And miners might be paid out their shares based on the level of their contribution, which could mean that miners with fancy ASICs take home more of the rewards.
Since this is Bitcoin, there’s probably another innovation around the corner.
Cloud mining is an example—an option if you don’t want to own your own mining hardware and would rather mine with someone else’s. However, cloud mining may also come with its own costs and risks that have left some members of the bitcoin community less than impressed with this approach to mining coins.
What’s Cloud Mining?
Much like storing data or running applications in the cloud, cloud mining is the process of paying someone else to use their crypto mining hardware. This could save a miner the upfront cost of graphics card or ASIC systems. To get started, a miner would likely open an account with a cloud mining company, decide how much they want to spend, and how much they want to mine.
While cloud mining may seem like an easier way to get started with Bitcoin mining, it’s worth mentioning that there have been reports of cloud mining companies that might not be on the up and up. Miners looking to get started might consider doing a fair bit of research before deciding if cloud mining is right for them—as well as what company to go with.
Is Bitcoin Mining Right for You?
Some experts believe that the actual gold rush of bitcoin mining may have passed. There’s a chance you may not strike it rich, especially without investing in some serious bitcoin mining ASICs. Even then, the equations have become so complex, mining itself keeps getting harder.
That doesn’t mean you can’t mine anything. There are any number of other cryptocurrencies popping up that could use help from eager miners willing to donate some processing cycles from their CPUs or GPUs, and even if you may not hit the mother lode, you could mine for a better understanding of how cryptocurrency works. Whether or not you want to grab a metaphorical hat and mining pick is up to you.
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