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Basics of Bitcoin mining
Basics of Bitcoin Mining
Cryptocurrency
01.11.2021
Updated 11.03.2022
6:53

What is mining? That is a process of confirmation of cryptocurrency transactions that are necessarily verified and added to the blockchain. The process includes mathematical solutions for solving difficult tasks of blocks’ processing, for which the reward is provided. It may be expressed in the form of new bitcoins in the account or commission fees for operations.

Introduction

The times when mining was affordable to everyone having only an average PC have gone. Today, it’s required to have expensive specialized equipment that will do the calculations.

It’s worth mentioning that mining on your own is an extremely demanding process; for this reason, many users unite into so-called mining pools. The chances to receive profits with the help of them multiply.

In this article, we will tell you about the basics of how BTC mining goes and what is required for it. In the future, it will surely help you to decide whether you want to do it.

How mining works 

Each new transaction undergoes compulsory verification and approval. Only then it will be counted as successful. Miners collect these transactions that will undergo the verification process. The system groups transactions into special blocks for convenience. So, nodes check the transactions not one by one but by blocks.

A valid hash is required for a block to undergo the check – that is a combination of digits and letters serving as an identifier. A unique combination is created for each separate block. The creation of a new hash requires:

A one-time hash must match the rest of the block data. The hash name includes zeros that stand for the difficulty of mining. It’s important that a hash is valid.

Once the collection of the transaction is over and the candidate block has been created, a user will be able to change only a nonce. To make it possible, special equipment is required. Quality equipment will allow changing the nonce and hash data until the correct solution is found.

To receive a reward in bitcoins, a user needs to find that very valid hash and confirm the candidate block. Once the transactions of the block are counted as approved, the reward will be sent.

How much can a miner make on bitcoins? 

Each new block provides a miner with a reward that may include bitcoins and fees. The latter ones take a minor part in the reward per block, thus many don’t even consider them when calculating the profits.

The reward for a mined block is gradually decreasing. For example, in 2009, it was 50 BTC, and right after block number 210000 had been approved, it was reduced twice. The process was named halving. In 2020, the reward was 6,25 BTC, and this price remains relevant for 2021 as well. The next halving is scheduled for 2024.

As of June 2021, it’s possible to receive 300 thousand dollars per one block.

Despite such profitable figures, one shouldn’t jump to the purchase of hardware for mining right away. When choosing any equipment, it’s essential to consider the speed of work and the time taken to collect a nonce. The higher speed, the more nonces will be collected; and the faster the block of data will be confirmed.

One more aspect of the hardware selection is energy consumption. That is especially important as the setting will be turned on almost all the time. It may result in utility bills exceeding the profits greatly, especially at first stages.

What do you need to start mining? 

Bitcoin’s decentralization allows everyone to be engaged in mining. When Bitcoin only appeared in the market, a simple PC was enough. Today the technologies have advanced, and Bitcoin mining has become more complicated. For this reason, quality hardware with high capacity is a must.

Theoretically, a PC can be used, but it’s useless. The data search may last endlessly, which won’t bring any profit eventually. That is why we recommend buying specialized equipment. But which one is needed? More details are below.

Tips on choosing hardware

To mine bitcoin, by default you need:

In fact, you may opt for any of the systems, but you need to consider the peculiarities they have. For some miners some options may not work, that’s why it’s vital to approach the hardware selection with seriousness. That defines a greater part of success.

CPU

That is not the most effective option. A process is not always capable of distributing the data and performing the majority of tasks needed for mining. The reward percentage won’t be high, while the maintenance of such equipment may pull high expenses.

GPU

A big advantage of a graphics processor is that it can split difficult tasks into easier ones, which increases the performance of the equipment. Along with that, the mining efficiency grows too, but the outcome is greatly dependent on the difficulty of bitcoin mining.

FPGA

The strength of FPGA is its ability to be easily reprogrammed. It contributes to the higher number of functions, apps, and opens more possibilities. Compared to other systems, these ones have a moderate price.

ASIC

Actually, that is special equipment for mining. ASIC offers fewer individual settings, and its price is way higher than FPGA has. However, the mining efficiency skyrockets.

Mining pools

That isn’t a simple task to mine a block, and it requires a lot of effort and funds. In such cases, we can recommend using mining pools. Thanks to this method, you may unite the computing power of the devices of several people. Quite often such teams are registered on appropriate servers. When a block is successfully mined using this method, the profit is distributed between all miners.

How to become a part of a mining pool? 

To join a mining pool, you need:

  1. Firstly, you need to have the equipment.  You may consider several types of a mining pool to find out the requirement to a candidate willing to join.
  2. To set up the software to cooperate with others. All you need is to register an account and connect to a special service for that.
  3. To find out in advance how profitable such cooperation may be.

Cloud mining

If you don’t want to purchase equipment, you may make use of cloud mining. The essence of it is that a person becomes a part of the cloud mining farm, and somebody will mine bitcoins on his behalf. Everything that is needed is to pay a minimal sum to theoretically support the farm until profit is received. In the future, all the mined bitcoins are distributed between the participants.

The disadvantage of this method is its high risks. Quite often cloud miners are fraudsters who enjoy the trust of their clients. It’s important to be careful and pick partners thoroughly.

Conclusion

Smart mining requires a basic understanding of the cryptocurrency work as well as special equipment from you. The investments may seem huge for novices, but after receiving the profit in the future, the situation will change in a positive way. The profit will depend on your investments, market condition, and external factors. That’s why specialists advise studying the topic before spending large amounts of money.

 

FAQ

The reward for a mined block is gradually decreasing. For example, in 2009, it was 50 BTC, and right after block number 210000 had been approved, it was reduced twice. The process was named halving. In 2020, the reward was 6,25 BTC, and this price remains relevant for 2021 as well. The next halving is scheduled for 2024.

Bitcoin’s decentralization allows everyone to be engaged in mining. When Bitcoin only appeared in the market, a simple PC was enough. Today the technologies have advanced, and Bitcoin mining has become more complicated. For this reason, quality hardware with high capacity is a must.