The temptation to earn Bitcoins is understandable as Bitcoin is valued as world’s most expensive currency at current rates. But who mints Bitcoins? How are they distributed? and most importantly how can you earn them? these are the questions we will answer in this beginner’s guide to bitcoin mining. But let me give you a little headache first, remember this quote “Bitcoins cannot be earned but learned!” If you are not already familiar with Blockchain technology read this article.
What is Bitcoin Mining?
A large network of peers (miners) make it possible for ordinary users to transact Bitcoins. Every time new transactions are added to Bitcoin’s public ledger one peer (yes exactly one) is rewarded with 25 Bitcoins and some commission. This peer is said to have mined Bitcons.
Who Gets the Reward and How?
New transactions are grouped together into a block. Before a block is added to the blockchain every peer tries to find out SHA-256 of newly created block. But there is a condition, that is, the hash value must start with 17 leading zeroes.
A peer who finds out such a hash first gets the reward. This mechanism called proof of work is required to validate the transactions and keep the spam away. Read more about proof of work here.
How Can I Become a Bitcoin Miner?
You need hardware, software, network bandwidth and electricity to run your mining setup. Following are the steps to start mining:
- Download Bitcoin Core software on your desktop or laptop (See requirements)
- Around 140 GB of Blockchain is downloaded one time.
- Keep your node running and connected!
Can You Really Earn Money With this Simple Setup?
No. People with better hardware have higher chances to solve the puzzle (find the hash) than your simple laptop setup. Dedicated mining hardware is available which is sold for few dollars to thousands of dollars. This hardware is better at finding hashes because it is designed specifically for that job. 25 Bitcoins is a huge reward! People have made huge investments to earn it. But all hope is not lost for you, read on.
Joining a Bitcoin Mining Pool
Small-time miners have united and created mining pools. Mining pool is network of miners within the Blockchain network where miners cooperate with each other to find the hash and any reward is shared among all the participating peers. Many of these pools originates from China where electricity is really cheap. You can check out BTC.com or Antpool.
Should You Become a Bitcoin Miner?
This is more of an economical question than technical one. Bitcoin mining involves expenses of running costly hardware setup, good network, and uninterrupted power supply. Electricity costs can be an issue in developed world whereas network bandwidth and availability of quality power supply can be tricky questions in developing countries. Fluctuating Bitcoin prices can be another concern see the graph:
Alternatives to Bitcoin Mining
Bitcoin is the most popular cryptocurrency but it is not the only one. Its popularity can be a disadvantage to a miner who has to spend more resources simply because the competition is high. You can choose alternative cryptocurrencies such as Ethereum. Whetever cryptocurrency you choose, the fundamentals remain the same.
Bitcoin mining involves solving straight forward but time taking mathematical puzzle that is finding out a hash value with leading 17 zeroes. A miner profits from reward and commissions when he successfully solves the puzzle. Mining in a stand alone mode requires high initial investments. Therefore, individuals more often choose to be part of a large mining pool where miner cooperatively work as one entity on the Blockchain network and share the reward.
- Blocks Mined Today, Blockchain.com
- Minimum Requirements for Running a Full Node, Bitcoin.org
- Mining Profitability Calculator, Alcula.com
- Data Mining Rigs Comparison, 2018, Techradar
If you have questions please feel free to discuss in the comments section.