What is Bitcoin Mining?
Mining is the name for validating transactions and adding them to the public ledger, the blockchain. The process is summarized in The Trust Machine but a quick summary goes like this:
- Every transaction is written in the public ledger, grouped with other transactions in something called a block.
- Each block contains a reference to the block that came before it to prevent someone from easily changing the transaction history.
- This reference to the prior block is something called a hash, which is a unique fingerprint of that block. If you changed anything in the block, the hash would be completely different, so to change anything in a block, you would need to change every block that came afterward.
- New blocks are created by mining computers by solving a puzzle that involves hashing the new transactions.
- Bitcoin wants new blocks to be created every ten minutes. If they come out faster, the network automatically makes it harder to create new blocks. If they come out slower, the network makes it easier to create new blocks. This is the Bitcoin Difficulty Adjustment, and there are plenty of YouTube videos on the subject.
What kind of computer mines for Bitcoin?
The difficulty level is high enough that regular desktop/laptop computers cannot effectively mine for Bitcoin. Yes, even ones with fancy GPUs are too slow.
The people who mine for Bitcoin are using computers specifically designed for the task of hashing transaction blocks. These computers are called ASICs or mining rigs. Some popular mining rigs are made by Bitmain, Whatsminer, and Canaan. These rigs measure their speed not in Gigahertz, but in Tera hash or trillions of hashes per second (TH/s).
The difficulty level is high enough that regular desktop/laptop computers cannot effectively mine for Bitcoin. Yes, even ones with fancy GPUs are too slow.
The people who mine for Bitcoin are using computers specifically designed for the task of hashing transaction blocks. These computers are called ASICs or mining rigs. Some popular mining rigs are made by Bitmain, Whatsminer, and Canaan. These rigs measure their speed not in Gigahertz, but in Tera hash or trillions of hashes per second (TH/s).
- A slow machine, the Bitmain Antminer S9, will be able to do around 13 TH/s.
- A higher end right will be able to hash ten times faster or more.
- The world wide hash rate is measured in millions of TH/s (Exa hash per second or EH/s)
Why should I mine for Bitcoin?
The greatest strength of Bitcoin is the fact that it is decentralized. Nodes are distributed around the world, running a wide variety of versions. Miners are distributed around the world, using a variety of different rigs. Mining is a profitable activity, so companies with money grow their hash rate ever larger. This has the tendency to centralize the mining capacity into the hands of a few very large companies. If you have the requirements to run a mining rig, you can help keep the mining infrastructure decentralized.
Running a miner is not going to be a completely altruistic exercise. By running a mining rig, you can expect to be paid in Bitcoin proportionate to the amount you contribute to the network. For example, if you run an S9 (13 TH/s) and the global hash rate is 100 EH/s, your rig represents around 0.000013% of the world's total. You would expect to receive that amount of the Bitcoin created each day.
The greatest strength of Bitcoin is the fact that it is decentralized. Nodes are distributed around the world, running a wide variety of versions. Miners are distributed around the world, using a variety of different rigs. Mining is a profitable activity, so companies with money grow their hash rate ever larger. This has the tendency to centralize the mining capacity into the hands of a few very large companies. If you have the requirements to run a mining rig, you can help keep the mining infrastructure decentralized.
Running a miner is not going to be a completely altruistic exercise. By running a mining rig, you can expect to be paid in Bitcoin proportionate to the amount you contribute to the network. For example, if you run an S9 (13 TH/s) and the global hash rate is 100 EH/s, your rig represents around 0.000013% of the world's total. You would expect to receive that amount of the Bitcoin created each day.
What should I know before deciding to mine Bitcoin?
There are a few things to consider before you place your first order:
There are a few things to consider before you place your first order:
- ASICs rigs use a lot of electricity. Most of the newer miners need 240 VAC. That is the same plug as your clothes dryer or oven.
- ASICs are loud. Imagine a gas-powered leaf blower running at full speed 24/7. You're not going to like it. Your roommates aren't going to like it, but your neighbors probably won't notice it.
- ASICs produce a lot of heat. You're going to need to run this somewhere that you can vent the hot air to the outside world.
How do I get an ASIC rig?
Used rigs can be purchased on familiar places like eBay and Craigslist, but be conscious that you could be buying someone else's problem.
New rigs can be purchased from the manufacturer, or from 3rd party resellers such as Alibaba. Expect to pay around 1 year's worth of Bitcoin. For example, if you're expecting to earn around 0.0006 BTC/day (0.219 per year) expect to pay around 0.219 BTC for the machine. The price in USD will fluctuate with the trading value of Bitcoin.
Tips for buying from Alibaba:
Used rigs can be purchased on familiar places like eBay and Craigslist, but be conscious that you could be buying someone else's problem.
New rigs can be purchased from the manufacturer, or from 3rd party resellers such as Alibaba. Expect to pay around 1 year's worth of Bitcoin. For example, if you're expecting to earn around 0.0006 BTC/day (0.219 per year) expect to pay around 0.219 BTC for the machine. The price in USD will fluctuate with the trading value of Bitcoin.
Tips for buying from Alibaba:
- Only buy from vendors who offer Trade Assurance. This will increase the price by a few percent, but it is useful in filtering out the scammers.
- Only buy new rigs if you can afford them. These ASICs will be coming from China, and even new ones can be damaged in shipping. Used ones have a higher chance of arriving DOA.
What if I cannot run an ASIC where I live?
There are companies which will sell you the mining rig, and set it up in their facility. You'll pay a bit more than you would from Alibaba, but they will take care of the setup, the electricity, the noise, the heat, and the internet access. There are horror stories about hosted mining being a scam, so do some research before you take this approach.
Here are a few companies offering hosted mining solutions you may want to consider before sketchy eBay listings:
There are companies which will sell you the mining rig, and set it up in their facility. You'll pay a bit more than you would from Alibaba, but they will take care of the setup, the electricity, the noise, the heat, and the internet access. There are horror stories about hosted mining being a scam, so do some research before you take this approach.
Here are a few companies offering hosted mining solutions you may want to consider before sketchy eBay listings: