We have a previous post on bitcoin that very briefly discussed bitcoin mining. In this post we will expand that discussion and provide more detail.
There are three ways to obtain bitcoins.
- buying on an exchange
- accepting them for goods and services
- mining new ones
What is bitcoin mining? Mining is the software based accounting function to record the record the transactions in the blockchain ledger. The network every ten minutes issues a nonce. The nonce is a 32 character-long alpha-numeric string that is randomly generated.
Mining rigs make guesses at the rate of 4 billion per second. A rig is a computer (combination of hardware and software). If the mining rig guesses the nonce, or comes closest to guessing the nonce at the allotted time period, it is rewarded the mining rewards. Mining rewards are a quantity of bitcoins. The rig also gets some the transaction fees. This winning machine will confirm the transactions in the block. If a transaction cannot be confirmed it is not include din the block that gets chained to the blockchain.
This mining effort is designed to be purposefully wasteful. It does take a lot of computing power to guess at a rate of 4 billion per second with no guarantee that you will win. Why do it this way? You only want good players on the network. Malicious players will be discouraged because the rewards are not really worth the cost.
Wiki How To Mine Bitcoins
The How To Wiki website has an article on how to mine bitcoins. There are eight steps.
- Purchase custom mining hardware.
- Obtain a bitcoin wallet.
- Secure your wallet
- Decide between joining a pool or going alone
- Download a mining program
- Run your miner
- Keep an eye on temperatures
- Check your profitability
According to the Bitcoin Wiki website article on Mining, the current reward is 12.5 bitcoins. This value will be cut in half every 210,000 blocks, which may be about every 4 years. As of Oct. 9, 2017, one bitcoin is worth 5747.09 Canadian dollars. 12.5 times 5747.09 is $71,838.63 CAD. That’s a lot of money.
ASIC stands for Application Specific Integrated Circuit. Wikipedia says: “An application-specific integrated circuit (ASIC) is an integrated circuit (IC) customized for a particular use, rather than intended for general-purpose use. For example, a chip designed to run in a digital voice recorder or a high-efficiency Bitcoin miner is an ASIC.” Wikipedia later says: “Modern ASICs often include entire microprocessors, memory blocks including ROM, RAM, EEPROM, flash memory and other large building blocks. Such an ASIC is often termed a SoC (system-on-chip).”
Custom Mining Hardware
Wiki How says: Running mining on your desktop’s CPU and GPU is still possible, the returns make running this method impractical. You will be spending far more on electricity than you will earn mining coins. Instead, custom hardware allows for much better processing for about the same power draw. Custom hardware comes in the form of cards that are inserted into the computer much the same way that a graphics card would be. A dedicated Bitcoin mining machine can cost anywhere from a few hundred dollars to tens of thousands depending on the number of operations it can complete per second. Popular Bitcoin-mining hardware brands include Butterfly Labs, Bitcoin Ultra, CoinTerra, and more.
Wiki How says: Bitcoins are stored in digital wallets that are encrypted to protect your money. These wallets can be either locally or online. While online services that host your wallet won’t be able to access it, they are considered less secure as your money could potentially be lost if something catastrophic happens on their end. If you lose your wallet, you lose your money! Most established bitcoin users recommend using a local wallet for security reasons. Local wallets typically require verifying the entire blockchain, which is the history of all bitcoin transactions. Hosting a blockchain is what helps keep Bitcoin running and secure. Syncing this blockchain for the first time can take a day or more. Popular local wallets include BitcoinQT, Armory, and Multibit. Multibit does not require downloading the entire blockchain. You can also get wallet apps for your mobile device. These do not require downloading the entire blockchain. Popular apps include: Blockchain and CoinJar.
In the local wallet category you could consider a hardware wallet. Bitcoin Wiki has an article on Hardware Wallets.
Join a Pool or go it Alone
Wiki How says: When it comes time to start mining coins, you have two main options: join in with an established pool or attempt to mine on your own. A pool allows you to share resources and split the rewards, which can lead to quicker returns. Mining alone can be difficult as getting new bitcoins is highly competitive, but you get to keep everything you mine. Without joining a pool, you may go a year or more without earning any bitcoins, since the coin is awarded to the pool that discovers it. Most pools charge a small fee (around 2%) of your earnings. When joining a pool, you will need to create a “worker”. This is a subaccount which is used to track your contributions to the pool. You can have multiple workers at once. Each pool will have instructions on creating workers.
Wiki How says: “Mining programs are almost all open source and available for free. There are different mining programs available depending on the type of hardware you are running. Mining programs run in the command line, and may need a batch file in order to start correctly, especially if you are connecting to a pool. The two most popular mining programs are CGminer and BFGminer. EasyMiner runs with a graphical interface as opposed to a command line. See your pool’s help section for specific details on connecting to the pool with your mining program. If you are mining solo, be sure to connect your mining program to your personal wallet, so that anything you earn gets deposited automatically. If you are mining as part of a pool, you will connect your wallet to your user account with the pool. Coins will be transferred as they are earned.”
The CNBC website has an article on How To Mine Bitcoins On Your Own. They say that “the most popular [software] is called GUIMiner”, however that article was published in January of 2014. GUIMiner is a graphical frontend for mining Bitcoin, providing a convenient way to operate Bitcoin miners from a graphical interface. It supports both AMD and NVIDIA GPUs, as well as CPU mining. You can choose between pooled mining and solo mining – the software embeds a list of mining pools to choose from.