Bitcoin: How does mining work? What does it cost and when is it worth mining?
Bitcoin mining is a process of verifying and recording transactions on the blockchain network. This is achieved by solving complex cryptographic problems using computing power. Miners contribute to the security, stability, and decentralization of the peer-to-peer network. Since there is no central authority involved in cryptocurrency transactions, Bitcoin miners perform this role collectively.
Popular hardware and mining rigs for bitcoin
Before bitcoin mining becomes possible, you need to make sure you have a secure cryptocurrency wallet to store BTC. There are a number of hardware and software wallets to choose from. Among them Ledger Nano S, Trezor, Atomic Wallet, Coinbase and more. A Bitcoin wallet ensures that the BTC you earn from mining is kept safe and secure.
Since it has become prohibitively expensive and difficult to mine by yourself, Bitcoin miners have come up with an innovative solution called a “mining pool.” They combine their computing resources and mine as a single miner, giving them a higher chance of solving a block. The mining reward is then distributed proportionally among the miners who have contributed. For example, if your miner’s contribution to solving a hash was about 10%, you will get 0.625 BTC, which is 10% of the current reward of 6.25 BTC.
Requirements – What do you need for mining cryptocurrency these days?
The first thing you need to mine bitcoin is an “Application Specific Integrated Circuit” device or ASIC. These are specially designed machines constructed with a comprehensive understanding of the principles of blockchain technology and how to solve complex cryptographic equations. You can find a wide range of ASIC miners on the market today. But before you make a purchase, make sure you invest in the right ASIC machine.
- Hash rate – The number of hash values a bitcoin miner can solve per second. The higher the hash rate, the better the miner can solve complex problems. On the other hand, it will also require more power to solve the blocks. Therefore, it is all about efficiency.
- Price – The price of the bitcoin miner determines how many BTC it will mine in a given time frame. Here, you should make sure that you invest in an ASIC that meets your specific needs, taking into account the cost of electricity in your region.
- Efficiency – Highly efficient ASIC miners can create blocks at a faster rate without requiring a lot of power. Thus, the Halong Mining Dragonmint T1 is one of the most powerful ASICs when it comes to efficiency.
If you are looking for a mid-range ASIC miner that doesn’t consume a lot of power and is highly efficient, the Bitmain AntMiner S9 is a reasonable choice. Priced at around $2,500, it offers a hash rate of 14 TH/s with low power consumption for highly efficient mining. The ASIC’s exceptional hash performance is made possible by three boards with 189 chips. With AntMiner’s 1600Watt power supply, the S9 delivers 0.1 joules per gigahash and consumes only 300 watts more than its predecessor.
Dragonmint T1, the king of efficiency, was developed by Halong Mining and offers 16 TH/s with surprisingly low power consumption. Compared to the AntMiner S9, the Dragonmint consumes only 0.015 instead of 0.098 J/GH. This gives the T1 a significant competitive advantage over bitmain-centric ASICs. It has integrated ASICBoos technology, which delivers a 20% increase in efficiency when processing the Bitcoin algorithm.
Manufactured by Pangolin Miner, the WhatsMiner M3X offers application-specific features for miners as well as mining pools that don’t have to worry about power consumption or loud operating noise. The M3X may not be an ideal option for home mining. But the ASIC offers a high hash rate of up to 13 TH / s with a power consumption of up to 2,000 watts per hour. It is based on 28nm chip technology and requires 180 to 240 volts of voltage.
Just like the hardware, bitcoin mining software is specially designed to use computing power to solve complex mathematical problems in mining BTC tokens and other cryptocurrencies. These apps provide detailed reports that tell you how much you have earned. Such software apps are often automated, so you don’t need coding knowledge or other technical skills to use them.
- allocates computing power or resources to mining bitcoin
- uses CPU or GPU computing power for mining
- connects mining resources to the mining pool or blockchain
This is a cloud-based mining software that lets you trade Bitcoin, Litecoin, Ethereum, and other cryptocurrencies. You can start mining with it immediately and have access to all mining-related data in real time. Fast payouts along with the ability to identify the most profitable cryptocurrencies make Hashflare a compelling mining software solution. Can I use my PC to mine bitcoin?
Technically, yes. However, bitcoin mining with a PC yields less than a dollar in BTC tokens in an entire year! There are several reasons for this. First and foremost, Bitcoin, as the very first cryptocurrency, has attracted all the attention and resources. With the result that out of 21 million BTC tokens, more than 90% have already been mined. The last few million bitcoins are the most difficult to mine. They require an immense amount of computing power that PCs simply don’t have.
- HashRate – The number of hashes a bitcoin miner can perform per second. The higher the hash rate, the better the miner can solve complex problems. On the other hand, it will also require more power to solve the blocks, so it’s all about efficiency.
- Mining profitability – It is calculated with the help of hash rate, bitcoin price, electricity consumption and electricity cost per kilowatt hour. Using this information, you can estimate how much profit you can make from mining on a daily basis and whether it is worth investing in bitcoin mining.
- Blockchain – This is a decentralized peer-to-peer network that contains records of all transactions verified by miners by solving complex cryptographic problems.
- Mining Fees – For using the blockchain network and verifying transactions, the Bitcoin Foundation charges users of the platform a mining fee for each transaction. This fee is also distributed among the miners.
- Mining blocks – A mining block is a record that contains information about transactions. Each block contains multiple transactions, depending on the amount of BTC they contain. Once all transactions in the block are verified, it is added to the blockchain.
- You save on large investments in terms of operations and maintenance
- You can invest the resources you have in earning rewards
- You don’t have to worry about noise, ventilation and power consumption
- There is no unused bitcoin mining equipment sitting around when the power goes out or when you stop mining
- ASIC and mining hardware are not your property
- There are fraudulent mining pools that can cause you financial losses
- You have to share your mining profits with hundreds of other miners
I’ve already mined bitcoin, what’s next?
First of all, congratulations! In today’s market, successfully mining a bitcoin is a great achievement. Now you have several options available to you.
- You can immediately sell the mined coins on a crypto exchange to realize your profit
- Cryptocurrency exchanges – On these, you can create an account and buy and sell cryptocurrencies including BTC tokens for a small fee. You should consider several factors when choosing the right crypto exchange to sell your bitcoins. Among them, ease of use, transaction costs, regulatory compliance, payment options and more.
- Peer-to-peer networks – These are marketplaces that match individual cryptocurrency sellers with buyers. You can find a buyer who is willing to buy BTC tokens on your terms and with your preferred payment method.
Crypto mining: the easy path to riches?
In theory, the concept of mining sounds pretty simple: You get yourself a computer with enough processing power, plus the necessary software, and from that point on you can (theoretically) watch the so-called mining rig bring in the money. What sounds like an option that even absolute technology laymen can use to hit the jackpot turns out to be quite a complex matter.
This is partly because the underlying blockchain technology is already based on complexity. In order to carry out transactions with its help, highly complex cryptographic algorithms have to be resolved. This, too, can in theory be done by off-the-shelf computers. In fact, there are even smartphone apps in circulation that exploit the computing power of phones to mine Bitcoins or other cryptocurrencies without the owners’ knowledge.
The biggest problem, however, lies in the nature of the technology itself – which is designed in such a way that as the number of transactions increases, so does the complexity of the algorithms to be solved. Anyone who actually wants to earn money from mining under these conditions will therefore not be able to avoid making some investments. To make matters worse, Bitcoin and Co. belong to the type of investment where the return of investment depends on a large number of variables.
The different ways – proof of work and proof of stake – to get the coveted Bitcoins don’t change that much. The factors that influence the price development and thus the revenues always remain the same.
First and foremost, the limited number of available Bitcoins, which has caused prices to skyrocket because of the dramatic increase in demand. The effects of this simple supply-and-demand principle are ultimately also responsible for the continuing run on virtual currencies.
This is because investors are speculating on a further rise in Bitcoin prices, which would quickly recoup the sums invested. Nevertheless, it only remains to ask again whether it is really that simple.
Profit maximization in mining only works by maximizing computing power. This is a matter of hardware, which should be as well matched as possible to solving the algorithms. The “simplest” solution is so-called ASIC special chips, which stands for Application Specific Integrated Circuit. Translated, this means that this type of chip has an application-specific integrated circuit. This means that its function is fixed after production and cannot be changed afterwards.
However, this is irrelevant for mining, because the adaptation ultimately ensures that the ASICs can work much more efficiently and quickly than, for example, solving the same tasks via software. Since the chips can actually be manufactured entirely according to the user’s needs, they seem ideal for Bitcoin mining. However, custom-fit production involves high investment costs for development – which could be offset by lower production costs.
However, if capital is only available for a small number of units, an investment may no longer be worthwhile. Especially in view of the fact that the development time is significantly longer than for other components.
Another way to be able to generate sufficient computing power with your rig is to use powerful graphics cards. Instead of creating detailed, realistic computer game worlds, graphics cards from AMD in particular can be used to mine Bitcoins. However, they still cannot come close to the performance of the special chips, which is why further hardware is increasingly designed to integrate more than one graphics card into the system.
However, this is again not feasible on a motherboard, since the necessary slots are missing. In order to still be able to access three or more graphics cards at the same time, PCIe x1 adapters and corresponding cables are used instead, for example, to still realize the connection.
However, this results in another problem, since not only the motherboards, but also the cases are not designed for such a number of graphics cards. If, for example, between six and eight graphics cards are to be connected to the motherboard, in principle only an open mounting frame remains as a viable alternative.
Of course, it’s also possible to go smaller; various manufacturers have recognized the trend and deliver the ready-made special hardware to interested parties. It starts with the size of a USB stick, but can also be larger and thus more powerful if desired. As a potential miner, you can save yourself the trouble of searching for and building the necessary components.
This could prove to be difficult anyway, because we keep hearing about such excessive demand for certain graphics cards that the market situation is somewhere between supply bottlenecks and sell-out. At the moment, however, the market for graphics cards looks like it is easing a bit. The reason for this, however, is once again an ASIC developed for mining, with which it is now also possible to mine Ethereum.
Secondary market for hardware
Due to demand, prices have therefore increased sharply, especially for graphics cards, which only makes it more difficult for private users to assemble a cost-effective mining rig. Alternatively, however, it is possible to purchase such rigs directly – even from homebrewers. Analogously to the prices for cryptocurrencies, the prices for such computers have increased, which is why it has now also become a lucrative business to sell mining rigs via various sales portals.
This does not make it cheaper for the end user at all; the prices are clearly in the four-digit range. The quick entry into mining therefore costs money, and in the end it always remains questionable whether this sum can be amortized within an acceptable period of time. After all, the investment in higher computing power also means higher follow-up costs for electricity.
Nevertheless, the market for beginners who do not want to rely on their own hardware skills seems to be there. After all, work is currently underway to find new algorithms that should also make prospecting with standard hardware more efficient again.
Software, pools and clients
Wallets – digital purses
In addition, the appropriate software to create a so-called wallet must be installed (Note: Incidentally, there is a synonymous use of wallets and clients. In some cases, wallet management is just one of the features that is part of the functionality of a client – such as Bitcoin Core or BitcoinQT, which is the first Bitcoin client ever).
The eWallets serve as a virtual wallet, where the collected (or bought, donated) Bitcoins or other cryptocurrency units are deposited. Whereby this is not quite correct, in fact, only the digital keys are stored in the wallet to be able to access the Bitcoins at all. The keys are available in two variants, the public one is intended for receiving the Bitcoins, the private one can be used for payments.
The different eWallets each make more or less sense under different conditions. Accordingly, the question is what exactly is to be done with the wallets. For example, to transfer Bitcoin amounts quickly and from anywhere, an app for the smartphone is certainly the most sensible option. Hardware wallets that are not connected to the Internet (at least not permanently) are more suitable for backups.
Apart from the type of use, it is of course an individual question what is expected from a wallet – besides anonymity, usability or speed, security is an important aspect. This concerns not least the possibility to manage and store the private key locally. In fact, this is not possible with all providers; some rely on storing the keys on external servers instead.
The mining pool
The earnings are divided among the participating miners, which is usually done evenly according to the service rendered for finding a block in the chain. However, there are different methods for calculating the proportional reward. Basically, to participate in a mining pool, not much more is required than signing up for the favored pool.
However, expectations should not be set too high: Only sufficiently large pools can make a significant contribution to the total mining, which means that the share will nevertheless be smaller again depending on the computing power contributed. Conversely, with smaller pools it is not to be expected that the total rewards earned will reach the same level as is possible with larger pools.
Cloud mining as an alternative?
Theoretically, however, it is even easier, without the use of your own hardware: in cloud mining, the computing capacity is rented or possibly even purchased from an appropriate provider in the cloud. The computing power (in hashes per second, usually in kilo, mega, tera or peta hash increments) is contractually guaranteed, and the term is usually one year.
The profit sharing is percentage-based, consequently higher hash values generate higher profits. Accordingly, the costs (i.e., initially the one-time payment for the contract) should be recovered more or less quickly, depending on the computing power rented.
Taxes and other costs for cloud mining
However, this also depends on other costs (see below for more on mining costs in general) that are still incurred. For example, it is not uncommon to see so-called maintenance fees, i.e. maintenance fees that providers use to cover their expenses for system maintenance, electricity and personnel.
In addition, when selecting a provider, it is important to check whether the provider can be considered reputable. The principle is basically very simple: The provider acquires the necessary equipment and makes the computing power achieved with it available in return for payment. In order to be able to achieve such computing power at all, regular mining farms are required under normal conditions.
Risks posed by dubious providers
However, they are not necessarily so for the business model as such. There is definitely the risk of sitting on a provider without its own mining hardware, which earns its money as part of a pyramid scheme. The contributions from new customers are used to pay the profits of existing customers. A steady flow of such new customers (who are usually lured with much more favorable contract terms) ensures the maintenance of the system, at least for a certain period of time. However, new Bitcoins or units of other currencies are not produced with it at all.
Otherwise, the same difficulties apply to (serious) cloud mining as to all other variants: There is no guarantee that the investment can really be recovered in the contractually defined period. Since the leased computing power does not change, but the requirements do, it is quite possible that the contract will become unprofitable before the end of the term. For such cases, some contracts therefore contain additional clauses that even suspend the contract. The invested money must then be booked as a loss.
Crypto mining: the costs
However, what should not be neglected: Pool operators charge a fee for participating in collaborative mining. This is usually deducted from the distributed reward, but it is nevertheless a cost that can depress the eventual return. Similarly, there are fees for online wallets.
Of course, and this has been mentioned often enough by now, these are not the critical costs. The biggest items are and will remain the hardware and electricity. The expenses for a mining rig can possibly still be argued with the reference to the break-even point, i.e. the point in time when just those costs have been earned again by prospecting. From that point on, amortization is then complete and all future revenues could be recorded as profits.
The problems with the break-even point
- In view of the sometimes rapid price developments, such as those seen with Bitcoin, it cannot be assumed that the development will be uniform.
- Even if there were no price drops, there is still the problem of the increasing Difficulty, which also makes higher demands on the computing power.
More computing power, however, also means higher power costs. They are high enough anyway, because mining is only worthwhile if the mine is running continuously at all. Who does not exactly have an extremely favorable electricity tariff, will have to record the largest losses at this point.
Conclusion: High profit prospects with even higher risks
- The miner, for example, is betting that the mined cryptocurrency will at least maintain its value, if not increase it.
- He is also betting that he will be able to consistently generate profits at a steady level with the computing power he has contributed.
- Finally, he is betting that the profits generated will be higher than the running costs (especially for electricity).
As the recent past has shown, these factors, starting with the value of a cryptocurrency, are by no means constant for a limited commodity with growing mining requirements. In the long term, at least for mining on a manageable scale, it is unlikely to generate the profits that many investors and newcomers are hoping for.
Bitcoin difficulty and reward calculation
Everyone involved in Bitcoin mining naturally wants to know the potential behind it and what rewards actually await. For this purpose, users can use the Bitcoin Mining Calculator, for example, to calculate the profitability in advance. The main thing to consider here is the degree of difficulty, because it changes with Bitcoin.
The difficulty of the Bitcoin mining network is the measure of how difficult it is to find a new block. It recalculates all 2016 blocks to one value, so the previous 2016 blocks would have been generated in exactly two weeks if everyone mined with this difficulty. This results in an average of one block every ten minutes. As more miners join, the rate of block generation increases. As the rate of block generation increases, the difficulty increases to compensate, which pushes the rate of block generation back down. Any blocks released by “malicious” miners that do not meet the required difficulty target will be rejected by everyone on the network and thus be worthless.
When a block is discovered, the discoverer can earn a certain number of Bitcoins, which is agreed upon by everyone in the network. For example, the reward is 25 bitcoins; this value halves every 210,000 blocks. In addition, the miner receives the fees paid by users who send transactions. The fee is an incentive for the miner to include the transaction in its block.
Wallet required for bitcoin mining
If users want to be active in bitcoin mining, it is essential to have a wallet. The reason is easily explained: when mining, users naturally earn coins for providing their computing power at best. Of course, the rewards they receive want to be stored safely. What the wallet holders ultimately do with their coins is up to them. They can, for example, use them as a means of payment with more and more providers or profitably sell Bitcoin when the price rises.
Wallet types presented: Differences in security levels
Cold storage is one of the most secure ways to manage coins after mining. There is the hardware wallet and the paper wallet, with only the paper wallet being provided free of charge. The differences in both wallets are in the handling and functionality. For example, the Hardware Wallet is no bigger than a USB stick and easy to use. Users can use it to take the coins with them without fearing the attack by hackers. So much convenience and security comes at a price, because the hardware wallet is not available for free. Instead, wallet holders have to dig into their pockets once and pay between 50 and more than 100 euros (depending on the hardware wallet provider). In return, there is a user-friendly as well as enormously secure storage option, which also makes a good visual impression.
Paper Wallet with less functionality
The Paper Wallet is also known for its maximum protection when storing the coins and is even provided for free. The wallet holders can easily put the Paper Wallet online with a free generator and then have it conveniently printed simply by clicking the mouse. We recommend printing multiple pieces of paper at once so that they can be safely deposited in different locations. A piece of paper is often less user-friendly than the hardware wallet, for example, because it can get dirty, torn or otherwise damaged. However, it is important that the paper wallet remains as intact as possible in order to be able to read the wallet addresses and ensure access to the coins. If you absolutely want to have your Paper Wallet with you at all times, you should make sure that it is not folded up too small or, at best, even use a protective film for it.
Note: Handling public and private addresses
Every crypto wallet has a public and a private address, which differ in terms of application. The public address is included in Bitcoin mining, for example, and represents the address where the coins are sent. The private address is only for the wallet owner and should therefore never be given out of hand. It is in effect the PIN, comparable to access to a checking account.
Hot storage, the online wallets
There is not only cold storage in the form of offline wallets, but also hot storage. By this we mean various wallet options which are used online. For example, wallet holders can make use of a mobile or desktop-based wallet. Additionally, there is also a browser wallet to choose from, which is also one of the hot storage options. The differences to cold storage are mainly due to the online access. With hot storage, wallet holders download an application/software, for example, to be able to use the wallet on mobile devices or the PC. With the browser-based wallet, this is not required. However, with all three wallet variants, there is access to the coins online. With a secured wallet, this is certainly not a problem; however, if you do not protect it optimally, you run the risk of hackers gaining access. Thus, we have the decisive disadvantage with online wallets, although the advantage is that they are available for free.
Earning coins without bitcoin mining
Looking at the bitcoin mining calculator often brings disillusionment, because mining is not always actually recommended. Nevertheless, are there alternatives with which users can earn the coins? For all those who cannot or do not want to earn Bitcoin through mining, we have good news: The Coins can also be earned without much effort and even free of charge.
Bitcoin Faucets provide free Coins
Faucets are a dream come true for many users, because they actually give free Coins, without much effort. Initially, they were designed to shed skepticism about Bitcoin and other cryptocurrencies, as well as to increase cryptocurrency exposure and trust. In the meantime, however, there are also faucets that are cleverly used by companies to gain opinions. For example, users register with their public wallet address and participate in surveys, rate various offers. In return, they receive Coins for free, although the amount is extremely small. Nevertheless, the effort is disproportionate to that of Bitcoin mining, so participating in Faucets is worthwhile for resourceful users in any case. However, if you want to accumulate a larger amount of Bitcoin in your wallet in order to use it later as a means of payment or to sell it profitably on the exchange, you should have some patience and perseverance.
Tip: At best, users register with several Bitcoin Faucets at the same time to secure the maximum amount of free coins. It is also possible to participate in Litecoin or other crypto Faucets.
What do I do with the earned coins from mining or faucets?
If users have earned Coins from Bitcoin mining or the Faucets, the question remains what they can do with them efficiently in the first place. Bitcoin is now one of the payment methods for many online providers, so users can also use Bitcoin to pay for their goods and services as an alternative to fiat money. However, there is also another way to make profit from the coins: selling them on the crypto exchange.
Bitcoin Sale on Exchange
Selling on the crypto exchange is always worthwhile when the demand for the coins increases and the price develops positively. If we take a closer look at the price analysis of Bitcoin, we can see that there is indeed a lot of potential. After all, the cryptocurrency was able to reach an all-time high of over 18,000 euros some time ago. Those who had previously been able to purchase coins at a low price or hold them in their wallet through mining or faucets could consider themselves lucky due to the high demand. It is important to analyze the price closely and adjust when there is an upward trend as well as a rising demand. Technical analysis is suitable for this purpose, for example, which can be supplemented by fundamental analysis for more precise statements. It is important to find the optimal time to sell in the market and not to react hastily. Even if traders miss an interesting marketplace environmental sale once, they should not get under pressure, but sit back relaxed and wait for the next good opportunity, because it is sure to come.
Price analysis made easy
Price analysis plays an essential role in trading activity on the crypto market. Those who are particularly good at it gain an enormous trading advantage. It is important to examine the price for possible patterns or trends. Technical analysis, which is based on historical information, has proven its worth. Traders can use the information of the Bitcoin price of the last days or months to draw conclusions about the future development based on these movements. Due to its ease of use, technical analysis is also suitable for less experienced traders, although it has some weaknesses. While the information of historical data is helpful, no current data is taken into account in the forecast. To compensate for this information gap, we recommend using fundamental analysis.
Bet on real-time prices
When it comes to price analysis, it is important not only to have the right tools at hand, but also a proper data base. Not all crypto exchanges provide real-time prices, for example, but this is particularly important for a proper and, above all, accurate forecast. The volatility in the Bitcoin price and in the crypto market in general cannot be dismissed out of hand, so it is enormously important, especially here, that real-time data is available. How quickly can the Bitcoin price change, for example, due to current news reports and thus the perhaps made forecast based on data of an hour become invalid.
Lend coins and make money with them
Another way to make money with bitcoin wallet is by lending. In fact, there are now countless platforms offering lending deals with various cryptocurrencies. This allows traders to use their coins in the wallet usefully without having to sell them themselves. In order to be able to lend Coins, it is first necessary to register with such a platform, which at the same time take control of the lending transactions and compliance with the conditions. Such platforms, for example, check the users for their seriousness and do not allow dubious users in the first place. How high the earnings from the lending transactions are depends on the chosen cryptocurrency and the lent amount as well as the possible costs and fees of the platform. However, experience shows that the loan transactions can be interesting for all those who want to keep their coins but do not need them at all temporarily.
Bitcoin mining can be interesting for users, especially in the mining pool
Bitcoin mining calculator is probably one of the most important tools when it comes to calculating the profitability of mining. With its help, users can quickly calculate whether the effort is worth it at all and whether the rewards are actually profitable. When mining Bitcoin, users not only need a lot of computing power, but above all powerful hardware, which is usually not to be found in common PCs for home use. As a result, anyone who wants to become active as a miner must first invest in powerful hardware. These initial costs, along with electricity prices, should be subtracted from the actual rewards to actually determine if mining is worthwhile. For those who want to earn coins without this expense, there is good news: Free Bitcoin is available at Faucets, for example, although the amount is extremely small. However, if you have patience and perseverance, you can accumulate the coins in your wallet bit by bit and then sell them profitably. In addition, you can also profit from Bitcoin mining in other ways, for example via shares like the Neptune Digital Assets share.