Everyone has heard of it by now, but what is bitcoin mining or cryptocurrency mining?
Bitcoin mining refers to a decentralized computational process where new bitcoins are created for each block and where transactions are confirmed in a trustful manner.
The process is resource intensive and difficult. This is because a lot of hardware must be set up and used to solve puzzles in order to add bitcoins to the public ledger.
The process helps to secure transactions recorded on the public ledger or block chain. During mining, the hardware (Bitcoin miners) runs a cryptographic hashing function on a block header.
For every hash, a different number will be provided by the mining software which represents an element of the block header. This number is also referred to as nonce. An example of a hash appears as follows:
93ef6f358fbb998c60802496863052290d4c63735b7fe5bdaac821de96a53a9a
The long series of numbers and alphabets is actually a hexadecimal where the A-F letters are digits between 10 to 15. In order for your miner to create a valid block, it has to locate a hash below the difficulty target.
Hardware and Software Required
Bitcoin mining is a competitive process especially when it’s done for profit. One thing you need to note is that Bitcoin mining is dependent on two factors:
a. Cheap electricity
b. The right hardware and software
When Bitcoin was created, desktop CPUs were the best choice for miners. During this time, the original Satoshi client was used but as Bitcoin became popular, the need to secure the network and improve the mining process arose.
These led to miners using high end graphics. Unlike CPUs, GPUs were much efficient when it came to Bitcoin mining. This is because GPUs parallel nature allowed for 50 to 100 times increase in mining power with less electricity being consumed. The most effective GPU that was perfect for the job is the ATI Radeon HD 5870.
Today, Bitcoin mining is conducted by Application Specific Integrated Circuit (ASIC) hardware. This is basically a chip that is re-purposed to perform mining alone which means it cannot perform other tasks.
It offers 100 times increase in hashing power with reduced power consumption. So, how do you go about selecting the best Bitcoin miner? Consider the following factors.
Hash rate
Hash rate refers to the hashes per second a Bitcoin miner is able to make. The more hashes a machine is able to create, the more expensive it is.
Energy Efficiency
It is important to note that one Bitcoin miner will not provide the results you need. That is why it is common to find people setting up large data centers full of Bitcoin miners. The miners do consume a lot of electricity which means the more you have, the higher your monthly energy bill will be.
That is why Bitcoin mining data centers are located close to power plants producing cheaper electricity for example in China and the US.
Price of Hardware
Cheap Bitcoin miners mine less Bitcoins while the fastest and more efficient Bitcoin miners produce more bitcoins. Problem is the fastest and efficient Bitcoin miners are very expensive.
When selecting a Bitcoin miner, don’t just consider energy consumption and hash rate, consider the most efficient miner. This will ensure value for money.
Some of the most popular Bitcoin miners you can find in the market include Antminer S5, Antminer S7 and Antminer S9.
What you ought to know is that Bitcoin miners must work together with the right software in order to generate the desired results. For those who are mining on their own (solo miner), the software connects your miners to the block chain and if you are mining with a pool, the software connects you to the mining pool. That is not all.
The software helps to monitor input and output of your miner plus displaying vital statistics like energy consumption, hash rate, fan speed, hardware temperature and speed of the miner.
These softwares are designed to work with major Operating Systems like Windows, Linux and Mac OS. Examples include CGMiner, BTCMiner, BFGMiner and RPC Miner.
How to set up a Bitcoin wallet
If you are planning to mine Bitcoin, you need a Bitcoin wallet. This is where your bitcoins will be sent, stored and even sent to others. A Bitcoin wallet acts like a bank account for your bitcoins. Two types of wallets are available:
Software wallet
This version can be installed on your computer or mobile device. It allows you to be in complete control over the security of your Bitcoins. Problem is you need advanced knowledge to learn how to install and maintain the software wallet.
Hosted wallet
This is provided as a service over the internet. Not only is it easy to use but the provider maintains a high level of security to protect your wallet.
One of most secure organizations that offer both software and hosted wallets is Coinbase.
Steps to mine Bitcoins
Step One – Purchase the right Bitcoin mining equipment. Some of the most popular Bitcoin miners you can find in the market include Antminer S5, Antminer S7 and Antminer S9.
Step Two – Create your Bitcoin wallet. You can head over to Coinbase and sign up for a hosted wallet or software wallet. Remember, if you lose your wallet, you lose your money so secure it well.
Step Three – Decide whether you want to be a solo miner or join a pool. Joining a pool is much easier and it allows you to reap more rewards unlike being a solo miner.
Step Four – Set up your mining hardware and install the right software on your computer. This will allow you to monitor the input and output. Furthermore, you can monitor vital statistics like temperature and hash rate.
Step Five – Run your miners and monitor vital statistics. Keep an eye on the figures to determine if the process is worth it and if the results are ok.
Final Thoughts
Bitcoin mining is a resource intensive process but you can make it worthwhile by opting to join a pool instead of working as a solo miner. Remember, if you don’t reside within a region that offers cheap electricity, you may end up spending more on monthly energy bills.
Keep learning about Bitcoin in order to optimize the mining process.