How to Mine Bitcoin: Complete Guide For Beginners
Getting involved with cryptocurrency mining is a great way to gain a deeper understanding of the Bitcoin blockchain, and earn BTC along the way.
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Bitcoin pioneered mining when it first went live in 2008, and it’s still one of the most popular coins among crypto miners.
Mining serves various essential purposes: it provides security for the Bitcoin network and it processes transactions. Moreover, it provides a way for participants to earn BTC as a reward.
Bitcoin’s Hash Function
In order to mine a block, participants must solve cryptographic hash problems. This is referred to as “hashing.”
Bitcoin relies on a specific hash function called SHA-256. This is only important insofar as the nature of SHA-256 has led to an arms race of increasingly efficient computer chips purpose-built for Bitcoin mining.
It is no longer possible to mine Bitcoin at a profit using commercially available computer hardware, like a GPU or CPU. In order to compete, miners must use a device called an ASIC (application-specific integrated circuit), which is capable of solving SHA-256 problems very quickly. One of the most popular ASIC lines is Bitmain’s Antminer.
Bitcoin could abandon SHA-256 and adopt an alternative in order to resist ASIC dominance, but it is unlikely to do so. Critics such as Cobra and BTC POW Upgrade have advocated changes to Bitcoin’s mining protocol, but they have failed to gain traction.
There are several different models of ASIC mining devices on the market. The most profitable ASICs have a high hashrate in terahashes (TH/s) and low energy consumption in watts (W). Keep in mind hashrate and energy efficiency change quickly as newer, more efficient ASICs are released.
These are some of the most profitable ASICs, according to F2Pool:
- Antminer S19 Pro, 110 TH/s, 3250 W, selling for $2,900
- Whatsminer M30S++, 112TH/s, 3472 W, selling for $1,800
- Hummer Miner H9 Pro, 84TH/s, 3360 W, selling for $1,600
- Canaan Avalon 1166, 68 TH/s, 3196 W, price unknown
- INNOSILICON T3+, 67 TH/s, 3300 W, selling for $2,000
There are also consumer devices like the the Coinmine One. Though, these “plug-and-play” mining devices are unlikely to turn a profit.
As of April 2020, the Antminer S19 Pro generates roughly $9 worth of profit per day, while the INNOSILICON T3+ brings in about $4 of profit per day. Exact profits are subject to change depending on personal electricity costs and BTC market prices.
Though it is clearly possible to mine BTC at a profit, ASICs are an expensive investment. The ASICs listed above cost $2,000-$3,000, and it could take over a year to recover the upfront costs.
Unfortunately, ASIC devices become obsolete fairly quickly. Though stories of ASIC devices being dumped and sold for scrap metal may be sensational, ASICs only last a few years—and it is not a good idea to buy a past-generation ASIC just before its lifespan expires.
Bitcoin’s Total Hashrate
Bitcoin mining is highly competitive, and the blockchain’s overall hashrate has risen sharply over the past several years.
This growth is partially due to the rise of large-scale mining farms. Though it is not clear how heavily Bitcoin mining farms dominate mining, one firm (Layer 1) has suggested that it controls 2% of the total Bitcoin hashrate. Larger farms may have even greater dominance.
However, the dominance of mining farms should not be overblown. Bitmain, which likely controls a large percentage of the Bitcoin hashrate, has achieved such a large market share by selling ASICs to independent customers—not just by operating its own mining farms.
In any case, it is still possible for individuals to compete with mining farms. Rising hashrates simply render older ASIC devices obsolete.
Block Reward Halving
Bitcoin undergoes a “halving” every four years, which cuts its block reward (the reward for mining one block) in half.
Though this reduces mining profits in the short-term, halvings also reduce inflation. In theory, this ensures that Bitcoin maintains a reasonably high value in the long term.
There is plenty of debate over whether halvings actually impact prices, or whether they are “priced in” beforehand. Bitcoin’s 2012 halving caused its price to rise from $11 to $1,100 (97x) over one year. Bitcoin’s 2016 halving caused prices to increase from $268 to $2,500 (10x) over the course of a year.
The next Bitcoin halving is scheduled for May 18, 2020—but there is no guarantee that the price trends following this halving will resemble previous trends, either in the short-term or long-term.
Incidentally, Bitcoin Cash and Bitcoin SV underwent their own halvings in 2020 without significant changes to market value. Those trends should not be generalized to Bitcoin.
Joining a Mining Pool
It is no longer practical to “solo mine” BTC. Instead, those looking to mine will need to join a pool. Pools share rewards across miners in exchange for a small fee. This allows miners to earn block rewards on a regular, consistent basis.
Bitcoin mining pools are known for being fairly centralized. Bitmain owns two of the largest pools: Antpool and BTC.com. Two other large pools, F2Pool and Poolin, are independently operated.
Generally, it is not necessary to compare pools too closely. Any pool that offers 1%-3% fees and minimum withdrawal amounts of 0.001-0.005 BTC ($10-$50) is reasonable. Most mining pools listed on the chart above are a good choice for most miners.
Each pool’s website will provide instructions on how to configure key mining software as well. Popular mining apps include CGMiner, BFGMiner, and EasyMiner. The Bitcoin Wiki provides a comparison of each application.
Mining pools should not be confused with cloud mining services, which demand payment upfront and mine on behalf of users who half no mining equipment. These services are not always reliable and usually produce losses for buyers.
Forks of Bitcoin
Apart from Bitcoin, many coins rely on the SHA-256 hash function. This means that ASICs intended for BTC mining can be used to mine some forks of Bitcoin, such as Bitcoin Cash, as well as distantly related coins such as Digibyte and Peercoin.
Though BTC is generally among the most profitable SHA-256 coins, it may be more profitable to mine these altcoins at certain times:
Conversely, some Bitcoin forks do not use SHA-256 at all. Litecoin and Dogecoin use Scrypt, while Bitcoin Gold uses Equihash. Bitcoin ASICs cannot mine these coins efficiently.
Security and 51% Attacks
Though this article focuses mainly on profitability, Bitcoin mining also provides an important part of Bitcoin’s security.
Because every mining node competes against one another, no single actor can perform a 51% attack. That is, an attacker cannot control a majority of Bitcoin’s hashrate, make fraudulent transactions (double-spend), or prevent transactions from being approved.
Though smaller blockchains have suffered brief 51% attacks, Bitcoin’s high hashrate means that a 51% attack would be very expensive. The cost of such an attack would run into the tens of millions. Furthermore, the attacker would need to directly control many ASICs—not just have the money to do so.
In theory, mining pools or cloud mining services could collude and exert control in this way. However, miners can move between services that they disagree with, so those services are unlikely to abuse their power and perform a 51% attack.
Takeaways for Bitcoin Miners
Though Bitcoin mining is highly competitive, it is a go-to option for many new miners. There are a few advantages:
- Bitcoin pioneered mining and leads the crypto market
- Major changes to Bitcoin’s mining protocol are unlikely
- Several Bitcoin forks can be mined with Bitcoin ASICs
- BTC profits are high compared to other SHA-256 coins
There are also some disadvantages:
- Bitcoin ASICs are expensive and become quickly obsolete
- There is little discussion around mining improvements
- Mining is very competitive and hashrates are high
- BTC profits are low compared to other coins in general
But, there is more to mining than profitability. It’s also a fun way to support and better understand the Bitcoin blockchain. In all, mining hobbyists may find themselves rewarded with more than just satoshis.