Bitcoin is a digital currency or a cryptocurrency. It may be a vast and unknown concept to some, but after reading through this guide, many will have a clearer understanding not only of what it is.
A Quick Overview of our Bitcoin Mining Guide:
- ✔️What is Bitcoin?
- ✔️Bitcoin – A short history and its development
- ✔️What makes Bitcoin so valuable?
- What is Blockchain?
- Bitcoin Mining
- What is needed to mine Bitcoin?
- Which hardware/mining rigs are the best to use to mine Bitcoin?
- Which software is the best when mining Bitcoin?
- The Pros and Cons of Bitcoin
Understand how cryptocurrencies, the blockchain, and the mining of cryptocurrency works.
What is Bitcoin?
Bitcoin as a digital currency has been around for more than a decade. It is the first digital currency created and the most popular and most valuable out of all the cryptocurrencies in the world.
Bitcoin – A short history and its development
In 2008, the domain bitcoin.org was registered and the link to a paper which was written by Satoshi Nakamoto titled Bitcoin: A Peer-to-Peer Electronic Cash System was posted to a cryptography mailing list and circulated.
The Bitcoin Network officially came into existence in 2009 and the first open-source client was subsequently released along with the first Bitcoins. The first block, the Genesis Block, was mined by Satoshi Nakamoto and he was rewarded with the first-ever block reward which consisted of 50 Bitcoin, or BTC.
The coin base of the genesis block that had been mined contained the text “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.”
One of Bitcoin’s first adopters, supporters, and contributors, Hal Finney, also received the bitcoin transaction after he downloaded the Bitcoin software on the day that it was released. He received 10 BTC from Nakamoto and this marked the first Bitcoin transaction in the world.
Nakamoto disappeared from involvement with Bitcoin however, before he left, he handed the reins over to Gavin Andresen, who then became Bitcoin’s lead developer at the Bitcoin Foundation.
The Bitcoin Foundation is the closest that the Bitcoin community has to have a public face.
What makes Bitcoin so valuable?
One of the factors that make Bitcoin so valuable is that it was the first digital currency to ever be created and in addition to this, it was also the first currency recognized that cannot be issued, controlled, or manipulated by any person, organization, or authority.
People can buy, sell, send, receive, and mine Bitcoin but there is no single person or institution that can dictate what they do with their coins. The owner of the coin is the only one that has authority over how they spend it.
Bitcoin does not associate itself with dictatorship in any way and it is free from any, and all, oppression and hyperinflation. It is a haven for numerous people in the world who are greatly affected by such circumstances and economic situations.
This is also the main reason why there are so many controversies and opposition against Bitcoin, and the reason why so many governments have tried their best and failed, to completely outlaw Bitcoin.
Bitcoin cannot be created, issued, destroyed, kept, or removed from circulation, as is the case with fiat currencies, which are susceptible to central banks and governments, whose word backs the value thereof.
There is a limited supply of Bitcoin, 21 million precisely, and there will never be more than this created. Once all Bitcoin has been mined and released into circulation, no new Bitcoins will be created.
Where Bitcoin is concerned, there is absolute transparency as anyone, at any given time, knows how many there are, how many have been mined and released, at what rate they are released, and when the last Bitcoin will be created.
Bitcoin has a substantial amount of leverage over fiat currencies due to their susceptibility to monetary policies, and the governments and central banks that have control over these.
Monetary systems are strictly controlled and monitored, and often swayed and manipulated. There is a great amount of corruption in so many countries in the world, especially where third-world, or developing, countries are concerned.
These are just a few controversial issues concerned with fiat currencies that cannot be applied to cryptocurrencies.
Bitcoin has a unique design and it is posed to have a beneficial and positive impact on the lives of people in countries that are so greatly affected by the corruption that exists in the monetary systems of their economies and countries.
However, fiat currencies will never quite simply fall away or disappear from existence but despite this, it is hard to ignore that cryptocurrencies, especially Bitcoin, have experienced more widespread acceptance at an increased rate.
Monetary systems have been in effect for ages and they serve an important purpose in addition to still being regarded as the most stable ground for both exchange and trade. Fiat currencies, however, are heavily affected by inflation, in addition to numerous other factors which does not apply to Bitcoin.
This, amidst all the other factors mentioned, and numerous more, makes Bitcoin the strongest contender of the two without fear that Bitcoin will completely overthrow fiat currencies shortly.
What is Blockchain?
Bitcoin is hardly ever mentioned without blockchain following close behind, and it may be confusing at first when hearing this term, but after this section of the guide, even beginners who have never heard the term will have a clearer understanding of what it is, and what it entails.
It is not merely some technical jargon or a confusing reference to nothing in particular. The blockchain is an integral part of Bitcoin, albeit the proverbial backbone thereof.
Blockchain refers to a database that is distributed and the storage devices for the database are not only connected to a common processor. This database contains a list of ordered records which is continuously growing with the data entries into it known as blocks.
Every block has a timestamp in addition to a link to the block that is on the chain before it. These blocks can be edited by users through the possession of private keys that are linked to the block and mandatory for the block to be edited.
Cryptography is used to ensure that every user’s copy of the distributed blockchain is kept in perfect synchronization.
There are numerous views and opinions regarding blockchain however, for the greater part it is viewed as a technological advance that plays more than one part and can be used in more applications other than cryptocurrency.
These potential positive impacts are far-reaching and have the potential of transforming not only financial services and the corresponding industry but also an array of other industries and businesses in the move to a more digitalized world where there is more transparency.
Blockchains are secure, through their unique design and intricate workings, and the way through which control is ensured of who can add information, what is added, and how it is validated to ensure that all information is true and not corrupted, incorruptible, and publically viewable.
Blockchain was introduced alongside Bitcoin and it serves as a public ledger in which all transactions are stored. By making use of blockchain, Bitcoin was the first digital currency that solved the double-spend problem, native to fiat currency, without having to consult a central server or an authoritative body.
The security protocol associated with Blockchain is built-in through the use of both distributed timestamping servers in addition to a peer-to-peer, or P2P, a network that has resulted in a database that is effective and managed autonomously in a way best described as decentralized.
Blockchains, in their essence, are therefore an excellent way through which events can be effectively and efficiently recorded, such as transactions, for the greater part.
This offers the potential for disintermediation on a grand scale which involves both trade and the processing of transactions.
Described as the ‘internet of value’ a variety of times, Blockchain allows for the processing of transactions by any individual despite where they are in the world.
It provides access for anyone to send value in the world provided that the file associated with blockchain can be accessed, which requires a private, cryptographically created key.
This private key allows the receiver to edit the blocks on the blockchain that they have ownership of and by using the private key and the public key of another person, a value can be sent from one section of the blockchain and stored in another.
Keys are therefore sued when transferring blocks that contain units of digital currency that have financial value regardless of not being tied to a physical world.
Due to the digital nature of these transactions, transfers are recorded digitally without the need of a bank, which is traditionally and conventionally in charge of such functions.
There is another role that can be associated with the establishment of both trust in Blockchain and identity as blocks on the chain cannot be edited without there being corresponding keys that provide access.
These edits, which cannot be verified by the use of such keys, will subsequently be rejected. However, one of the drawbacks of these keys
The importance of Blockchain
Since the invention, the launch, and widespread use of the internet, people have been exposed to and familiarized with a decentralized online platform without really realizing it.
However, the transfer of value such as money, ownership rights, intellectual property, and numerous others, has forced society to fall back on more conventional and centralized ways in being required to make use of a central authority.
Institutions and established such as banks or government agencies are used for such transactions as well as having to use online payment methods such as PayPal to transfer currencies electronically, which, however, requires integration with a bank account or a credit card before it can be used for such purposes.
Blockchain technology, however, has made it possible for such middlemen to be eliminated by fulfilling three crucial roles:
- It can record transactions
- It establishes identity, and
- It establishes contracts.
Great reliance on financial institutions is often needed for such roles to be fulfilled and the fact that blockchain can effectively fulfill all three has great implications. By replacing even, a small fraction, blockchain could cause substantial disruption in the financial services industry however, making use of blockchain could skyrocket efficiency.
By having the ability to establish contracts, Blockchain opens a world of opportunities that is yet unexplored. Blockchain can be used to store any kind of information which is digital, even computer code.
This computer code, or a piece thereof, can be programmed and provided with the ability to execute certain functions. Should two parties enter their keys in the same way participants would provide their signatures – they could enter into a contract without any physical documents being necessary.
The very same code could read information from external sources such as weather reports, news, headlines, and more, and could create contracts that could be signed and automatically filed as soon as the conditions have been met.
These types of contracts are known as ‘smart contracts and they truly have endless possibilities when considering the potential that they may have.
What is Blockchain’s architecture?
After being introduced and provided with a more intricate introduction and overview of both Bitcoin and blockchain, it is time to get deeper into the inner workings of blockchain before the topic of mining can be broached.
There are four key components that are associated with blockchain which include blocks, transactions, mining, and consensus methods.
As mentioned before, blockchain contains blocks that are stored linearly with the newest block attached to a previous one. The data which is contained in each block and the subsequent structure of the data which is stored is not only associated with the type of blockchain but also how data on the chain is managed.
The first block on the chain is known as the Genesis Block and it was placed by Satoshi Nakamoto, the creator of Bitcoin. The first transaction ever recorded is between Nakamoto and Hal Finney who obtained the software on the day it was released and who received 10 BTC from Nakamoto.
The data that the blocks on the chain contain information that pertains to transactions where cryptocurrencies are used and the data includes information on the sender, the receiver, the value, date, and time of the transaction.
This information is known as the hash. It is used to determine both the authenticity of a block through verification which is done across the Bitcoin network, and whether it should be attached to the current chain, or not.
Each block, after it has been approved to be added to the chain, receives its own unique hash and it can, therefore, not be replicated by anyone. The hash also allows for the block to protect its contents should anyone try to change the information in the block.
This, as previously mentioned, can only be done by someone who owns a private key.
When one participant sends the value to another in cryptocurrency, a transaction takes place. It is one of the most crucial elements of any blockchain. Transactions contain information regarding the sender and the receiver of the Bitcoin, the value is sent as well as the date and the time of the transaction.
When one individual sends Bitcoin to another, the transaction initiates an agreed contract on the blockchain which leads to the state thereof changing.
As Blockchain is decentralized, the computers on the network, or the nodes, need to be updated as each contains an exact copy of the ledger and thus, a blockchain’s state is created and can be changed each time that a transaction is initiated.
Transaction verification is done by nodes based on the consensus method which is used by the blockchain. Each transaction can have more than one output and output and through this, transactions are linked so that proper notes on expenditure can be kept in the blockchain.
Mining is a crucial part of any blockchain despite the type and the one used by Bitcoin is a Proof-of-Work, of a PoW. It requires a substantial amount of effort for a block to be created and this is supplied through mining efforts.
Mining is done by spending computational units so that complex mathematical puzzles can be solved. The individuals who mine blocks on the blockchain are called miners who possess the necessary software and hardware which allows them to participate in mining.
The reference to ‘mining’ and ‘miners’ is a clever analogy to the mining of minerals such as gold. Miners work to mine Bitcoin and make use of hardware which is also known as ‘rigs’ and as in mining, Bitcoin miners are rewarded for their efforts by receiving a block reward, or uncirculated Bitcoins.
The consensus method can be described as the method through which a transaction is validated or the process through which it is validated. It has already been mentioned that Bitcoin makes use of a Proof-of-Work or a PoW through which transactions are validated.
A consensus method has a set of rules which need to be followed by all participants on the network and for a consensus method to be imposed, nodes must participate.
Without their participation, the consensus method cannot be implemented. The more nodes join and participate in the method, the stronger the network will become.
Bitcoin has a massive network that offers its miners great incentives through mining, and also, Bitcoin has one of the largest mining communities in the Cryptocurrency industry.
Miners have a substantial amount of power and say on a network and where and when change is required, should miners, not like the change, they have the ability to protest against it.
Bitcoin mining is a venture which has become exceedingly popular in recent years as the technology for it has been developed and improved substantially.
The purpose of Bitcoin mining, which has already been established, is for transactions to be verified on the network by following the rules set out for this purpose, otherwise known as the consensus method.
For this to be done, complex computer units are used to thoroughly check the transactions and broadcast them to other nodes on the network around the world which are also connected to the Bitcoin network for the same purpose.
These nodes are rewarded for their efforts for adding new blocks onto the network, after they have been validated, by receiving the fees from transactions and mining rewards that are set by the network, Bitcoin in this case.
To ensure that the network is not cheated, the nodes work according to the Proof-of-Work, or PoW. The PoW is the prerequisite that has to be met before a block with a corresponding transaction can be added to the blockchain.
While nodes are performing their validation according to the PoW, they are simultaneously attempting to correctly guess a series of numbers and letters, which is also known as the hash, of a block.
The computer which guesses the hash correctly first is the one to add the new block to the chain and is, therefore, the one to receive the reward.
However, a drawback to the PoW is that it uses substantial amounts of computational power and the process involved with this is not cheap, easy, or quick. Provided that the difficulty of the algorithm or mathematical puzzle increases with every certain number of blocks.
This means that there is a substantial amount of investment that goes into Bitcoin mining and it does not always mean that miners can make enough profit to cover the costs of mining and have enough leftover from that.
For the system to be corrupted, it would take even more investment and computational power than what it already requires, and thus far, it has not been worth the time, cost, or effort for an individual to try and cheat the system.
Bitcoin mining, at one stage, could be done by utilizing Central Processing Units, or CPUs, but as mining activity on the Bitcoin blockchain increased, the hashes became too difficult to guess and as a result of this, both hardware and software saw exponential developments in an attempt to continue guessing these hashes in the fastest time possible.
Eventually, people started turning their attention to Graphical Processing Units, or GPUs, which are more commonly found on powerful gaming computers.
These days, hashes are extremely difficult to solve and there are, simultaneously, millions of miners who work tirelessly to solve them, and when this is taken into consideration, it would take a specialist computer system to be able to attempt to solve them.
These specialized units make use of sophisticated technology; Application-Specific Integrated Circuit Chips, or ASICs for short. With the evolution of technology in comparison with the difficulty of the bitcoin hash, those who do not make use of ASIC technology will only set themselves up for failure, and inevitably, disaster.
ASICs were specifically designed and built with the purpose of mining Bitcoin and they are therefore the most efficient mining rigs which are available on the market today.
To explain how powerful, they truly are; one ASICs rig has the combined power of approximately 700 GPUs, and it is for this reason, that most Bitcoin miners have moved over to this type of mining hardware.
The total hash rate of the Bitcoin network has exceeded an important milestone of around 120 exahash per second which has resulted in developers shifting their focus to creating smaller chips for these powerful ASIC mining rigs so that more powerful miners can emerge from this.
The smaller the chip, the more chips can be fitted into a mining rig, and as a result of this, the more the mining capabilities of the rig will increase.
At present, the smallest chip on the market is that of a 7 nanometre, nm, chip which is in use by the Bitmain Antminer S17. However, there are smaller, 5nm chips, in planning in development.
What is needed to mine Bitcoin?
There are a few things to consider before starting to mine Bitcoin, this includes:
- Bitcoin Wallet
- Hardware – the power consumption, hash rate, efficiency, and price
- Mining Pools
- Cloud Mining Services
- Staying up to date with Bitcoin news
Apart from the hardware and software setup to start mining, crypto or Bitcoin wallet is necessary so that payment or the reward can be received.
Whereas a physical wallet is used to store cash and cards, a crypto or Bitcoin wallet is used for the storing of digital currencies. A bitcoin wallet is kept secured, much like a bank card with a PIN-code, by a private key that only the owner of the wallet should have access to, and safeguard at all times.
Although they are digital in nature, it does not mean that cryptocurrencies can be kept on any provided software program as they carry significant monetary value. Cryptocurrencies need to be stored in a specifically designed safe storage that has a corresponding public-private key, which is linked.
Public keys are generated by private keys. These public keys can be provided to those who wish to transfer funds, such as a merchant providing a customer with their public key.
However, a private key must be kept secret and safe as it provides the wallet owner with access to their funds.
Should this key ever be lost, and the owner does not have a backup of the wallet address or their key, they will not be able to gain access to their funds and it will be lost. Should another person have access to the wallet of another person who owns Bitcoin, they will have access to the owner’s funds.
Bitcoin wallets have the benefit that they are not bound only by one platform and users can have their wallet spread over numerous devices whether on desktop, mobile, or web.
Desktop wallets are designed as applications on personal computers and laptops which can be downloaded and installed. Some of these apps are accessible both online and offline and support a variety of operating systems such as Windows, Linux, Ubuntu, macOS, and more.
Smartphones, these days, offer numerous portable and innovative solutions in the palm of the user’s hands. Mobile wallets offer users access to their funds from anywhere in the world, at any given time.
Numerous wallets can be downloaded and installed on both Android and iOS devices, and even those which are designed to work on BlackBerry devices.
Also, with further innovation and development in technology about QR codes, payments can now be made from Bitcoin wallets by scanning the QR code of a supporting merchant to make an instant payment.
Cold and Hot Wallets
Cold wallets are wallets that are not connected to the internet. These wallets are considered to be the safest type and users are always urged to keep the majority of their funds in wallets such as these so that the wallet cannot easily be targeted by hackers.
A hot wallet is therefore one that is online and, and thus always connected to the internet. These wallets are the first to be targeted by hackers.
Users are advised to only keep funds in such wallets that they would use for everyday purchases so that, if they are hacked, they do not lose all their funds.
Online Web Wallets
These types of wallets are web-based and thus need an internet connection to function. They can be accessed through third-party software that offers cloud services, and they offer the same as hot wallets.
They are, however, as susceptible to cyber-attacks and hackers as any other online wallet, and users are cautioned against keeping large sums of funds in these wallets.
Although it may seem like a contradiction due to its nature, Physical Bitcoin wallets simply allow for the bitcoin wallet address and the private key to be printed so that it can be stored safely.
These wallets have shown a substantial increase in popularity. They are small devices that store the Bitcoin of the user and can be used for both the sending and receiving of Bitcoin through online transactions.
When evaluating hardware, users need to consider a few factors, including:
- Power consumption – which has to do with the amount of electricity the mining rig consumes, and it is crucial when considering the electricity bill that miners end up paying in addition to the environmental impact that this has.
- Hash rate – which is the amount of power the miner has to solve the algorithm on the blockchain when a transaction is verified and validated. It provides the miner with a certain number of guesses per second, and the higher the hash rate, the better.
- Efficiency – although having a good hash rate is a good start, there is still a lot of energy usage in guessing the hash. Efficiency has to do with the amount of power is used to generate a Bitcoin unit and efficient miners require less power to mine successfully.
- Price – the price of the hardware is another crucial factor as Bitcoin mining, in general, is not a cheap investment. More expensive hardware tends to have high consumption, a higher hash rate, and higher efficiency whereas, with those that are cheaper, the opposite is true.
The software that is used will be determined by the computer that is used in addition to the operating system as different software is compatible with different operating systems. Also, it will depend on the hardware or mining rig which is used.
A mining software will not only be used for the actual mining process but there is a lot on the market that allows for the settings to be changed on various components of both the computer and the mining rig that may be a great benefit for the miner.
Bitcoin mining pools are groups of miners that work together to mine a block and subsequently share its rewards. Those who wish to start mining who may find it too daunting or those who do not possess the capital to buy or build their own rigs can consider this type of Bitcoin mining instead.
By sharing the work amongst numerous other miners and split the reward may be a lot more profitable than mining for months and years and not seeing any reward for the effort.
However, a note that should be taken is that when sharing the reward, some mining pools do not simply share it equally, but rather share it according to the rank of computational power that was put in. Those who have more and thus contributed more power, are given more of the reward than those with lower computational power.
Cloud Mining Services
Those who wish to partake in Bitcoin mining who do not long to purchase and own the hardware, or those who are unable to invest due to the financial implications, can consider cloud mining instead.
However, there may be some risks involved with this as most companies that offer this option will require payment ahead and the miner has no control over the hardware either.
Also, there may not be complete transparency. There is also always the risk of falling prey to scams as well.
Staying up to date with Bitcoin news
This is important as well as Bitcoin news will affect the Bitcoin mining profits. There are numerous news apps and reliable sources from where news can be obtained.
Which hardware/mining rigs are the best to use to mine Bitcoin?
There are numerous mining rigs available on the market and which one to choose will be based on the mining goals and objectives of the miner and what they want in terms of efficiency, hash rate, power consumption, and more.
Some of the best hardware to use when mining Bitcoin is:
- Bitmain Antminer S17+ – which is the successor to the S9, and is considered to be one of the best mining rigs on the markets with a hash power of 73 TH per second, the power consumption of 2920 Watts.
- Bitmain Antminer S19/S19 Pro – Released in May 2022, the Antminer S19 and S19 Pro deliver an impressive hash rate of 110 TH per second with a power consumption of 3250 Watts. In addition to this, this rig contains a custom-built chip.
- Canaan A11 Series – released in October 2019, this rig has a hash rate of 68 TH per second and has a power consumption of 3196 Watts.
- Innosilicon T3+ Pro – this rig has a hash rate of 67 TH per second and has a power consumption of around 3300 Watts.
- The Innosilicon T3+ – has a hash rate of 33 TH per second and has a power consumption of 57 TH per second. It features an efficiency mode that allows for a hash rate of 33 TH per second and power consumption of 1650 Watts.
Which software is the best when mining Bitcoin?
Some of the best mining software being used in Bitcoin Mining includes some of the following:
- CGMiner – which is the most popular and extensively free software which is available for Bitcoin mining. As an open-source ASIG/FPGA software, it is compatible with Windows, Linus, and macOS X.
- BFGMiner – which is software incorporating a variety of advanced options in addition to unique features. BFGMiner is created specifically for use on ASIC mining rigs.
- EasyMiner – This is an open-source GUY Miner that acts as a wrapper to conveniently wrap both CGMiner and BFGMiner as it allows to for the mining of numerous cryptocurrencies and not just Bitcoin.
- HoneyMiner – allows the miner to set the software up and allow for it to run, and mine, in the background without the miner actively being involved in the process.
- AwesomeMiner – this software provides for the management of multiple rigs and not only FPGAs and ASICs. The software is both intuitive and features various centralized management features unique to its purpose and design.
The Pros and Cons
|Bitcoin has overcome various hurdles and is more popular than ever||The price of Bitcoin is quite high|
|Bitcoin offers diversification and acts as a hedge against inflation||There are still security concerns with regards to breaches and the number of scams|
|Bitcoin is accepted and recognized globally||There are no refunds|
|Cryptocurrencies solve numerous problems associated with fiat currencies||It is costly to mine and profits may not cover operational costs|
|There are substantial amounts of momentum observed in the price movements of the top three Cryptos BTC, ETH, and LTC||There is a substantial environmental impact due to the amount of power consumption it takes to mine Bitcoin|