Chances are that by now you have heard all about Bitcoin, and the insane level of financial promise and possibility that have come along with the E-currency. But the chances are just as probable that whilst you know there is money to be made in those Bitcoin mines, you haven’t actually got a clue where to start, or even on what Bitcoin actually is.
Don’t worry, we are here to guide you through the whole process, and give you a complete rundown about how bitcoin mining works and how to mine Bitcoin for yourself!
What is Bitcoin?
Let’s start by running over some of the basics regarding what Bitcoin is, and why it’s beneficial to own it instead of putting your money into traditional stocks and shares.
So, what is Bitcoin? Well, Bitcoin is what’s classified as a cryptocurrency, which means that it is a form of currency that isn’t regulated by a central bank or national authority. It also means that you can purchase and retain Bitcoin via a cryptographic sequence – or completely securely, with the only record of ownership that matters being handled by the peer-to-peer network that manages and records the sales and purchases of Bitcoin itself.
That’s a lot to swallow, so let’s take a step back and explain it a little clearer: Bitcoin itself isn’t real. Instead, it is a digital property that a user can buy in exchange for ownership of the digital Bitcoin. This differs from normal (FIAT) currency in that the amount of Bitcoin is entirely secured – no more can be produced by any country or company, as it is its own asset. Currently, there are 17 million Bitcoin in circulation, with a further four million Bitcoin left to be mined before every single Bitcoin has entered circulation
If you think about dollars, printing more cash devalues the amount of cash already available in the world. Bitcoin however isn’t tied to banks or a centralized currency, so its value is entirely user-determined.
This explains the massive rises and falls in Bitcoin’s price – because it isn’t actually a stock option but a currency, its value can inflate and deflate based on user interest.
So, if there is a sudden surge in interest the initial price of a Bitcoin can rise very easily, and conversely, it can crash if there is a push to sell. However, selling isn’t always a priority of Bitcoin owners. In fact, because of the fact that Bitcoin is a currency, it’s entirely possible to spend it for its full value without it ever having to leave your (digital) wallet to be converted into a denomination of centralized currency.
So, in summation, Bitcoin is a currency whose value is linked to the number of Bitcoin available to buy at the moment, as well as the user demand for the Bitcoin on the market. The question is though, how are those four million Bitcoin I mentioned before going to enter circulation as the other 17 million have?
The answer is via Bitcoin mining.
What is Bitcoin Mining?
I’m going to try and explain this as simply as possible, as it can cause quite the headache – but here we go.
Bitcoin mining is the process in which new Bitcoins are ‘discovered’. It’s essentially record-keeping if we boil it down to its simplest explanation, with mining actually being the process of adding transaction records to the public ledger of Bitcoin itself, which we know as the blockchain.
What is the Blockchain?
This blockchain exists so that legitimate and legal sales of Bitcoin can be easily distinguished from people attempting to spam or forge transactions, and as a result, every single transaction of Bitcoin is confirmed via the blockchain-created ledger. This ledger is also accessible to every single user of the network, and as a result, can be verified en masse.
The blockchain is formed up of (you guessed it) blocks of information. These different blocks are linked to both the block in front of and behind them, so that the sequence of information is nigh on impossible to interrupt and corrupt, making them secure and reliable – but what information is actually stored on the blocks?
It’s called a hash, and it’s formed via a complicated formula being applied to the list of transactions set to be stored on the block by the miner who will be sending the block into the blockchain. Every hash is unique, and is linked to the next block in the chain – meaning that if someone tampers with one block, its hash will immediately change, as will all of the other hashes behind it in the chain, making it easier to spot.
How does this equate to new Bitcoin though?
Rewarding hard work
Because Bitcoins are the reward for mining.
Bitcoin miners are, at their core, providing a service: providing a legitimate ledger of transactions made within the Bitcoin community. So for their efforts, they are rewarded with Bitcoin every single time a block of information is sealed off (when a hash sequence is proven valid and added to the ledger).
Right now if you complete a block for the blockchain you stand to gain 6.25 bitcoin – which is a relatively new bounty on a block, as a few months ago you could have netted yourself 12.5 Bitcoin for a completed block. This is called halving, and it happens when the total amount of Bitcoin being released gets closer and closer to the total amount of Bitcoin available to deal with inflation and demand.
So, in a nutshell, that is Bitcoin mining: providing a service to the Bitcoin community in return for a bounty of (currently) 6.25 Bitcoin. So, that’s the bones of it. Now for the question, you are here for: How do I mine Bitcoin?
How to Mine Bitcoin
So there are a few different ways to get into Bitcoin mining.
One of the easiest ways is to start cloud mining – but what does that mean.
Well, in essence, what you are doing here is renting space within a much larger Bitcoin mining facility, helping the actual server location offset the costs of running their Bitcoin mining farm. This option is pretty solid if you are looking to start Bitcoin mining without any fuss, as soon as possible, and without splashing any cash on expensive hardware that could set you back straight away in terms of profit margins.
However, there are a few things you need to be aware of before you jump into the world of cloud mining. Firstly, is that this is a costly way of mining Bitcoin, and that is going to be a huge factor in the long term. Many of the major Bitcoin mining services that offer cloud mining require you to sign up for a contract – and these contracts can run quite costly, with both initial and daily costs to consider before you finally put your name on the dotted line.
Why do these matter? Well, let’s say that you head to mining.bitcoin.com, so that you can pick out one of their cloud mining options. After signing up for their six-month plan at $2,248.50 you then have to consider that you will be paying a daily fee of $15 for the entirety of six months on top of that initial fee. Let’s say that every month has thirty days, which means you are going to be paying $15 every day for 180 days – or a total of $2,700 dollars extra. So in total, you are going to be paying (approximately) $4,498.50 to mine Bitcoin from this companies servers.
It’s a case of spending money to make money – but you will have to take into account the fact that Bitcoin prices both rise and fall daily, and a calculation at the beginning of the six months isn’t going to represent the outcome at the end of the six months – you never know, you might experience a crash in value right in the middle of your investment.
The point is, that whilst this really is the easiest way to get involved in Bitcoin mining you do have to take on board a certain amount of risk that might net you a loss rather than a profit when it comes to cashing out day.
Building a Bitcoin Mining PC
The second way to mine Bitcoin is to get yourself a dedicated hardware setup that is capable of actually mining the hardware – but this has become a pretty antiquated and not so profitable way of building up your Bitcoin wallet. What you have to consider is that whilst, yes, in the beginning, it was perfectly feasible to mine bitcoin on a CPU, the community quickly changed to using graphics cards to mine their bitcoin. This kept growing and growing until now, where you can find dedicated server farms in countries like China where power is cheap that are constantly running mining servers so that they can hoover up as many blocks as possible regarding output.
Basically, your home PC setup isn’t equipped to mine Bitcoin at a profitable level anymore.
The Great GPU Shortage
As you are probably aware it has been nigh-on impossible to buy a graphics card of any power for close on a year now due to the COVID-19 induced chip shortage coupled with a rush by crypto miners. Even though Nvidia and AMD have released some amazing graphics cards recently, scalpers and just regular chancers have been fleecing customers with prices well in excess in of the MRRP.
Again, you also have to consider the different costs associated with mining – power consumption being the biggie here, and that this is going to take away the (relatively) small gains you make on a day-to-day basis. Don’t forget – the bounty on approved blocks just halved, so rewards are lower than ever when it comes to Bitcoin mining asset outcomes.
With that said, it is possible. There are dedicated pieces of hardware – like the Antminer by Bitmain – that are capable of doing the task for you in your own home. Be aware though, it’s going to be pricey to get into the game, and even then, you have your overheads to worry about.
If you are interested in this angle you can check out our Best PC for Mining Bitcoin right here
Jumping in the Mining Pool
Then, you have to consider the competitive element of Bitcoin mining and how you are going to stand against the likes of professional server farms and mining companies going hell to leather on the blockchain day in, day out – and that’s where a mining pool comes in.
It’s exactly what it sounds like; any miners that you are happy to work with entering into an agreement with yourself that as you mine, you work on the same block in a chain and that once completed you split the bounty between yourselves equally.
So, the drawbacks and positives here are pretty open and easy to see. The pro is that you are completing blocks for submission faster than you would on your own, but the downside is that you are receiving a smaller share of the awarded Bitcoin. Again, this is entirely situation dependant, but if you decide that the time/cost/profit margins work better for your personal situation than they would if you were mining alone, then it’s a sound practice to go into. You can even enter into mining pools with cloud mining hosting companies if you want – it’s dependant on your situation.
How to Store Your Bitcoin in a Wallet
But, let’s argue that you have gone for the option of renting a cloud-based mining unit and that you are going it alone, so every Bitcoin mined will be yours. You are going to need a place to store those valuable digi-coins, and that’s where a secure wallet comes in.
The theory of a wallet is pretty much identical to a bank account, PayPal account, or even a money jar – it’s a secure place to store your Bitcoin until you have decided what to do with them. It’s the whole point of getting into mining, so you are definitely going to want one.
You have two options here: You can use an online-based wallet, or a desktop-based one. You’re asking what the difference is, I can almost hear it – here you go.
An online wallet, like the one that Blockchain.com offers, gives you an online wallet in which to store your Bitcoin, with secure two-factor authentication and different options to convert your Bitcoin into different formats – basically it’s an online service that offers greater flexibility than its desktop counterpart. What you will have to consider though is that this is an online service, and it’s subject to the security of a third party – so if their security isn’t up to snuff or their servers go down at the wrong moment then you might not be able to access your Bitcoin.
So, what’s a desktop wallet? If you guessed that it was essentially a piece of software that is installed on your own PC or device that could be put onto an external hard drive for additional security. Basically, these types of wallets protect your Bitcoin at a higher level than an online wallet might as a hacker will have to come after you and your devices specifically in order to get at your Bitcoin.
This of course comes with a trade-off, and in this instance, it’s in the form of a potentially reduced usability depending on online integration with your wallet. Ideally, you want a desktop wallet that comes with an easy-to-use online component to sell, convert, or trade your Bitcoin. SoFi is one such app that is great for Bitcoin users new to the scene, as it allows accounts to be opened with a balance of $1.00, and it allows the management of traditional investments as well.
All in all, these are the main tools you are going to need in order to get started Bitcoin mining and begin turning over Bitcoins into your wallet in exchange for either your dedicated PC’s (or cloud mined) efforts.
What I can’t tell you how to do is spend that Bitcoin. I feel like a disclaimer here is needed, and that is any endeavor you take to begin mining Bitcoin and the results thereof are entirely down to you, and that PC Guide is not responsible for any financial decisions you make as a result of reading this article.
That being said, there are three distinct choices to go for when it comes to having Bitcoin in your wallet. The first is to spend it – there are plenty of companies out there who readily take Bitcoin, and if you are concerned with privacy then the inherent nature of the cryptocurrency means that you do so entirely privately. Couple that with a VPN and your purchases will remain entirely private, if that is important to you.
The second option is to sell the coin directly, either in trade for another form of cryptocurrency or directly to a buyer in exchange for cold hard cash. Either way, the risk here is that the price you sell for might rise he second after you approve the sale, and you could stand to lose or gain capital based on when and how you sell.
The third option (which is the most memed, and popular option) is to ‘HODL’. Basically, hold onto your Bitcoin in the hopes that the price of it rises to a price that represents a significant gain in value for yourself. It’s a fine strategy, with a huge element of risk involved. Why? Because A) no investment in Bitcoin is guaranteed to be built upon, and capital is at risk with every investment into the cryptocurrency with deflation just as likely as inflation and B) Bitcoin is meant to be a currency and therefore supposed to be spent. We can all laugh at the fact that someone once spent 10,000 Bitcoin on Papa Johns’ Pizza (that pizza costs $92,871,900 at the time of writing by the way), but the fact remains that Bitcoin is cold hard cash, and if it isn’t used then it will use its value.
It’s up to you
At the heart of it, Bitcoin is a currency, meant to be spent – and the value of it is exactly what people prescribe. If people just hold on, it’s quickly going to become useless.
But, that’s me talking about what to do with Bitcoin once it’s mined – and that’s entirely up to you! If you have any questions about mining Bitcoin, are confused about how to start or perhaps do want to build yourself a PC capable of mining and have a question regarding hardware then leave a comment below and we will do our best to answer!