Table of Contents
- 1 A Short Explanation of Bitcoin Mining
- 2 How to Mine Bitcoins: Three Ways
- 3 How to Mine Bitcoin in a Pool: Tutorial
- 4 How to Mine Bitcoin: Closing Thoughts
A Short Explanation of Bitcoin MiningBefore I get started teaching you how to mine Bitcoin, I should first offer a brief explanation of what we mean when we talk about Bitcoin mining. As you most likely already know, Bitcoin is a blockchain-based cryptocurrency. It essentially works similar to a bank’s ledger (record of transactions). However, banks need you to trust them. Bitcoin is different. You only need to trust the code that created the network and its rules. It’s no coincidence that Bitcoin was created just after the global financial crisis of 2008. It’s literally been designed to be trust-less money!
Source: ieeeTransactions are grouped into blocks and then a string of characters must be guessed by the miners on the network. These characters are known as the “hash” of the block. Each block contains the hash of the previous block, as well as a new hash that needs to be guessed. Once correctly guessed, the miner can add the block to the chain. This guessing process is called “proof-of-work”. It’s the single most important security feature of Bitcoin. By including the hash of the previous block, the other miners on the network can verify that those transactions contained in a block did actually come after those in the blocks that went before it. This collection of blocks in sequence is the blockchain. Easy, right?
Block Rewards and Miner FeesMiners unlock new Bitcoin when they add a block to the blockchain. They also get the reward of the fees that users include in their transactions. This makes it worthwhile to spend money on the electricity and computer systems needed to mine. When each Bitcoin is worth thousands of dollars, it’s a very strong incentive indeed!
How to Mine Bitcoins: Three WaysOk, now that you know exactly why you would want to mine Bitcoin, let’s get onto the bit I’m sure you all came here for – learning how to mine Bitcoin! There are three ways to start mining Bitcoin:
|Using cloud mining services|
(not recommended for anyone!)
Pool MiningBitcoin mining as part of a larger pool of miners is the easiest, fastest, and most reliable way to make sure your Bitcoin mining operation is profitable. You basically join forces with other miners to share the rewards.
- The size of the pool.
- The minimum payments.
- The fees charged by the pool.
Size of the PoolThe size of the pool is an important thing to think about when you’re mining as part of a pool because as more people mine in the pool, the chances of being rewarded increase. However, since the rewards will be split between more users, they will also be smaller!
Biggest Mining Pools | Source: blockchainJoining large cryptocurrency mining pools is usually the preferred option for most smaller scale miners. This is because they will be getting many payments and won’t be spending lots on electricity waiting for the next one fraction of a Bitcoin to be rewarded to them.
The Minimum PaymentAnother important thing to look at is the minimum payment that the pool will let you withdraw. By minimum payment, I mean the smallest amount of Bitcoin that the pool will let you take out. If you’re very new to cryptocurrency mining, you’ll probably want to join a pool with as low a minimum payment as possible. This will mean that you can be sure that it all works as it should do in a shorter period of time. You don’t want to be using lots of expensive electricity amassing a few hundred dollars’ worth of Bitcoin only to find that the pool disappears, or something very bad happens in cryptocurrency news to make Bitcoin’s price suddenly drop!
Pool FeesEvery pool charges a fee for organizing it all for you. The fee is usually a percentage of your profits. It will always be taken from the Bitcoin you mine automatically, so you don’t need to worry about paying it yourself! Of course, we don’t need to tell you that the lower the fee you pay, the better for your profitability. That’s just obvious!
Mining AloneWhen talking about how to mine Bitcoin, mining alone is possible. In fact, it probably seems like the best idea. Surely you shouldn’t have to share your mining rewards with thousands of other people? Also, paying 1% on everything you make could end up expensive if you plan to mine for a long time. Well, you’re right. Sort of. Solo Bitcoin mining does mean that you don’t have to share your profits with a huge group of other people. However, it also means that you don’t get to share the profits of the thousands of other miners either. You only get paid out if you’re actually the miner who solves the hash. This means you’re not only competing with every other solo miner on the planet, you’re competing with every pool too. Even if you have more computing power than every single miner in every pool, do you have more than the entire pool combined? Probably (definitely) not! That said, if you are a multi-millionaire, you could set up a profitable solo mining operation. You’d need to buy hundreds (if not thousands) of ASIC (application specific circuit chips). For the very best mining chips, you will be looking at spending around $1,000 to $1,500.
Problems for Solo Bitcoin MinersTo run hundreds of computer chips will take a whole lot of electricity. The best piece of Bitcoin mining hardware now is the DragonMint T1 miner. This runs at 1,600W. Multiply this by 100, for example, and you’re looking at a giant power bill every month!
Source: halongminingTo make matters worse, running hundreds of computer chips gets hot. Think about using a laptop for a few hours on your knee. They can get pretty warm, right? The average laptop runs at around 60W. That’s about 26 times less power than a single DragonMint unit. Now, imagine 100 of these bad boys running at once in a small room. You’re going to need some serious ventilation! That means more power consumption!
Cloud MiningYou might ask why someone would bother spending the huge sums of money on expensive mining equipment to rent it out to someone else. The reason is simple. They want to guarantee profits on their investment and not have these affected by swings in the price of Bitcoin. The concept seems strange, but some people do like to mine in this way. Let’s look at some of the advantages and disadvantages of cloud mining.
Advantages of Cloud Mining✓ You’re not responsible for the equipment. If something breaks, you often don’t need to replace it or repair it. (However, always be careful to read the small print in a cloud mining contract. The company might require you to pay for damage done to their equipment!)✓ In addition, you can make money Bitcoin mining without spending thousands, or millions on mining equipment. This also means you don’t need to deal with the heat, or the noise in your own home or other potential locations. ✓ The final advantage is that you don’t actually need to know anything about cryptocurrency mining. If you want to cloud mine, you probably don’t need this guide on how to mine Bitcoin at all!
Disadvantages of Cloud Mining✗ You pay money upfront. If the price of Bitcoin drops considerably, you might be stuck in a contract and mining at a loss until the price increases again (if it ever does). You take all the risk as the cloud mining operator is guaranteed profit. ✗ You can’t upgrade or change either the mining software or hardware used by the cloud mining provider. ✗ Cloud mining companies are targets for hackers. In July of 2017, Genesis Mining was hacked. Bitcoin was transferred from the company’s hot wallet to an external wallet.
How to Mine Bitcoin in a Pool: Tutorial
- At least one ASIC Bitcoin mining rig.
- A mining application.
- A digital wallet to store the Bitcoin you make.
- Ventilation equipment – fans, ducting (only for larger operations).
- Membership at a pool.
- Power splitters.
- Power supply units (the wattage of your ASIC will determine how many and of what power you need).
- Ethernet cable.
- Internet connection.
- Computer or mobile device capable of browsing the internet.
How to Mine Bitcoins: Setting up the GearThe specific setup options will vary depending on the model of ASIC miner you are using. The manufacturer should detail exactly how to do this in their user manual or on their website. The following guide is specific to the Antminer S9 unit mining on the Antpool. However, much of it will be useful no matter what ASIC miner you decide to use.
- Find the power draw of your ASIC. This should be clearly stated in the manual under specifications. The S9 uses 1,275 Watts.
- Match your power supply units to the power draw. Two 110v PSUs of 1,000W and 650W will be sufficient for most single miner operations.
- Connect the power supply units to the Antminer unit using the relevant connections.
- Once connected to the power supply, insert ethernet cable and plug it into your internet’s router.
- Make sure all the necessary connections are made then power up the power supply. Your Antminer S9 should now come on.
- On your computer or mobile device, use an IP scanning tool to show the devices connected to your internet connection. You should see your Antminer listed. You can then type the IP address of the Antminer into your browser window on your chosen device.
- The next screen you see should be the login window of the miner. In the case of the Antminer S9, the default login details are: Username – root, password – root. You can change these by clicking on the “Admin” tab. I recommend doing this.
- You will now need to enter various details from the mining pool you will be using. You should be able to find these out easily from the website of your mining pool.
- Once entered, your Antminer should begin mining on the pool.
Choosing a Mining PoolYou can choose any Bitcoin mining pool you want. However, we recommend you choose from one of these recommended Bitcoin mining pools to begin with:
|Pool Name||Pool Fee||Minimum Pay-out||Pool Address||Pool Size|
|Slush Pool||2%||1mBTC (with fee) 10mBTC (free)||stratum+tcp://eu.stratum.slushpool.com:3333 (Euro address)||Medium|
|ViaBTC||2%-4% (depends on how shares are paid)||0.1mBTC||stratum+tcp://btc.viabtc.com:3333||Large|
How to Check How Much You’ve MinedEvery mining pool will have their own user interface. However, the idea is always the same. You need to visit your pool’s website and type in your wallet’s public address when prompted. Type your wallet’s public address in the search bar. This will let you see all the information about your Bitcoin mining efforts so far. Some pools will let users set how much they want to mine before their Bitcoin is automatically sent to the external wallet address they specified.
How to Calculate Expected ProfitsCryptoCompare provide an easy to use one.
- Open your mining software and check how many Megahashes per second it is doing (Mh/s).
- Load up the mining profitability calculator.
- Enter your current mining hashing power.
- Enter the power consumption of your unit or units.
- Enter the cost of your electricity in KWh. You should be able to get this from your energy supplier.
- Enter the pool fee for the pool you are using.