The idea of this page is to give a digest of all information a person would need about bitcoin mining. Therefore this article will be more practical than technical. If you’re interested in the technical side of bitcoin mining I suggest you read the Wikipedia page on Bitcoin mining.
What is bitcoin mining?
In traditional fiat money systems, the governments simply prints more money when they need to. But with bitcoin, money isn’t printed at all – it is discovered. Computers around the world ‘mine’ for bitcoins by solving complex compuer tasks (hashing). Bitcoins act like cash, but they are mined like gold (and currently are worth more than gold). Mining is a process used to create (discover) new bitcoins as well validate current bitcoin transactions. For solving one block miners are given a reward in newly mined bitcoins. Currently a reward is 12.5 BTC (was 25 BTC, 50 BTC, 100 BTC) for every solved block.
The supply of bitcoins is limited and the there will be only 21 bitcoins million mined. Again, this is pretty similar to gold, since gold is also a limited resource and it’s estimated that there is only about 160,000 tons of gold available on the Planet. On top of limited supply bitcoins also have mining difficulty that increases every 2016 blocks or roughly every two weeks or so and that makes it harder solve a block and get the bitcoin reward.
Whats a pool mining?
Since it became more difficult for a single person to solve a block and collect a reward, people can now join forces and mine together sharing the mining job. After the block is solved the reward is shared to miners in the percentage of how much every one of them contributed. This is a great thing and allows you to get daily or weekly payouts for your efforts. It’s not profitable to mine on your own so make sure that you join a mining pool. Take a look at our List of Bitcoin Mining Pools.
What hardware do I need to start mining bitcoins?
In many articles you’ll find that all you need is your computer and you can start mining bitcoins and making money. This was true when it all started but things have changed. It is still true if you’re interested in mining some of alternative coins (learn more about it in here). This is what mining hardware there is and how you can use to mine bitcoins:
When bitcoin emerged, you could mine with your computer processor (CPU) since the CPU was powerful enough to do it. But as the difficulty increased mining with CPU became slow and unprofitable. With today’s difficulty it could take you 20+ years or so to solve a block mining with a CPU so bitcoin mining is no longer possible but you could mine some other coins (especially few that are made to be mined only with CPU) and then change these coins for bitcoins on the Exchange. Read more about it in this post.
About year and the half after bitcoin started working, it was discovered that graphic cards, especially high-end ones, are more efficient at bitcoin mining. The parallel nature of some graphic cards allowed for 50x to 100x increase in bitcoin mining power while using far less power. Any modern GPU can be used to mine the coins but AMD cards were superior to nVidia. GPU mining of bitcoins is probably no longer profitable for most of people, but it is profitable if you mine other coins and trade them for bitcoins. Some of the latest cards can bring around $10 per day so they pay off in about a month. Best GPUs for pool mining:
As bitcoin mining progressed so it’s dedicated mining equipment started to appear. Field Programmable Gate Array (FPGA) was launched by company Butterfly Labs as first dedicated mining hardware. The FPGAs didn’t bring a 50x – 100x increase in mining speed as was seen with the transition from CPUs to GPUs, but it provided a benefit through power efficiency and ease of use. A typical 600 MH/s graphics card consumed upwards of 400w of power, whereas a typical FPGA mining device would provide a hashrate of 826 MH/s at 80w of power. It was roughly 5x improvement and it allowed first large bitcoin farms and cloud mining operations to be started an operational profit. FPGA is now too slow for bitcoin mining so if you see these things on eBay – don’t waste your money on that.
The bitcoin mining today mostly relies on Application Specific Integrated Circuit (ASIC). An ASIC is a chip designed specifically to do one thing and one thing only. Unlike FPGAs, an ASIC cannot be re-purposed to perform other tasks. ASIC was designed to mine bitcoins and it can only mine bitcoins. It’s inflexibility is offset by a 100x increase in hashing power while reducing power consumption compared (about 7 times) to all the previous technologies. The ASIC is probably the only way to go now for bitcoin mining. It will just get more refined and powerful. ASIC miners could cost thousands of dollars but they can quickly be payoff if the bitcoin price keeps growing. Mining profitability is dictated by the exchange rate, electricity price and cooling but under all circumstances the more power efficient the mining device, the more profitable it is. If you want to try your luck at bitcoin mining then this bitcoin miner is probably the best deal. Latest ASIC devices:
What software do I need for mining bitcoins?
Most of software used for bitcoin mining can be found online for free. These are typically are called miners and every pool offers some for download with instructions on how to set it up. Also, if you are using GPU for mining it’s important to use latest ATI drivers or nVidia drivers. In case you use ASIC (or FPGA) for mining you’ll most probably get a special software made just for that hardware shipped with it or you can find it on manufacturer’s website. Many of miners are quite difficult to use and require a lot of geeky knowledge but if you’re a new to all this you might want to take a look at these two miners that are super-easy to use.
Is bitcoin mining still profitable?
Well, yes and no. Depends on how you do it. Directly mining bitcoins with your computer is not profitable these days. With your computer you could mine other coins that you could keep (and wait for their price to grow) or trade them for bitcoins on some of popular exchanges. There are also mining pools that will do that for you automatically: you will mine alternative coin that is most profitable to mine at that given moment and the pool will exchange it for bitcoins and pay you out the bitcoins directly. This is the most optimal way of mining bitcoins today with your computer (CPU and GPU) since you could earn couple times more than mining bitcoins directly. To read more about how you can start mining with your computer click here. Mining bitcoins directly is profitable only with dedicated ASIC hardware, that is quite expensive and often not available because of high demand. Cloud mining also can work if used correctly.
Can bitcoin mining damage my hardware?
Some may think that mining is damaging your hardware but actually it’s no different than playing video games or watching movies or rendering something in 3D Studio or AutoCad. If your computer is properly cooled and maintained (dust removed from CPU/GPU fans) you should have no problems with your hardware especially while the hardware is new and under warranty. When buying hardware for mining always buy quality products with a long warranty. Always keep your computer cool. And never mine on laptops since their cooling systems are mostly poorly built and bitcoin mining will shorten their lifespan or even damage your laptop CPU/GPU/motherboard.