TL;DR

Mining is the process that verifies Bitcoin transactions and then adds them to the blockchain. The goal of miners is to find valid solutions to complex mathematical problems. Miners who successfully complete the puzzle will be rewarded with new bitcoins and transaction fees.

In the early days, Bitcoin users could participate in mining competitions with personal computers. Currently, profitable mining requires the use of very specialized mining tools. Because solo mining is very difficult, most miners choose to join mining pools to increase their chances of getting block rewards which are then distributed proportionally among pool members.

Introduction

Mining Bitcoin ensures that the blockchain is updated with valid transactions. At that time, this activity was a unique solution to create trust in a trustless environment. In this case, mining is a core part of Bitcoin's security model.

The concept of mining and then receiving BTC in return is an attractive proposition. Although the days of mining with a computer CPU are over, you are not always required to have a physical machine to engage in mining. However, before you can decide whether mining is right for you, let's briefly discuss how Bitcoin mining works.

What is Bitcoin mining?

When generating a new Bitcoin transaction, users must wait until other network users (nodes) verify it and then confirm its validity. Miners are responsible for collecting new pending transactions and then grouping them into a candidate block (a new block that has not yet been validated).

A miner's goal is to find a valid block hash for his candidate block. A block hash is a string of numbers and letters that serves as a unique ID for each block. Here is an example of a block hash:

0000000000000000000b39e10cb246407aa676b43bdc6229a1536bd1d1643679

To create a new block hash, the miner must collect the block hash of the previous block, its candidate block data, nonce, and then send it all through the hash function.

However, the miner must find a nonce that – when combined with all the data – will produce a block hash that starts with a certain number of zeros. The number of zeros will change according to mining difficulty. A valid block hash proves that the miner did the work necessary to validate its candidate block (hence Proof of Work).

After collecting pending transactions and creating candidate blocks, the nonce is the only thing a miner can change and that is the function of mining tools. In an intensive process of trial and error, the mining machine continually changes the nonce and hashes the combined data multiple times until it finds a solution for the block (i.e., a hash that starts with a certain number of zeros).

As soon as it finds a valid hash, the miner can validate the candidate block and then collect the bitcoin reward. At this time, the blockchain transactions included in the block will also change from pending to confirmed.

The amount of Bitcoin miner's income

Each block provides a block reward consisting of newly generated bitcoins (block subsidy) plus transaction fees to the respective miner. Since block rewards are almost entirely made up of block subsidies, most people call them block rewards (without taking fees into account).

Regarding Bitcoin, the block subsidy started at 50 BTC in 2009 and is halved every 210,000 blocks (about four years). The halving caused mining rewards to be reduced to 25 BTC in 2012, then to 12.5 BTC in 2016, and finally to 6.25 BTC in 2020. The next halving is expected to occur in 2024. As of May 2021, block rewards provide about $300,000 per block to miners.

However, there are many factors to consider when evaluating mining equipment and profitability. The speed with which a mining tool can generate a random nonce and then test it is an important metric to check. This number is called the hash rate and is a vital factor for the success of a Bitcoin miner. The greater the hash rate, the faster you can test random input.

Another important metric is the energy consumption of mining tools. If you spend more money on electricity than the value gained from mining, profitability is lost.

How to start mining Bitcoin

Because Bitcoin is decentralized and open source, anyone can take part in mining competitions. In the past, you could use a personal computer to mine new blocks. However, as mining difficulty increases, you now need a more powerful machine (more on this below).

Theoretically, you can still try to mine bitcoin with a personal computer, but the chances of finding a valid hash are almost zero. Hash function computation is relatively fast, but computing large amounts of random input takes longer. That's why you now need special hardware before trying to become a profitable miner.

What mining equipment should be used?

In general, you can try mining cryptocurrency using a CPU, GPU, FPGA, or ASIC machine (we'll get to that soon). You can still mine some altcoins with a GPU card. FPGA machines may also be an option depending on the mining algorithm, difficulty, and electricity costs. But talking about Bitcoin, ASIC mining tools are the most efficient.

CPU (central processing unit)

The CPU functions like a multipurpose chip that is responsible for distributing instructions to various computer components. CPUs are no longer efficient for cryptocurrency mining.

GPU (graphics processing unit)

GPUs can achieve a variety of purposes, but essentially they are used to process images and then display them on the screen. GPUs are capable of dividing complex tasks into several smaller tasks to improve performance. You can mine some altcoins with a GPU, but the efficiency depends on the algorithm and mining difficulty.

FPGA (field-programmable gate array)

FPGAs can be programmed and reprogrammed to serve a variety of functions and applications. FPGAs are customizable and more affordable than ASICs, but less efficient for Bitcoin mining.

ASIC (application-specific integrated circuit)

ASIC is an abbreviation of application-specific integrated circuit. This means that this computer is designed for one purpose. ASIC mining tools are entirely dedicated to cryptocurrency mining. ASICs are less customizable and more expensive than FPGAs, but their hash rate and energy consumption levels make ASICs an efficient choice for Bitcoin mining.

Pool mining

The chances of mining blocks alone are very low. Joining a crypto mining pool allows you to combine computing power with other miners. When the pool successfully mines a block, each miner will receive a share of the mining bitcoins. The reward pool is proportional to the mining power you provide.

How to join a mining pool?

Simply joining a pool using hardware locally, you will have to configure the software to partner with other miners. The process generally requires account registration and connection to the mining pool server.

If you have mining tools, Binance Pool is a great place to start mining BTC and other SHA-256 algorithm-based coins. Your mining tool will automatically switch between BTC, BCH, and BSV to maximize returns paid in BTC.

You can imagine the amount of profit you can get on the Binance Pool page. BTC earnings are paid daily into a Bitcoin wallet.

Mining cloud

If you want to avoid more technical steps, you can also join a cloud mining farm so that the hardware and software are up to the farm owner. In general, cloud mining usually requires you to pay someone else to mine on your behalf. Then, the farm owner is expected to share the profits with you. However, this option is very risky because there is no guarantee that you will get a return on your investment. Most cloud mining services turn out to be scams, so be careful.

Closing

It's good to have a basic understanding of how Bitcoin mining works. With the right combination of hardware and software, anyone can start mining and contribute to the security of the Bitcoin network. Even if you realize that mining isn't for you, you can still contribute by running a Bitcoin node.

The initial investment for profitable mining is very high and there are many risks involved. Your returns will also depend on market conditions and external factors, such as energy prices and hardware upgrades. Make sure you do your research before spending money on mining tools.