TL;DR - SUMMARY

Mining is the process by which Bitcoin transactions are verified and added to the blockchain. The goal of miners is to find a valid solution to complex mathematical problems. Miners who manage to solve these puzzles are rewarded with new bitcoins and transaction fees.

In its early days, Bitcoin users were able to join the mining race with their personal computers. Today, profitable mining requires the use of highly specialized mining rigs. Since solo mining is very difficult, many miners choose to join a mining pool to increase their chances of obtaining a block reward, which is then shared proportionally among the members of the pool.

Introduction

Bitcoin mining ensures that the blockchain is up to date with legitimate transactions. At the time, it was the only solution to building trust in a trustless environment. In this sense, mining is fundamental to Bitcoin's security model.

The idea of ​​mining and receiving BTC in return is an attractive-sounding deal. While the days of mining with a computer CPU are over, getting involved in mining doesn't always require owning a physical machine. But before you can decide if mining is for you, let's briefly discuss how Bitcoin mining works.

What is Bitcoin mining?

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

The goal of a miner is to find a valid block hash for their candidate block. A block hash is a string of numbers and letters that acts as a unique ID for each block. Here is an example of a block hash:

0000000000000000000b39e10cb246407aa676b43bdc6229a1536bd1d1643679

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

However, the miner must find a nonce that – combined with all the data – generates a block hash that starts with a certain number of zeros. The number of zeros changes depending on the difficulty of mining. A valid block hash demonstrates that the miner did the work necessary to validate their candidate block (hence, Proof of Work).

After collecting pending transactions and creating your candidate block, the nonce is the only thing a miner can change, and that's what mining rigs do. In an intensive process of trial and error, miners keep changing the nonce and hash the combined data multiple times until they find a solution for that block (i.e. a hash that starts with a certain number of zeros).

As soon as a miner finds a valid hash, they can validate their candidate block and collect the bitcoin rewards. This is also the time when the blockchain transactions included in that block go from pending to confirmed.

How much does a Bitcoin miner earn?

Each new block provides the respective miner with a block reward, which consists of newly generated bitcoins (block subsidy) plus transaction fees. Since the block reward is made up almost entirely of the block subsidy, most people refer to it as the block reward (without taking fees into account).

When it comes to Bitcoin, the block subsidy started at 50 BTC in 2009 and halves every 210,000 blocks (approximately four years). These halving events caused the mining reward to drop to 25 BTC in 2012, then to 12.5 BTC in 2016, and finally to 6.25 BTC in 2020. The next halving event is expected to occur in 2024. Since May 2021, the block reward it gives miners approximately $300,000 per block.

Still, there are many factors to consider when evaluating mining equipment and profitability. The speed at which a mining rig can produce random nonces and test them is an important metric to check. This figure is known as the hash rate and is vital to the success of a Bitcoin miner. The higher the hash rate, the faster you can try these random inputs.

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

How to start mining Bitcoin

Since Bitcoin is decentralized and open source, anyone can join the mining race. In the past, you could use your personal computer to mine new blocks. But as the difficulty of mining increased, you now need more powerful machines (more on this below).

Theoretically, you could still try to mine bitcoins with your personal computer, but the chances of finding a valid hash are practically zero. Computing the hash function is relatively fast, but computing the huge number of random inputs takes much longer. This is why you now need specialized hardware before even trying to be a profitable miner.

What mining equipment should I use?

Generally speaking, you can try mining cryptocurrency using a CPU, GPU, FPGA, or ASIC machine (we'll look at these in a moment). Some altcoins can still be mined with GPU cards. FPGA machines could also be an option depending on the mining algorithm, difficulty, and electricity costs. But when it comes to Bitcoin, ASIC mining rigs are the most efficient.

CPU (central processing unit)

CPUs function as a versatile chip responsible for distributing instructions to different parts of a computer. CPUs are no longer efficient for cryptocurrency mining.

GPU (graphics processing unit)

GPUs can have different purposes, but they are basically used to process graphics and output them to a display. They can divide complex tasks into several smaller ones to increase performance. Some altcoins can be mined with GPUs, but the efficiency depends on the mining algorithm and difficulty.

FPGA (Field Programmable Gate Array)

An FPGA can be programmed and reprogrammed to serve different functions and applications. They are customizable and more affordable than ASICs, but are less efficient for Bitcoin mining.

ASIC (application specific integrated circuit)

An ASIC stands for application-specific integrated circuits, which means these computers are designed for a single purpose. ASIC mining rigs are completely dedicated to cryptocurrency mining. ASICs are less customizable and more expensive than FPGAs, but their hash rates and power consumption levels make them the most efficient option for Bitcoin mining.

Mining pools

The chances of mining a block alone on your own are extremely low. Joining a cryptocurrency mining pool, on the other hand, allows you to combine your computing power with other miners. When a pool successfully mines a block, each miner receives a share of the mined bitcoins. Pool rewards are proportional to the mining power you provide.

How to join a mining pool?

When joining a pool using your local hardware, you will need to configure your software to associate with other miners. The process usually involves signing up for an account and connecting to a mining pool server.

If you have a mining rig, Binance Pool is a good place to start mining BTC and other coins based on SHA-256 algorithms. Your mining rig will automatically switch between BTC, BCH and BSV to maximize your profits, which are paid in BTC.

You can get an idea of ​​how much profit you could make on the Binance Pool page. BTC earnings are paid daily to your Bitcoin wallet.

Cloud mining

If you want to avoid the more technical steps, you can also join a cloud mining farm, leaving the hardware and software in the hands of the farm owners. Generally speaking, cloud mining usually involves you paying to have someone else mine on your behalf. The farm owner is expected to share the profits with you. However, this option is very risky as there is no guarantee that you will get a return on your investment. Many cloud mining services turned out to be scams, so be careful.

In conclusion

You can't go wrong with 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 is not for you, you could 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 a mining rig.