We have heard many times about Bitcoin mining and how the largest blockchain network in the world gets more secure every single day. However, not everyone knows what Bitcoin mining is and how it works.
This is why we have decided to create this guide. We will focus on what Bitcoin mining is, how it works and why this is one of the most important economic activities on the Bitcoin network. There are many things to take into consideration about it.
What is Bitcoin Mining?
Bitcoin mining is one of the most important economic activities on the Bitcoin network, if not the most important one. Bitcoin miners secure the network and make sure that transactions are processed (added to blocks).
In order to mine Bitcoin, it is necessary to own a computing device that will process different calculations in order to secure the Bitcoin network. As you might already know, the Bitcoin blockchain works with blocks that contain transaction information.
Blocks are usually processed every ten minutes on average. Each time that a Bitcoin miner finds a block with transactions, it gets rewarded with 6.25 BTC plus the fees paid by users that processed transactions.
Every close to four years, the Bitcoin network halves the rewards by half. That means that after the next halving event, miners are expected to earn 3.125 BTC per block rather than 6.25 BTC. Hence, we see that the issuance of new Bitcoin also decreases with time.
Miners get rewarded because they have to invest in different ASIC and hardware devices and also because they are processing transactions. Without the miners, there will be no transactions processed on the Bitcoin network. Therefore, they are incentivized to continue protecting the network and making sure that all transactions are included in a new block.
The larger the number of miners and the hashing power, the more secure the network will become. Understanding how Bitcoin mining works and how it plays a key role in the Bitcoin network is very important
How to Start Bitcoin Mining?
But how to start mining Bitcoin? Can you mine Bitcoin with a computer? There are some things that you should take into consideration if you want to start mining Bitcoin today. If you want to start mining Bitcoin you should buy an ASIC miner. These are specialized computers that have been created for network participants to mine Bitcoin.
In the past, when Bitcoin was released to the market, it was possible to mine BTC using CPU and GPU power. This is something that nowadays became impossible due to Bitcoin’s network difficulty. Therefore, it is very important to buy the necessary equipment to mine Bitcoin (ASIC miners).
Not only do you need to buy these ASIC miners, but you should also make sure that you have a proper electrical installation. These miners require a lot of energy, which can be provided by the grid or through your own electricity sources such as solar panels. It depends on how you want to mine Bitcoin and whether you want to overpay for electricity. Nowadays, most Bitcoin miners search for environmentally-friendly energy sources that make it possible for investors to mine Bitcoin without having to pay large electricity bills.
Another thing that you should know if you want to start Bitcoin mining is that you have to mine with other miners. These are called mining pools. It became so difficult for miners to be able to solo mine that it is necessary to join a mining pool.
Mining pools take a commission from the rewards that you get but they have higher chances of finding a block and earning a reward. Mining pools became a key part of the network, as they pool the resources of thousands of miners to be able to process transactions.
Without the mining pool, it would be almost impossible for you to find a block, which would result in your investment being unprofitable. There could be a very small chance of processing a block, but this would largely depend on your hashing power.
Furthermore, if you want to start mining Bitcoin, you should also think about a cooling system that would keep your ASIC miners cool at all times. Due to the fact that they would be processing difficult calculations, they will be very noisy and they will get hot. Therefore, a good cooling system would also be needed for them to run efficiently.
Understanding Hash Rate
Bitcoin miners should also know that they are having a very important impact on the hash rate. What does it mean? Each miner will be adding hashes to the Bitcoin network. These hashes would protect it from being attacked. The larger the hash rate of the Bitcoin network, the more secure it becomes.
A large hash rate means that if an attacker wants to revert a transaction or change blocks, they would need an amazingly large hashing power. Nowadays, and according to data shared by Blockchain.com, the Bitcoin network has a total hash rate of 203 million TH/s.
That means that it would be necessary for an attacker to have at least 101.5 TH/s, which is almost impossible. Not even the largest mining pools are able to get 50% of the total Bitcoin hash rate. They are not even close.
With more miners entering the Bitcoin network, it becomes more difficult for a third party to attack it. An attacker would need half of the total hashing power in order to be able to at least try to attack the network. Even if an attacker is able to get such a large hashing power, the community would increase the hashing power by connecting new ASIC miners (and old devices) in order to make it more difficult for the attacker to succeed with its attack.
Until now, the Bitcoin network has never been affected by a 51% attack. These are attacks in which the malicious party has more than 51% of the hash rate of the Bitcoin network. This would allow them to change transactions that have already been processed.
The future of the Bitcoin blockchain looks bright. There are many initiatives that aim at increasing Bitcoin’s hash rate. Additionally, ASIC miners are getting more efficient and the network becomes more decentralized as well. All these things are making it easier and better for Bitcoin to become a more secure blockchain network.
What is Bitcoin Difficulty?
Bitcoin difficulty is one of the most important measures besides hash rate that is worth considering when it comes to Bitcoin mining. Due to the fact that the Bitcoin network receives new miners on a daily basis, they all expect to get rewarded with BTC. When there is a fast influx of new miners, blocks can be found faster.
The contrary happens if there is a sudden loss of Bitcoin miners. Blocks get processed slower (due to the lower hash rate). Due to this reason, the Bitcoin network automatically adjusts the difficulty according to the hashing power in order for blocks to be mined every close to ten minutes.
Bitcoin’s difficulty adjustment takes place every 2,016 blocks (close to two weeks). Therefore, if the network registers a fast increase of miners (hash rate), then it will become more difficult for miners to find blocks. This pushes inefficient miners to become unprofitable and expels them from the network.
New and efficient miners would continue to enter, even if difficulty grows. The goal is to keep the block creation as close to ten minutes as possible.
And as mentioned before, if the Bitcoin network gets attacked and miners disconnect from the network, the difficulty will be adjusted downwards. That means that it would become easier for miners to mine Bitcoin and keep the network secure. This incentivizes new miners to join the network, even with older devices, to stabilize the hash rate.
Due to this reason and thanks to Bitcoin difficulty adjustments, the hash rate has never stopped growing. Additionally, thanks to difficulty adjustments, it becomes possible for the Bitcoin network to keep block creation close to ten minutes. That’s how the network works and how difficulty became one of the most important aspects of Bitcoin mining activities.
Best ASIC Hardware to Mine Bitcoin
Now it is time to talk about the best ASIC hardware to mine Bitcoin. You should know that ASIC miners are expensive and that they require you to have advanced knowledge when it comes to Bitcoin and blockchain technology. Therefore, it might not be so easy to set many miners up.
Of course, you can always get connected to mining pools and they would help you with the whole process to set your miners up. But which are the best ASIC hardware devices currently available to mine Bitcoin?
As of March 2022, the most profitable ASIC miners in the market for the Bitcoin network include Antminer S19 Pro. The company behind this ASIC device is Bitmain, which has been working in the Bitcoin industry for many years now. For many years, Bitmain has been one of the most popular ASIC hardware developers. Indeed, they created some of the most advanced ASIC devices in the world.
Other ASIC miners for Bitcoin include WhatsMiner M30S++, AVALONminer 1246, WhatsMiner M32, AvalonMiner 1166 Pro, Ebang EBIT E11++ and DraonMint T1. Each of them has different prices and would have different performance in terms of hashes and electricity consumption.
If you want to start Bitcoin mining, one of the best things that you can do is analyze the energy consumption per TH. In this way, you can make sure that you buy the most efficient miner in the market. However, large cryptocurrency mining facilities might prefer to use more powerful miners. These companies usually have their own clean energy sources, which makes it cheaper for them to mine digital currencies.
Bitcoin Mining vs Bitcoin Node
Let’s now talk about Bitcoin mining and how it differs from running a Bitcoin node. People that are not involved in mining activities or in the Bitcoin network as a whole, tend to confuse mining with running a Bitcoin node.
Mining activities involve securing the Bitcoin network by adding transactions to blocks. Instead, nodes validate that the transactions added by miners are correct. Basically, nodes make sure that the network follows the rules that have been agreed upon.
Running a Bitcoin node does not require expensive or energy-consuming hardware. It becomes quite easy to create your own node, even at home. Indeed, it is highly recommended to Bitcoin investors and holders to run their own node at home if they believe in the long-term success of Bitcoin.
Bitcoin nodes do not require a large amount of equipment. Indeed, it is enough for users to run the Bitcoin blockchain on a 1 or 2 TB SSD card with a Raspberry Pi 4 (or equivalent). Over the last few years, it became very easy to run a node and even cheaper than many years ago.
For example, investors can easily purchase all the things they need and build their own blockchain nodes at home. Thanks to solutions such as the ones offered by Umbrel, even users without a technical background can start getting involved on the Bitcoin blockchain and run their nodes.
Another thing to take into consideration is that nodes do not add hashes to the network. Therefore, there will be no rewards for nodes. One of the positive aspects of running a full Bitcoin node is related to helping the Bitcoin network become more decentralized.
Is Bitcoin Mining Bad for the Environment?
It has many times been discussed whether Bitcoin mining activities are bad for the environment. Indeed, Bitcoin mining has been associated with large energy consumption and global warming. However, that’s a very inaccurate thing.
Why? Because most Bitcoin miners have invested in green and renewable energy sources. For example, rather than mining using carbon or fossil fuels, miners rely on solar panels and hydroelectric energy. In this way, it becomes cheaper for mining farms to mine Bitcoin and it becomes more profitable for them.
Additionally, a large number of miners are also using energy sources that would otherwise be wasted. For example, U.S. oil and gas company Exxon Mobil is using excess power to mine Bitcoin in the United States. The goal is to expand to other countries, including Nigeria and Argentina, among others.
There are many myths about Bitcoin mining, however, this is one of the most reliable ways to secure a decentralized blockchain network that offers benefits to individuals from all over the world. In the future, it is expected for the Bitcoin network to become even greener and more decentralized.