How do you bitcoin mining

Bitcoin mining is the process of adding transaction records to Bitcoin’s public ledger of past transactions or blockchain. This ledger of past transactions is called the block chain as it is a chain of blocks. The block chain serves to confirm transactions to the rest of the network as having taken place.

Bitcoin nodes use the block chain to distinguish legitimate Bitcoin transactions from attempts to re-spend coins that have already been spent elsewhere.

What is Bitcoin Mining?

What is the Blockchain?

Bitcoin mining is intentionally designed to be resource-intensive and difficult so that the number of blocks found each day by miners remains steady. Individual blocks must contain a proof of work to be considered valid. This proof of work is verified by other Bitcoin nodes each time they receive a block. Bitcoin uses the hashcash proof-of-work function.

The primary purpose of mining is to allow Bitcoin nodes to reach a secure, tamper-resistant consensus. Mining is also the mechanism used to introduce Bitcoins into the system: Miners are paid any transaction fees as well as a «subsidy» of newly created coins.

This both serves the purpose of disseminating new coins in a decentralized manner as well as motivating people to provide security for the system.

Bitcoin mining is so called because it resembles the mining of other commodities: it requires exertion and it slowly makes new currency available at a rate that resembles the rate at which commodities like gold are mined from the ground.

What is Proof of Work?

A proof of work is a piece of data which was difficult (costly, time-consuming) to produce so as to satisfy certain requirements. It must be trivial to check whether data satisfies said requirements.

Producing a proof of work can be a random process with low probability, so that a lot of trial and error is required on average before a valid proof of work is generated. Bitcoin uses the Hashcash proof of work.

What is Bitcoin Mining Difficulty?

The Computationally-Difficult Problem

Bitcoin mining a block is difficult because the SHA-256 hash of a block’s header must be lower than or equal to the target in order for the block to be accepted by the network.

This problem can be simplified for explanation purposes: The hash of a block must start with a certain number of zeros. The probability of calculating a hash that starts with many zeros is very low, therefore many attempts must be made. In order to generate a new hash each round, a nonce is incremented. See Proof of work for more information.

The Bitcoin Network Difficulty Metric

The Bitcoin mining network difficulty is the measure of how difficult it is to find a new block compared to the easiest it can ever be. It is recalculated every 2016 blocks to a value such that the previous 2016 blocks would have been generated in exactly two weeks had everyone been mining at this difficulty. This will yield, on average, one block every ten minutes.

As more miners join, the rate of block creation will go up. As the rate of block generation goes up, the difficulty rises to compensate which will push the rate of block creation back down. Any blocks released by malicious miners that do not meet the required difficulty target will simply be rejected by everyone on the network and thus will be worthless.

The Block Reward

When a block is discovered, the discoverer may award themselves a certain number of bitcoins, which is agreed-upon by everyone in the network. Currently this bounty is 25 bitcoins; this value will halve every 210,000 blocks. See Controlled Currency Supply.

Additionally, the miner is awarded the fees paid by users sending transactions. The fee is an incentive for the miner to include the transaction in their block. In the future, as the number of new bitcoins miners are allowed to create in each block dwindles, the fees will make up a much more important percentage of mining income.

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Bitcoin Mining Guide — Getting started with Bitcoin mining

Bitcoin mining is difficult to do profitably but if you try then this Bitcoin miner is probably a good shot.

How Bitcoin Mining Works

Before you start mining Bitcoin, it’s useful to understand what Bitcoin mining really means. Bitcoin mining is legal and is accomplished by running SHA256 double round hash verification processes in order to validate Bitcoin transactions and provide the requisite security for the public ledger of the Bitcoin network. The speed at which you mine Bitcoins is measured in hashes per second.

The Bitcoin network compensates Bitcoin miners for their effort by releasing bitcoin to those who contribute the needed computational power. This comes in the form of both newly issued bitcoins and from the transaction fees included in the transactions validated when mining bitcoins. The more computing power you contribute then the greater your share of the reward.

Sometimes you may want to mine a more volatile altcoin like MWC which is superior for scalability, privacy, anonymity and fungibility by utilizing MimbleWimble in the base layer.

With mainnet launching in November 2019 it has risen from $0.22 to over $8.00 in its first two months.

Step 1 — Get The Best Bitcoin Mining Hardware

Purchasing Bitcoins — In some cases, you may need to purchase mining hardware with bitcoins. Today, you can purchase most hardware on Amazon. You also may want to check the bitcoin charts.

How To Start Bitcoin Mining

To begin mining bitcoins, you’ll need to acquire bitcoin mining hardware. In the early days of bitcoin, it was possible to mine with your computer CPU or high speed video processor card. Today that’s no longer possible. Custom Bitcoin ASIC chips offer performance up to 100x the capability of older systems have come to dominate the Bitcoin mining industry.

Bitcoin mining with anything less will consume more in electricity than you are likely to earn. It’s essential to mine bitcoins with the best bitcoin mining hardware built specifically for that purpose. Several companies such as Avalon offer excellent systems built specifically for bitcoin mining.

Best Bitcoin Cloud Mining Services

Another option is to purchase in Bitcoin cloud mining contracts. This greatly simplifies the process but increases risk because you do not control the actual physical hardware.

Being listed in this section is NOT an endorsement of these services. There have been a tremendous amount of Bitcoin cloud mining scams.

Hashflare Review: Hashflare offers SHA-256 mining contracts and more profitable SHA-256 coins can be mined while automatic payouts are still in BTC. Customers must purchase at least 10 GH/s.

Genesis Mining Review: Genesis Mining is the largest Bitcoin and scrypt cloud mining provider. Genesis Mining offers three Bitcoin cloud mining plans that are reasonably priced. Zcash mining contracts are also available.

Hashing 24 Review: Hashing24 has been involved with Bitcoin mining since 2012. They have facilities in Iceland and Georgia. They use modern ASIC chips from BitFury deliver the maximum performance and efficiency possible.

Minex Review: Minex is an innovative aggregator of blockchain projects presented in an economic simulation game format. Users purchase Cloudpacks which can then be used to build an index from pre-picked sets of cloud mining farms, lotteries, casinos, real-world markets and much more.

Minergate Review: Offers both pool and merged mining and cloud mining services for Bitcoin.

Hashnest Review: Hashnest is operated by Bitmain, the producer of the Antminer line of Bitcoin miners. HashNest currently has over 600 Antminer S7s for rent. You can view the most up-to-date pricing and availability on Hashnest’s website. At the time of writing one Antminer S7’s hash rate can be rented for $1,200.

Bitcoin Cloud Mining Review: Currently all Bitcoin Cloud Mining contracts are sold out.

NiceHash Review: NiceHash is unique in that it uses an orderbook to match mining contract buyers and sellers. Check its website for up-to-date prices.

Eobot Review: Start cloud mining Bitcoin with as little as $10. Eobot claims customers can break even in 14 months.

MineOnCloud Review: MineOnCloud currently has about 35 TH/s of mining equipment for rent in the cloud. Some miners available for rent include AntMiner S4s and S5s.

Bitcoin Mining Hardware Comparison

Currently, based on (1) price per hash and (2) electrical efficiency the best Bitcoin miner options are:

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How Does Bitcoin Mining Work?

Bitcoin Mining Explained

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Bitcoin is a sovereign system of digital money. It has no direct correlation to any real-world currency, nor is it controlled by any government or centralized entity. But people can (and do) use it to purchase real-world items at major retailers such as Overstock.com and Expedia.

To process these transactions securely, entities called miners compete to solve mathematically complex problems. The miner who is successful in solving the problem adds a block to Bitcoin’s blockchain and receives a reward of 6.25 bitcoins. In November 2020, a single bitcoin was worth more than $18,000—meaning every successful miner receives more than $100,000 worth of Bitcoin.

Not only is this a reward for the miner’s efforts, but the process of mining is how new bitcoins are generated and introduced into circulation.

Key Takeaways

A blockchain is an online decentralized ledger that records approved transactions (blocks) that are tied together (chains) throughout a network.
Bitcoin miners add individual blocks to the blockchain by solving complex mathematical problems, with the winner receiving a set number of bitcoins.
The mining difficulty of bitcoin is extremely high, requiring expensive hardware, large amounts of electricity, and specific software.
Whether bitcoin mining is profitable depends on the cost of electricity, though it is most profitable when miners work in pools to combine resources.

How Bitcoin Mining Works

All mining starts with the blockchain. This is an online decentralized ledger that records transactions throughout a network. A group of approved transactions is called a “block.” These blocks are tied together to create a “chain,” hence the term “blockchain.”

In the Bitcoin network, a miner’s goal is to add individual blocks to the blockchain by solving sophisticated mathematical problems. This requires enormous computational and electrical power. While many miners compete to add each block, the miner who solves the problem will actually add the block—along with its approved transactions—to the blockchain. This miner receives a reward of 6.25 bitcoins (as of November 2020).

The reward rate is cut in half every 210,000 blocks, which means roughly every four years. This process, called “halving,” is algorithmically enforced, ensuring a predictable, unalterable rate of introducing new bitcoins into the existing supply—eliminating concerns of inflation.

Due to the inherent difficulty in mining bitcoins, there are a number of requirements when it comes to the actual mining process.

What Do I Need to Mine Bitcoin?

Bitcoin is designed to adjust the difficulty required to mine one block every 14 days (or every 2,016 blocks mined). The overarching goal is to maintain the time required to mine one bitcoin to 10 minutes. Since Bitcoin has been around since 2009, its mining difficulty is currently extremely high, which is why resource-intensive, powerful hardware is required to mine it.

Regular household computers—even those with incredible power by today’s standard—will not see any success in the modern Bitcoin mining ecosystem.

The first and most important piece of equipment needed to mine bitcoin is specialized mining hardware called application-specific integrated circuits, or ASICs. A new ASICs device can cost anywhere from several hundred dollars to $10,000. But the price of mining hardware is only a fraction of the expense involved. ASICs consume tremendous amounts of electricity, the cost of which can quickly exceed the cost of the device using it.

You’ll also need to choose Bitcoin mining software to join the Bitcoin network. This isn’t nearly as expensive as hardware. In fact, plenty of reliable software options are available for free.

To determine the profitability of Bitcoin mining, all expenses must be considered: hardware, software, and electricity. The current value of Bitcoin, which consistently fluctuates, must also be taken into account, as well as taxes you might pay.

Each block takes roughly 10 minutes to mine. If more power and resources are dedicated to mining, and if the time required to mine one block falls under 10 minutes, Bitcoin’s mining difficulty will increase to bring the average per-block mining time back to 10 minutes.

Can You Make Money From Mining Bitcoin?

At first glance, Bitcoin mining appears profitable. As of November 2020, the reward per block was 6.25 bitcoins, and one bitcoin is worth almost $18,000. According to these figures, Bitcoin generates more than $100,000 worth of value every 10 minutes. If that sounds too good to be true, that’s because it is—in part.

A single ASIC can consume as much electricity as 500,000 Playstation 3 devices, which is why Bitcoin mining simply isn’t profitable from home.

The profitability of Bitcoin mining depends mostly on the cost of electricity. For example, if you live in Louisiana and access electricity at an industrial rate of 4.58 cents per kilowatt-hour—which is the cheapest in the United States—you will lose money, even with top-notch ASICs hardware.

Fortunately, Bitcoin mining enthusiasts without direct access to cheap electricity have another option.

Mining Pools

One way in which Bitcoin mining can still be profitable—and perhaps the only way—is through mining pools. These enable miners to pool their resources, adding power but splitting the difficulty, cost, and reward of mining Bitcoin. There are several well-known Bitcoin mining pools across the globe, including F2Pool, Poolin, and BTC.com.

When a mining pool is rewarded, the individual miners get a very tiny piece of this reward. One bitcoin can be divided by eight decimal places, meaning a transaction of 0.00000001 BTC can be facilitated by the Bitcoin network, thus accommodating thousands of Bitcoin miners who collaborate through mining pools.

But miners might still wait a long time to successfully reap their reward. Though this is highly speculative, one analysis found that top-notch ASICs hardware would require about 1,200 days to receive one bitcoin from mining efforts as part of a pool.

Taxes

The IRS treats cryptocurrencies (including Bitcoin) received from mining as income. A miner needs documentation proving when a bitcoin was mined. The bitcoin will be valued based on its price the day it was mined. If a bitcoin is later sold at a higher price, the miner will need to pay capital gains tax on the difference.

If a mining operation is not part of an established business, additional tax obligations could apply. Such miners are likely to owe a self-employment tax of 15.3% on their annual income.

How to Start Mining Bitcoin

Though it is extremely difficult and rarely profitable, Bitcoin mining is still feasible. While the best results will derive from joining a mining pool, the following steps can be taken to venture into Bitcoin mining:

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