The legend says it all started in October 2007, when Satoshi Nakamoto published the whitepaper of the Bitcoin on the internet. In 2008 Bitcoin software was released and the Genesis block, block 0, was ‘mined’. Finally, on 9 January 2009, the first version of the Bitcoin was released. It included a Bitcoin generation system that would create a total of 21 million Bitcoins through the year 2040. So what is this mining? More important, is mining Bitcoins worth it for you and me?
The Bitcoin is the first cryptocurrency or digital currency. There are just two ways to get Bitcoins. Either buying them for traditional valuta or mining them yourself. Mining Bitcoins serves only one purpose. Authorizing Bitcoin transactions made in a certain period. The miners prevent Bitcoin users from spending their coins multiple times or committing fraud in a different way. Afterwards, the miners will be rewarded in Bitcoins.
So how does this mining work?
Everyone with a PC or a laptop can mine Bitcoins. In the beginning, miners used the processor in their computers to mine Bitcoins. After a while, they noticed that video cards of gaming PC’s were much better suited for the mining process. The video card will use it’s power to solve difficult math problems ( Hash’s) that authorize the transaction made between Bitcoin users. To start mining, you’ll need three things.
- Mining hardware (high-end video card)
- Mining software (downloadable for free)
- Mining account
After you meet these requirements you can start mining. Mining has become more difficult the last few years, for several reasons. First, you got ‘The Bitcoin halving’. Bitcoin’s code commands that every 210,000 blocks, the number of new bitcoins created is cut in half. (Coinjournal, 2016). When Bitcoin was launched in 2009, miners were rewarded with 50 bitcoins per block. The second era started in November 2012, reducing the number of bitcoins earned to 25. The third era started in July this year, reducing the number of bitcoins to 12.5 per block. The second reason is that the number of miners keeps increasing. How more miners, how smaller the chance you’ll solve the math problem and earn the Bitcoins.
So is mining Bitcoins worth it for you and me?
Mining has become a serious business in the last few years. The value of the bitcoin increased from $0.04 in 2012 to around $600 today. There are several huge mining rigs which are just built for mining Bitcoins. We’re talking about warehouses with thousands of video cards, million dollar investments and a lot of dedication. They use hundreds of thousands of dollars of electricity each month and only a few manage to mine efficiently. In the documentary ‘Het Bitcoin Evangelie’, there is an owner of such bitcoin mine who talks freely about his mine. (I’ll post the link below) Currently, it is barely profitable for individuals to earn money with Bitcoin mining with a single setup. A possibility is to join a mining pool, which is a group of individuals who mine together. Still, within this group, you will just earn a few dollars if you got a thousand dollar video card.
Conclusion: Mining Bitcoins as an individual with a gaming PC will only earn you a few dollars a day, even if you are within a mining pool. There are too many high-end players on the market with high-tech setups. You can compare it with the regular mining process. An individual can go mine for gold with his pickaxe but probably won’t succeed. If you group with 10 miners you will have more success, but there will always big mining organization who got the equipment to mine way more than you’ll be able to do as an individual. My advice: don’t start mining unless you are you really dedicated.
If you have any questions/comments, please share them!
More information about the Bitcoin and Bitcoin mining:
To fully understand the Bitcoin mining concept, I’ll share the next 2-minute explanation video. Credits to Bitcoinmining.com
Documentary about the Bitcoin (partly Dutch). 35:40 Is about the owner of a huge mining company
http://www.npo.nl/vpro-tegenlicht/01-11-2015/VPWON_1232890
Others interesting articles&websites
http://coinjournal.net/halvening-explained-infographic/
http://www.coindesk.com/information/who-is-satoshi-nakamoto/
Hi Justin,
Nice post! My team looked into bitcoins for our technology of the week project but we didn’t go into much details about the mining process.
I was wondering if the competition for mining is intensifying (whether you have read it somewhere or it was expressed in the documentary)? Since the number of bitcoins will reach its issuing limit pretty soon, I believe the market should start to heat up as bitcoins become scarcer.
Let me know what you think or what you have read regarding the future of bitcoin mining!
Thanks,
Maxime
Hey Maxime,
We neither did go into the mining process, but I thought it was pretty interesting. (That’s why I wrote the blog :D)
Regarding your comment: The competition is intensifying.
Smaller miners can’t keep up with the huge mining companies. Also, China has got more and more interest in the Bitcoin the last few years. They own like 50-70% of the bitcoin mining farms.(Number is hard to find, since the Bitcoin is anonymous) However they stay anonymous, I think the percentages tell us enough. They got some massive mining rigs over there and they keep on growing.
So I think only the biggest miners and the biggest pools will end up making profit in the more and more intense mining competition.
I think this statement is pretty accurate:
“You see, it isn’t easy to find a bitcoin. The easier days are over. The view on the street now is that “only the biggest centralized miners will profit.” (March 2016)
http://theconversation.com/how-do-you-mine-bitcoin-and-is-it-still-worth-it-55977
A view in a Chinese mine:
http://www.bbc.com/future/story/20160504-we-looked-inside-a-secret-chinese-bitcoin-mine
Dear Justin,
thanks for your interesting post. As an owner of a powerful computer I’m also interested in building a mining rig. But then i found an interesting articles about the current low profit rate off mining bitcoins. This calculator https://alloscomp.com/bitcoin/calculator shows that mining with my graphic card (worth over 700 dollars) is not profitable anymore. And this article says that mining in the past was profitable but now it is only possible to make money with a Asic (Application Specific Integrated Circuits). http://bitcoinmining.nl/hardware
How much money can you maken when you buy an Asic? This website shows that calculating the profit of mining is very tricky. (https://milli.io/2016-bitcoin-mining-hardware-comparison/) It has to do with 3 things:
1. The costs of energy consumption
2. The hash rate
3. The Difficulty
More expensive Asic’s will have a more effecient power consumption than cheaper ones. They will also have a higher hash rate meaning they will mine faster in 1 second. But when more miners are buying expensive hardware, the difficulty (an automatic control measure) adjusts to the current hash rate meaning they will mine at the same speed.
With a 2000 dollar Asic called Bitmain’s Antminer s9 it is probably possible to break even the cost price within 1 year but when more miners upgrade to the s9 the the difficulty increases and it can take longer/ it is not even possible to break even.
So you can make money but it requires you to buy an expensive hardware called Asic for roughly $2000 and this is still a big risk!