Table of Contents
WHAT IS BITCOIN MINING? 5
BITCOIN MINING TERMINOLOGY 6
WHY DO PEOPLE MINE BITCOIN? 9
GETTING STARTED MINING 12
TOP HARDWARE FOR BITCOIN MINING 13
WHAT SOFTWARE IS NEEDED? 16
MINING APPS 17
ELECTRICAL COSTS FOR MINING 22
OTHER BITCOIN MINING OPTIONS 23
CLOUD MINING 23
MINING POOLS 23
HOW TO SET UP A BITCOIN MINING OPERATION 25
HOW TO CALCULATE BITCOIN MINING PROFITS 26
RISKS AND REWARDS OF BITCOIN MINING 27
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A mining pool is a group of miners who come together in agreement to share block rewards in proportion to their contributed mining power. As a sole miner, unless you command a tremendous hashrate, you may find it difficult to solve a block on your own. Aside from that, mining alone is not always profitable now because of the amount spent on hardware and electricity.
By joining forces with other miners in a so-called pool, you stand a better chance of solving a block with the advantage of the pool’s total hashrate which means earning more profits than when you mine alone. Whenever a block is solved successfully, the pool rewards each miner according to the amount of their contributed hashrate (fewer commissions and the likes). Joining a top mining pool will help you earn Bitcoins even faster.
Why Do People Mine Bitcoin?
There are several reasons why people mine Bitcoin. Mining is the only way Bitcoin is produced. Also, unlike conventional currency which is based on gold and silver, Bitcoin is based on mathematics.
People around the world use software programs that follow a mathematical formula to produce Bitcoins. The beauty of this is that the mathematical formula is freely available, so basically, anyone can check it. Also, the mining software is open source, so anyone can look it up to verify that the inputs correspond to the desired outputs.
People want the freedom that the mining of Bitcoins provides, and the benefits that come with it. The reasons why they mine Bitcoins can be summarized by the characteristics of Bitcoin itself. These characteristics are practically absent or inconsistent in the conventional governmentbacked currencies listed as follows:
1. It is decentralized
This is one of the major reasons why people mine Bitcoins, and that is because the Bitcoin network is not controlled by one central authority. Conventional currency’s central banks can just decide to take people’s money away from them, like was experienced in Cyprus in early 2013 by the Central European Bank. With Bitcoins, every machine involved in its mining forms part of a large network, and they all work together, although competitively. Also, even if some part of the network abruptly goes offline for some reason, the money keeps on flowing nonetheless.
2. It is easily set up
Getting started with mining Bitcoins is a relatively faster and easier process compared to conventional banks. With Bitcoin mining, you get your Bitcoin address in seconds, with no hassle and no fees payable. Unfortunately, the same cannot be said of conventional banks which make you jump through hoops simply to open a bank account. Not to mention the herculean task and bureaucracy synonymous with setting up a merchant bank account.
3. It is completely transparent
Another reason why people mine Bitcoins is because of its transparency. You can access details of every single transaction that has ever been made on the Bitcoin network via a large version of a general ledger known as the Blockchain. You can also confirm the total amount of Bitcoins stored in a publicly-used Bitcoin address, though the identity of the owner of the address remains anonymous. For those who want to make their activities even more opaque on the Bitcoin network, they can do so by making use of different Bitcoin addresses and by not transferring large amounts of Bitcoin to a single address.
4. Minimal transaction fees
Unlike conventional bank systems that charge high fees on international money transfers, mining of Bitcoins eliminates going through the middleman; you get to enjoy very minute transaction fees.
5. It is fast
Nothing beats the speed of a Bitcoin transaction. You can send money from any part of the world to another, and it will arrive in the recipient’s Blockchain wallet in minutes, as soon as the Bitcoin network processes the payment.
6. It is non-retrievable
Once a transfer has been completed, and the Bitcoins are sent, there is no possibility of retrieving them back. This is because it requires the proofs for all of the transactions before the one you want to reverse. The Bitcoins you send out are gone forever and can only be reversed if the recipient agrees to send them back. It is therefore very important that you are sure that you really want a transaction before going ahead with it.
7. It is secure
The mining of Bitcoins allows individuals to become architects of their own wealth but also prevents any one person from gaining enough power to block transactions. This is seen as an advantage and another reason why people mine Bitcoins because of the security of its transactions. It is an ingenious means of payment that effectively ensures that the risk of fraudulent activities being perpetrated is significantly curbed.
Getting Started Mining
To get started as a major Bitcoin miner, there are two specific things that you’ll need. Aside from having cheaper electricity, you will need access to the latest mining hardware. Since the second halving event that took place in early July 2016, the mining of Bitcoins has become even tougher, with the reward for successfully mining a block dropping from 25 Bitcoins down to 12.5.
Also, with the Chinese taking the lead in the Bitcoin mining game, you’ll need to work with the best available miners to be able to compete. However, before we delve into the Bitcoin hardware you will need, you must first gain an understanding of a few technical terms.
As earlier explained, the hashrate refers to the measure of how many attempts at solving a Bitcoin block a miner tries per second. The more attempts, the more chances the miner has of solving the block and claiming the 12.5 Bitcoin reward.
Joule per Gigahash (J/GH)
A joule is a unit for measuring energy, and it represents one watt over one second. Electricity is a major recurring expense for miners, and therefore the joule per gigahash (J/GH) is especially important when making comparisons between miners. It is estimated that the electrical efficiency of an Application-specific integrated circuit (ASIC) miner is expected to go higher in indirect proportion to the fewer joules used to produce a Gigahash.
When the term difficulty is used in Bitcoin mining hardware, it simply refers to an automatic control measure that prevents Bitcoin blocks from being solved increasingly quickly. The difficulty level of mining adjusts to the current hashrate, ensuring the blocks are solved every 10 minutes on average.
This refers to a bottom-line number from calculating the current Bitcoin price and Difficulty, including your miner’s cost and hashrate and your electrical cost in fiat money per kWh. The Difficulty mechanism, which adjusts itself quite frequently, together with the volatile price of Bitcoin, creates uncertainty about the future profitability of Bitcoin mining. However, using an online mining profitability calculator can prove very useful for this purpose. You should also create a custom spreadsheet containing inputs showing various exchange rate and Difficulty projections. Also, ensure that you take into consideration probable downtime due to software or hardware failures, power cuts, and the like.
This refers to the duration taken for your miner hardware to pay for itself.
As mentioned earlier, mining pools are cooperative groups of miners who pull together to improve their hash-power. They distribute any rewards the pool earns in accordance with each individual miner’s hashrates. There are various types of pools, and each has their unique fees and reward structures. The larger the pool, the more frequent returns can be expected, though often, the higher the fees.Other Details
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