Bitcoin, the world’s largest cryptocurrency, is not issued by a central bank. Rather, it is created or “mined” by ordinary people – or at least until the advent of professional mining operations.
Bitcoin mining is a way to acquire valuable bitcoins without paying for them directly. However, the costs of computer hardware, software and electricity required for mining are significant.
Here’s a look at how to get into bitcoin mining in 2023 and if it’s still viable for individuals.
The cryptocurrency market is largely unregulated in the UK, so you have no protection if something goes wrong. Buying cryptocurrency is speculative and your capital is at risk, which means you could lose some or all of your money.
What is bitcoin mining?
To understand bitcoin mining, you must first understand how bitcoin works.
The principle of bitcoin is that unlike a traditional currency like the pound sterling, no central bank is involved in issuance and no traditional banks or intermediaries are involved in facilitating payments and storage.
Instead, it is the bitcoin holders themselves who control everything.
Records of Bitcoin holders’ balances and payments/transfers are not maintained by any single organization such as e.g. B. a bank out. Instead of a central ledger, everyone can maintain and edit a digital copy of records through a “distributed ledger.”
And why would anyone want to spend time on it? Because they have the opportunity to earn valuable bitcoins.
A miner’s chances of doing this depend on their computing power.
Here’s what happens: miners compete with each other to be the first to guess a series of letters and numbers, called a hash, or to find the closest solution within a 10-minute window.
The string has 64 characters, so it’s not like miners can just guess it from their heads – at least not fast enough to win. Instead, they use their computers to generate guesses.
There are trillions of possible combinations for each target hash. The more powerful your computer, the more guesses you can make per second (this is called the “hash rate”) and the better your chances of winning.
If you are lucky enough to win, your record of bitcoin transactions will be submitted to the volunteer community for verification. When 51% agree your record is an accurate record, it is added to a chain of previously added records on what is known as a blockchain.
The 51% consensus ensures note takers remain honest. One could try to alter one’s own transaction records to give oneself more bitcoin than one actually owns, but one needs more than half the community’s approval to cheat the system.
It takes a lot of hardware to guess the target hash, but it takes a lot more to control 51% of the votes on the network to approve a tampered copy of a ledger. This makes cheating virtually impossible.
There was a time when the competition between miners was less fierce and ordinary people could become miners with their home computers. If their machines had powerful graphics cards — the kind often used for high-end PC gaming — they had an even better chance of earning bitcoin since their machines could achieve a higher hash rate.
But as Bitcoin rose in value and the asset became more attractive to speculators, competition increased, leading to an arms race among miners over computing power.
This has largely pushed mining out of enthusiast bedrooms and basements and led to professionalized, larger mining operations that spend big bucks on their mining machines to reap the rewards.
Finally, there is a cap on the total number of bitcoins that can ever be mined. Its creators capped the system at 21 million tokens. Once this number is reached, no new bitcoins will be minted.
Currently around 900 bitcoins are mined every day. The number of coins given to miners as a reward for each block of transactions they add to the ledger is currently 6.25 BTC, but the reward halves every four years.
A “halving” is coming up next year, but even at the current rate, the 21 million mark is unlikely to be reached until around 2040.
Can the Average Person Still Mine Bitcoin?
Yes, you can still mine bitcoin in two ways.
You can either mine alone in hopes of taking the bitcoin reward all for yourself, or you can pool your resources with others to mine bitcoin together in hopes of winning a share of the rewards.
mining alone
To mine alone, you need a powerful computer with lots of RAM, a powerful CPU and lots of storage, and either:
- a top-tier graphics card like the Nvidia GeForce RTX 4090, which costs around £1,600
- at least one Application-Specific Integrated Circuit (ASIC) miner like the Antminer S19 Pro for around £800.
So in terms of initial expenses you are talking about thousands of pounds of investment.
Because larger hardware means higher hash rate, there are mining operations set up with rows of ASIC miners linked together for an even greater rate. It’s hard to compete with as an individual, and it would probably cost you a lot more to set up than you’d ever see in returns.
Regardless of the size of your mining rig, setup costs are just the beginning. The power required to run ASICs also impacts your ROI potential. As you may have read, bitcoin mining consumes more energy globally than Norway every year.
As bitcoin mining never stops, miners keep their rigs running 24/7. The Antminer S19 Pro ASIC miner has a power consumption of 3250W which means it costs around £26 for 24 hours based on an electricity price of £0.34 per kWh.
The chances of a solo miner successfully guessing a target hash and earning bitcoin are vanishingly small, but not zero. Last year, a software developer beat the estimated 1 in 10,000 odds of successfully solving a hash, even though its hash rate placed its odds somewhere in the region of one correct guess per 27 years.
At the time of writing, the Bitcoin mining reward was 6.25 BTC and the value of one BTC was £14,155. That means the current reward is worth around £88,000 – although this is much lower than when Bitcoin’s value peaked at £48,000 in November 2021.
At the time, the reward would have been worth nearly £300,000.
Pool your mining resources
Another way to start mining bitcoin is to join a pool. You’ll still need a powerful computer with a beefy CPU and GPUs, and maybe even an ASIC, but you’ll improve your chances by pooling your resources with others running similar facilities.
If a miner can make 330 million guesses per second, a pool of ten miners can make 3 billion per second. Of course, while your individual chances increase tenfold as part of a pool, the potential reward decreases tenfold as you have to share it with your peers.
Also, pool mining rewards are not evenly distributed. Only guesses that successfully contribute to solving a hash are rewarded. So if the processing a miner performs is deemed not to have contributed to a solution, no reward is assigned.
It’s entirely possible for a pool to receive the 6.25 bitcoins and some of its members to miss out on a cut.
There are then variations on how rewards are allocated to those whose work has contributed. Some pools pay proportionally to the work a miner performs, while others pay a weighted reward based on a miner’s individual effort relative to the pool’s overall performance.
Some pools charge a membership fee while others are free, some pools assign participants specific tasks while others allow participants to choose their own workspace.
There are even pools of pools that combine the computing power of one pool with that of another pool. It pays to double check what you’re signing up for before joining a pool.
Is bitcoin mining a good idea?
Even if you have the funds to set up a mining rig, mining is a gamble. There is no guarantee that you will even get back the money you spent building it, whether you do it alone or join a pool.
If you see bitcoin mining as a fast track to untold riches, you will likely be disappointed. You’re up against huge, well-funded organizations with far more capital and processing power, and far fewer odds of winning.
Consider this: BIT Mining Limited in Hong Kong has a power capacity of 82.5 megawatts. Its theoretical hash rate is 971 petahashes per second — that’s 971 quadrillion estimates per second. Solo miners are the David for such Goliaths.
If you don’t expect a quick return, joining a pool might be the better route – with expectations of far lower but more frequent returns on your investment that could pay off over longer periods of time.
Finally, you need a bitcoin wallet where you can store the private and personal keys associated with your bitcoins if you’re lucky enough to mine some successfully.
Free user accounts on crypto exchanges like Coinbase and Binance offer free crypto wallets and are an easy way to get a bitcoin wallet. Your wallet is assigned an address that you must share in order to receive your mined bitcoins.
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