Bitcoin Mastery Mining

Bitcoin mining is a term that’s becoming more widespread as the cryptocurrency gains publicity. But what exactly is it, and is it something you can do?

The Evolution of Bitcoin Miners

As Bitcoin’s value rose, the reward for solving a block increased with it. Bitcoin Miners are now rewarded thousands of dollars worth of bitcoin for solving a block, and so people were willing to pay more to increase their chances of getting these rewards. Bitcoin mining hardware has evolved through 3 distinct phases: 

  • CPUs 2009 - 2011: In the beginning any laptop or PC could easily mine bitcoins. The CPU processor provided the computing power.
  • GPUs. 2011-2013: As bitcoin increased in value, the graphics cards contained within gaming PCs were used. These could solve SHA256 problems much more quickly than CPUs but were more expensive.
  • ASICs. 2013 onwards: Finally, as bitcoin’s value soared to over $1000 USD in 2013, purpose built mining hardware was created to mine bitcoin. ASIC computers were much more powerful and efficient at mining than GPUs, and are now what keep the Bitcoin network running. They are however, very expensive, and have been criticised because most people cannot afford them.

This arms race has resulted in Bitcoin becoming the world’s most powerful supercomputer, with total hardware investment in the millions of dollars. This makes it extremely expensive to perform a 51% attack on the network.

The basics of Mining Bitcoin

Bitcoin mining is a process by which computer hardware is used to perform mathematical calculations. These calculations help verify the transactions which occur on the Bitcoin network, and by doing so, add to the security of the network. The aim of the bitcoin mining game is to complete as many calculations as possible to initiate the formation of a new block on the blockchain; rewards for achieving this feat are divided up among participants based on the amount of work contributed. But, unless you’ve got substantial financial backing and a heap of tech expertise to go with it, you’re facing a slight dilemma: the difficulty of the mathematical problem depends on the number of participating systems and their performance.

Given the relatively steady ascent of the digital currency and the arrival of purpose-specific systems to mine Bitcoin and only mine Bitcoin, the number of mining rigs added to the network is steadily increasing. This means that the difficulty of the mathematical problem is more likely to increase than decrease any time soon. So, on the one hand, if you have anything from R20k to a few hundred thousand rand lying around to invest in purpose-specific hardware, then mining Bitcoin isn’t necessarily a bad idea. But on the other hand, as with all things profitable, mining for Bitcoin is starting to become a corporate game. US-based MGT Capital, a technology and Bitcoin mining company, announced recently that its complete arsenal of mining machines will consist of 4 700 Bitmain Technologies S9 Antimer rigs. (Depending on the specific model, you’re looking at a price tag of approximately R40k for one of those rigs.) This will make MGT the largest Bitcoin miner in the US, with a potential hash power of more than 60Ph/s - which translates into 60 quadrillion (15 zeroes) hashes per second.

The problem with scenarios like the above is that all that added processing power will eventually overshadow basic or even modest mining setups and substantially increase the difficulty of completing a block, meaning that smaller mining setups are likely to become unfeasible with the passage of time.

Other ways to get Bitcoins

Mining Pools

The Bitcoin mining arms race and Bitcoin’s increasing popularity made the network hash rate skyrocket. With so many bitcoin miners competing to solve a block, individual miners could mine for days, weeks, months, even years, without ever being rewarded (when they were rewarded though, it would be a big pay day).

To deal with this problem, bitcoin miners agreed to combine their computing power to increase the likelihood of solving a block, and then redistribute the reward out to those contributing their mining power. This meant miners received smaller, more consistent payment, allowing them to better cover their day to day costs of electricity, rent, and other needs - See the chart example below showing the various mining pools.

Mining Pool Chart

Certain bitcoin mining pools have grown huge, causing concern amongst the Bitcoin community. If a single pool controlled more than 50% of the networks power, they could theoretically create fraudulent transactions. This however doesn't seem to be an issue, as bitcoin mining pools have it in their best interest to maintain bitcoin’s price and network security.

 

Cloud Mining Contracts

Joining a (reputable) Bitcoin cloud mining pool may be your best bet. Cloud mining pools offer a number of benefits, not least of which is that you don’t have to cover any hardware costs, and you won’t have to spend thousands extra on added electricity costs (because running serious hardware requires serious electricity). In this scenario you essentially lease processing power without needing a dedicated physical or virtual hardware setup.

But these contracts are not without risk. Lack of transparency regarding Bitcoin mining operations, lower profits due to overhead fees, and the possibility that mining operations may be suspended without notice are some of the potential pitfalls associated with this option. 

 

Buying / Selling products or services

Accepting payment in Bitcoin for goods or services rendered is not uncommon, and may be a more viable means to make your first Bitcoin or two. The benefit of using Bitcoin as a currency to accept payment is that it eliminates some of the pitfalls associated with debit card and credit card payments, thanks to the protocols embedded in the blockchain.

Buying Bitcoin - If all else fails, buying Bitcoin is probably the most logical thing to do. We’ve previously written extensively about using Bitcoin as an asset, given its speculative nature at present. So, if you’ve got some money to spend, and if the currency continues to increase its value as it is expected to, there’s some money to be made.On the other hand, if your interest in Bitcoin mining is purely academic or for entertainment purposes only, then any old desktop PC will suffice for an experimental dip into the vast ocean that has become Bitcoin mining.