With a single bitcoin valued at around US$8,000, you may want to run off and go mining for this cryptocurrency as soon as possible. But, before you do, you first need to understand specific details to see if bitcoin mining is a profitable activity or not.
The amount of time it takes to mine a single bitcoin, for instance, affects returns on investment (ROIs) and depends on several factors. These include your choice of hardware, whether you do it alone or join a pool of miners, and a so-called difficulty score, which we will talk more about later. In some cases, mining just a single bitcoin can take anywhere from about a year to infinity. Still interested? If you are, then read on.
What is a Bitcoin?
A bitcoin is a type of digital, decentralized cryptocurrency launched back in 2009. You can use the currency to buy goods and services. To date, there are hundreds of major retailers, establishments, and services, including airlines, that accept bitcoin payments.
Unlike any country’s legal tender, though, bitcoins are not regulated by a central governing body. That means no government maintains its current value. No one adjusts its rate for inflation or dictates how many bitcoins are issued.
Bitcoins are instead obtained through a process called “mining” and accounted for using a type of electronic ledger called a “blockchain.” A blockchain refers to the technology used to transfer bitcoins from one person’s or entity’s wallet to that of another.
What Happens when You Mine a Bitcoin?
The term “mining” is just a metaphor, though. Bitcoin mining actually translates to validating transactions. As a miner, it is your task to search for, verify, and validate transactions from a pool of unconfirmed deals before adding them to the bitcoin network. You confirm entries by solving mathematical puzzles, which we will get to in the succeeding sections. In return, the system compensates you with bitcoins.
Why do Bitcoins Need to Be Mined?
There is no single answer to this question because the bitcoin is a relatively new currency that has yet to be legitimized. Its decentralized nature is precisely the reason why it has to be mined. A system of checks and balances had to be put in place to oversee the release of new bitcoins into circulation.
What Bitcoin Mining Terms should You Know About?
Before we discuss what goes on during bitcoin mining, make sure to take note of the following bitcoin terms first:
- Hash: This term can mean several things. It can refer to the hash value or alphanumeric string produced by the SHA-256 algorithm (more about it later). It can also refer to the hashing power of a computer. Hashing translates to a computer’s “guessing” capacity.
- Block header: This can be compared to metadata that contains all useful information about a bitcoin block, which include its:
- Version: The bitcoin-mining software’s version.
- Previous block hash: The hash value assigned to the previous block.
- Merkle root: A hash value for individual transactions recorded in the block.
- Timestamp: The time when the block was created.
- Target: The target hash is a 256-bit number that must be satisfied by the hashing process.
- Nonce: A value that miners change with every hashing attempt to meet the target.
The entire hashing process is an attempt to guess the target hash assigned to a block. It does so by combining the block’s contents and adding random values to them (the nonce). When the output does not match the target hash, it proceeds to the next computation. For a block to be considered valid, the final hash output, which is processed using the SHA-256 algorithm, should be lower or equal to the target hash.
How are Bitcoins Mined?
The process of bitcoin mining uses a cryptographic hash algorithm called “Secure Hash Algorithm 256 (SHA-256).” It transforms any line of text or prose into a 256-bit (32-byte) hash value. In simple terms, it breaks apart words and sentences and turns them into a fixed-length, indecipherable, alphanumeric strings.
How does this relate to bitcoin mining? This string serves as a digital signature for every recorded bitcoin block and resulting transaction. SHA-256 is used to hash the block’s header and create bitcoin addresses for payment. Other computers that recognize hash algorithms then verify the resulting cryptographic string. The computational output from the original data will be the same.
What Determines How Long It Takes to Mine One Bitcoin?
Several factors affect the bitcoin-mining process, which include:
1. Mining Hardware
The first is the equipment you will use. Mining bitcoins requires you to solve cryptographic problems, so your hardware needs to be capable of accomplishing this. Gone are the days when central processing units (CPUs) could handle bitcoin mining. A new breed of devices has mostly replaced them. Bitcoin mining is an energy-intensive operation, so your device needs to be energy-efficient and sufficiently durable to withstand the demands of continuously operating at the maximum level.
2. Mining Solo or Joining a Pool
The second factor is whether you decide to mine solo or join a pool. When selecting a mining pool, it is crucial to consider its reputation and collective hash rate. The hash rate is the amount of power required to mine bitcoins at the moment. At present, mining pools such as BTCC, F2Pool, Poolin, BTC.com, and Slush control the majority of the network’s hash rate. (A substantial portion of the blocks is of unknown origin, though.)
Before joining a mining pool, thoroughly check if the bitcoin community trusts it. Some mining pools claim they are legitimate, but turn out to be scams. It is best to opt for well-established pools despite their higher-than-average signup rates. Such pools possess better hashing resources and block rewards for members. They are also more likely to have the infrastructure to fight off a cyber attack.
If you have enough computing power and the cost and availability of electric power is not an issue for you, you can opt to mine for bitcoins solo. Note, though, that it would most likely take you longer to generate a bitcoin than if you pool your resources with others. The only disadvantage of mining with others is that you share profits with the other members of the pool.
The third aspect you should consider is an adjustable rating called the “bitcoin mining difficulty” or just “difficulty” for short. It is a measure of how much work you need to do to get paid. This factor means to keep the rate of producing blocks more or less constant at a rate of one block per ten minutes. When more miners join in, validating transactions naturally takes less time. So the network raises the difficulty of slowing down block production.
With today’s difficulty rate, it may take a solo miner nearly five years to mine just one bitcoin. That’s the average rate for miners, even for those who use the most efficient mining hardware.
What is the Difficulty Rate at the Moment?
For every 2,016 blocks created, the difficulty rate changes. It takes approximately two weeks for this set of blocks to be completed, after which the difficulty increases or decreases. If the most recent block took over two weeks to be discovered, the difficulty goes down. If the process took less than two weeks, the difficulty automatically rises.
The network’s current mining hash rate of 110.48 exahash (EH/s) has a corresponding difficulty rate of 13.80 T.
What Equipment do You Need to Mine Bitcoins?
You need to use a suitable computer hardware system. The desktop or laptop you are currently reading this from will most likely be unsuitable for the task. It probably does not have the computing power and performance efficiency required. SHA-256 hashing is a potent procedure, and not all computers are capable of handling this process. Therefore, mining for bitcoins calls for highly efficient hardware to perform billions of computations using as little electrical power as possible.
Application-specific integrated circuits (ASICs), Field Programmable Gate Arrays (FPGAs), and Graphics Processing Units (GPUs) are the most commonly used mining hardware these days. ASICs, in particular, are bitcoin miners’ go-to devices.
ASICs are designed to perform hash calculations faster without consuming too much power. ASICs these days are a far cry from the entry-level ones with processing capabilities of 7–16 TH/s. They now boast hashing rates of 40–60+ TH/s and consume around 2,000 to less than 3,000 watts. Among the leading brands in this space are Bitmain, Ebang, and Innosilicon.
FPGAs are specialized chips that can be programmed to do specific tasks, such as image processing and hash computations. Like ASICs, they can also run various software and algorithms and utilize less power than CPUs. ASICs, however, are deemed more efficient than FPGAs.
However, many miners also use GPUs, which you can often find in gaming laptops and computers. Doing so can be less profitable, though. Experts say these are more suitable for other cryptocurrencies like ethereum. They advise GPU miners to mine other cryptocurrencies and exchange them with bitcoins.
Can You Mine for Bitcoins without the Right Equipment?
You can mine for bitcoins without using dedicated hardware. Also known as “cloud hashing,” cloud mining is another way for miners who do not have their own mining infrastructure to extract bitcoins. Cloud mining utilizes a remote data center that is managed by a third-party mining facility. Users only have to lease a virtual server to install their mining software on it. They can also purchase a contract or share with others to gain membership to a cloud-mining farm.
Mining pools commonly offer cloud-mining packages that fit different budgets. Pricing may correspond with several factors, such as hashing power, cross-referencing, length of the contract, and, sometimes, potential profits. Such packages can set miners back by a minimum upfront cost of US$2,000 on top of a daily fee.
How Many Bitcoins are Left to Mine?
As of this writing, there are approximately 2.852 million bitcoins left to mine, with an additional 1,800 per day. To date, there are 18,148,000 bitcoins in existence. This total is updated every 10 minutes with the identification of a new block. Every mined block brings 12.5 new bitcoins into circulation.
If there are no changes to the protocol and no new bitcoins are minted, then experts project that the last bitcoin will be mined in 2140, precisely 120 years from now.
What Happens After All the Bitcoins have Been Mined?
The answer to that is subject to much debate as no one knows for sure. But experts maintain that no new bitcoins will be created once they have all been discovered. Some speculate that this scarcity could drive the value of bitcoins up. In 120 years, we will see.
How Profitable is It to Mine for Bitcoins?
As with other forms of investment, there are always high risks if you want to go for high rewards. Bitcoin mining and trading is indeed a profitable endeavor for those who can afford the best mining equipment or contracts. However, if you are a small-scale miner and expect to take home moneybags, you may need to manage your expectations. That is especially important as more miners and institutional investors come into the fold.
First of all, bitcoins are deflationary assets. That means it has a limited supply. Then there’s the phenomenon of “halving,” which slashes block rewards in half. This feature was predetermined when bitcoins first came into existence. It occurs every four years, or every time 210,000 bitcoins are mined.
How will Bitcoin Halving Affect Bitcoin Gains?
According to the Forbes Finance Council, halving will lead to a revision of bitcoin prices. It noted that two consequences of this event:
- First, miners may quit when the bitcoin reward is split in half.
- Second, they may hold their bitcoins (as in “holding” stocks) until the price is right to sell.
Halving elicited the same responses from miners in the past, and the council expects something no different from the nearing date. Price volatility is also expected within 12–18 months following this year’s halving.