How to become a Bitcoin miner

You may have just recently learned about Bitcoin or you knew about it but haven’t had the chance to get into the mining aspect of it. This article will aim to explain the different ways you can start mining and will go over the pros and cons of each method.

What is Bitcoin Mining?

If you don’t know what Bitcoin mining is, its the process of verifying transactions and assembling them into blocks. That may sounds complicated at first, but the miner has to simply fire up a mining program on the device he want’s to mine with. You don’t need to sit in front of your computer for hours and keep reconfiguring the miner, once its set up you leave it alone. The main concept you need to understand about Bitcoin mining is that on average every 10 minutes a miner finds a block. When the block is found he receives a reward, currently it is set at 25BTC (which will be reduced to 12.5 BTC in a few weeks).

Type of Bitcoin Mining

There are three main different types of Bitcoin mining: you can either Solo mine, Pool mine, or Cloud mine.

Solo Mining is when a miner uses his equipment to mine coins by himself. What this means is that when the miner finds a valid block, he will get all the reward – currently 25BTC ~ $11,000. This amount may sound outrageous, if only you can find 1 block you will be set for awhile. However, that is not the case, the amount of power required to find a block in a reasonable amount of time (1 day , 1 week, 1 month) is unachievable with a personal mining operation. As good as it sounds, Solo mining was only feasible when Bitcoin was first introduced in 2009 and only lasted a few months. Once the big fish jumped in the hashpower and difficulty increase made it impossible to Solo mine bitcoin.

The second and most popular type of mining is Pool Mining. In a Mining Pool, multiple users contribute their hardware to a collective “pool” which acts as one entity in searching for blocks. What this allows one to do, is to receive shares of the block reward when the pool finds it.

Lets say the mining pool has 1000Th/s of power, and you have a Bitcoin miner which runs at 10 Th/s. Obviously the pool with 1000Th/s will find a block 100 times faster than it would if it only had 10Th/s of power. So, when the pool does find a block it will split the reward between users based on how much power each miner contributed. If you ran 10Th/s you would have gotten 1/100th of the reward, which would be 0.25 BTC.

What a mining pool allows you to do, is to receive smaller increments of payouts at a more constant rate than if you would Solo mine, as a result pool mining is the most popular type of mining. Eligius is a great mining pool which charges no fees and has a well established reputation as it was founded in 2011.

The last type of Bitcoin mining is Cloud Mining, as the name implies it means that the end miner doesn’t host any hardware. The benefit of cloud mining is the fact that you are guaranteed a certain hash power for your investment. If you are hosting your own hardware, your GPU or ASIC mining device will have periods of downtime. Whether the software crashes, the miner overheats, or you overload your electrical circuit, downtime means lost income. Cloud mining companies like Miningrigrentals or Nicehash allow you to choose who will host your rented miner and allows to view statistics on the machine.

The obvious downside to cloud mining are the fees. The mining providers who host the rigs often have an upcharge on the amount they are charging per Gh/s of power. So if at current rates 1Gh/s of power will net you 0.0001 BTC, the mining provider will ask for 0.00012 BTC in exchange for the rig.

How to start mining

The first decision you have to make if you are set on becoming a bitcoin miner is whether or not you want to host your own hardware. It only makes sense to host your own hardware if you are either able to get free electricity or your electricity cost is less than the average electricity cost globally. To give you some perspective, the average electricity cost in the US is about 12 cents per kilowatt-hour, compared to China where the electricity cost 8 cents per kilowatt-hour. Checkout this chart for a comparison of the electricity cost in leading economies:

cost of electricity
Chart Source: ovoenergy

If you live in a place where you do have cheap electricity then hosting a miner makes sense. However, even then you are not guaranteed a profit or even an equal return on your investment, due to fluctuations in Bitcoin’s price and mining difficulty. You can use bitcoin mining calculators like alloscomp or vnbitcoin to try and calculate the possible return on your investment. However keep in mind that the mining difficulty and the price of Bitcoin are both hard to predict. Furthermore, the reward is going to be reduced to 50% of the current reward in the coming months, which can cause all sorts of unpredictable effects to the price and the mining difficulty of Bitcoin.

If you do decide to host a mining rig, make sure you buy it from a reputable source. There have been countless websites that offered mining rigs at great prices, but ended up either shipping the product late or not at all. Amazon is a great place to start because you have recourse in case there is a problem with the product.

If you don’t live in a place where electricity is cheap then you might want to look at cloud mining as your option. As mentioned earlier, sites like Miningrigrentals and Nicehash offer cloud mining contracts which you can pay for with Bitcoin. From the available rigs you can select the amount of time you want the miner to run for and the amount of power you want to rent.

It makes sense to cloud mine bitcoin if you are betting that the difficulty will go down and/or the price will go up. Otherwise, what most people do is mine altcoins. You can visit Coinwarz to see which altcoins are worth mining and which will bring you the greatest rewards. However, keep in mind that if an altcoin is profitable to mine today it might not be profitable to mine tomorrow, its all a gamble.

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