Bitcoin mining how to do it

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Even with this combination of two revenue sources, not every miner generates profits. Also, as mining difficulty increases, large mining operations are forced to expand or upgrade their equipment to maintain a competitive edge. Each miner agrees to share rewards according to the contributions of each miner. An important thing to know about Bitcoin is that when Satoshi Nakamoto created the protocol, they programmed in a target block discovery time of 10 minutes.

This means it should take approximately 10 minutes for a miner to successfully create the winning code to discover the next block. The Bitcoin protocol has the ability to automatically increase or decrease the complexity of the mining process depending on how quickly or slowly blocks are being found.

Every two weeks, the Bitcoin protocol automatically adjusts the target hash to make it harder or easier for miners to find blocks. If they are taking too long more than 10 minutes the difficulty will adjust downward; less than 10 minutes, it will adjust upward. More specifically, the protocol will increase or decrease the number of zeros at the front. This might not sound like much, but just adding a single zero to the target hash makes the code significantly harder to beat, and vice versa.

This subsequently led to remaining bitcoin miners reporting significant rises in mining revenue. Through this system, the Bitcoin protocol is able to keep block discovery times as close to 10 minutes as it can. You can track the mining difficulty of Bitcoin here. While actively participating in the Bitcoin network can be a highly rewarding venture, the electricity and hardware requirements often limit its profitability — particularly for miners with limited resources. The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies.

CoinDesk is an independent operating subsidiary of Digital Currency Group , which invests in cryptocurrencies and blockchain startups. John Biggs. By signing up, you will receive emails about CoinDesk product updates, events and marketing and you agree to our terms of services and privacy policy. How Bitcoin Mining Works. How do bitcoin miners discover new blocks? Combination lock. What is a hash?

How rewarding is bitcoin mining? Bitcoin mining difficulty. So how does the network ensure new blocks are discovered every 10 minutes? DISCLOSURE The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies.

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When a bitcoin is successfully mined, the miner receives a predetermined amount of bitcoin. But for most people, the prospects for Bitcoin mining are not good due to its complex nature and high costs. Here are the basics on how Bitcoin mining works and some key risks to be aware of.

Bitcoin is one of the most popular types of cryptocurrencies, which are digital mediums of exchange that exist solely online. Bitcoin runs on a decentralized computer network or distributed ledger that tracks transactions in the cryptocurrency. When computers on the network verify and process transactions, new bitcoins are created, or mined. These networked computers, or miners, process the transaction in exchange for a payment in Bitcoin. Bitcoin is powered by blockchain, which is the technology that powers many cryptocurrencies.

A blockchain is a decentralized ledger of all the transactions across a network. Groups of approved transactions together form a block and are joined to create a chain. Think of it as a long public record that functions almost like a long running receipt. Bitcoin mining is the process of adding a block to the chain.

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All of this is to say that, in order to mine competitively, miners must now invest in powerful computer equipment like a GPU graphics processing unit or, more realistically, an application-specific integrated circuit ASIC. Some miners—particularly Ethereum miners—buy individual graphics cards GPUs as a low-cost way to cobble together mining operations.

And there is no limit to how many guesses they get. If B and C both answer simultaneously, then the analogy breaks down. In Bitcoin terms, simultaneous answers occur frequently, but at the end of the day, there can only be one winning answer. Typically, it is the miner who has done the most work or, in other words, the one that verifies the most transactions. The losing block then becomes an " orphan block. Here is an example of such a number:. The number above has 64 digits.

Easy enough to understand so far. As you probably noticed, that number consists not just of numbers, but also letters of the alphabet. Why is that? The decimal system uses as its base factors of e. This, in turn, means that every digit of a multi-digit number has possibilities, zero through ninety-nine. In computing, the decimal system is simplified to base 10, or zero through nine.

In a hexadecimal system, each digit has 16 possibilities. But our numeric system only offers 10 ways of representing numbers zero through nine. If you are mining Bitcoin, you do not need to calculate the total value of that digit number the hash. I repeat: You do not need to calculate the total value of a hash. Remember that analogy, where the number 19 was written on a piece of paper and put it in a sealed envelope? In Bitcoin mining terms, that metaphorical undisclosed number in the envelope is called the target hash.

What miners are doing with those huge computers and dozens of cooling fans is guessing at the target hash. Miners make these guesses by randomly generating as many " nonces " as possible, as fast as possible. A nonce is short for "number only used once," and the nonce is the key to generating these bit hexadecimal numbers I keep talking about. In Bitcoin mining, a nonce is 32 bits in size—much smaller than the hash, which is bits.

The first miner whose nonce generates a hash that is less than or equal to the target hash is awarded credit for completing that block and is awarded the spoils of 6. In theory, you could achieve the same goal by rolling a sided die 64 times to arrive at random numbers, but why on earth would you want to do that?

The screenshot below, taken from the site Blockchain. You are looking at a summary of everything that happened when block was mined. The nonce that generated the "winning" hash was The target hash is shown on top. The term "Relayed by Antpool" refers to the fact that this particular block was completed by AntPool, one of the more successful mining pools more about mining pools below. As you see here, their contribution to the Bitcoin community is that they confirmed transactions for this block.

If you really want to see all of those transactions for this block, go to this page and scroll down to the heading "Transactions. All target hashes begin with a string of leading zeroes. There is no minimum target, but there is a maximum target set by the Bitcoin Protocol. No target can be greater than this number:. The winning hash for a bitcoin miner is one that has at least the minimum number of leading zeroes defined the mining difficulty.

Here are some examples of randomized hashes and the criteria for whether they will lead to success for the miner:. To find such a hash value, you have to get a fast mining rig, or, more realistically, join a mining pool—a group of coin miners who combine their computing power and split the mined Bitcoin. Mining pools are comparable to those Powerball clubs whose members buy lottery tickets en masse and agree to share any winnings. A disproportionately large number of blocks are mined by pools rather than by individual miners.

You cannot guess the pattern or make a prediction based on previous target hashes. Not only do miners have to factor in the costs associated with expensive equipment necessary to stand a chance of solving a hash problem. They must also consider the significant amount of electrical power mining rigs utilize in generating vast quantities of nonces in search of the solution.

All told, Bitcoin mining is largely unprofitable for most individual miners as of this writing. The site Cryptocompare offers a helpful calculator that allows you to plug in numbers such as your hash speed and electricity costs to estimate the costs and benefits. Source: Cryptocompare. Mining rewards are paid to the miner who discovers a solution to the puzzle first, and the probability that a participant will be the one to discover the solution is equal to the portion of the total mining power on the network.

Participants with a small percentage of the mining power stand a very small chance of discovering the next block on their own. For instance, a mining card that one could purchase for a couple of thousand dollars would represent less than 0. With such a small chance at finding the next block, it could be a long time before that miner finds a block, and the difficulty going up makes things even worse. The miner may never recoup their investment.

The answer to this problem is mining pools. Mining pools are operated by third parties and coordinate groups of miners. By working together in a pool and sharing the payouts among all participants, miners can get a steady flow of bitcoin starting the day they activate their miners. Statistics on some of the mining pools can be seen on Blockchain. As mentioned above, the easiest way to acquire Bitcoin is to simply buy it on one of the many exchanges. Alternately, you can always leverage the "pickaxe strategy.

To put it in modern terms, invest in the companies that manufacture those pickaxes. In a cryptocurrency context, the pickaxe equivalent would be a company that manufactures equipment used for Bitcoin mining. The risks of mining are often that of financial risk and a regulatory one. As mentioned, Bitcoin mining, and mining in general, is a financial risk since one could go through all the effort of purchasing hundreds or thousands of dollars worth of mining equipment only to have no return on their investment.

That said, this risk can be mitigated by joining mining pools. If you are considering mining and live in an area where it is prohibited you should reconsider. One additional potential risk from the growth of Bitcoin mining and other proof-of-work systems as well is the increasing energy usage required by the computer systems running the mining algorithms.

While microchip efficiency has increased dramatically for ASIC chips, the growth of the network itself is outpacing technological progress. As a result, there are concerns about the environmental impact and carbon footprint of Bitcoin mining. There are, however, efforts to mitigate this negative externality by seeking cleaner and green energy sources for mining operations such as geothermal or solar , as well as utilizing carbon offset credits.

Switching to less energy-intensive consensus mechanisms like proof-of-stake PoS , which Ethereum has transitioned to, is another strategy; however, PoS comes with its own set of drawbacks and inefficiencies such as incentivizing hoarding instead of using coins and a risk of centralization of consensus control.

Mining is used as a metaphor for introducing new bitcoins into the system, since it requires computational work just as mining for gold or silver requires physical effort. Of course, the tokens that miners find are virtual and exist only within the digital ledger of the Bitcoin blockchain. Since they are entirely digital records, there is a risk of copying, counterfeiting, or double-spending the same coin more than once.

Mining solves these problems by making it extremely expensive and resource-intensive to try to do one of these things or otherwise "hack" the network. Indeed, it is far more cost-effective to join the network as a miner than to try to undermine it. In addition to introducing new BTC into circulation, mining serves the crucial role of confirming and validating new transactions on the Bitcoin blockchain.

This is important because there is no central authority such as a bank, court, government, or anything else determining which transactions are valid and which are not. Instead, the mining process achieves a decentralized consensus through proof-of-work PoW. In the early days of Bitcoin, anybody could simply run a mining program from their PC or laptop.

But, as the network got larger and more people became interested in mining, the difficulty of the mining algorithm became more difficult. This is because the code for Bitcoin targets finding a new block once every ten minutes, on average. If more miners are involved, the chances that somebody will solve the right hash quicker increases, and so the difficulty is raised to restore that minute goal. Now imagine if thousands, or even millions more times of mining power joins the network.

The legality of Bitcoin mining depends entirely on your geographic location. The concept of Bitcoin can threaten the dominance of fiat currencies and government control over the financial markets. For this reason, Bitcoin is completely illegal in certain places. Bitcoin ownership and mining are legal in more countries than not.

Some examples of places where it was illegal according to a report were Algeria, Egypt, Morocco, Bolivia, Ecuador, Nepal, and Pakistan. Overall, Bitcoin use and mining remain legal across much of the globe. Hayes, A. Cryptocurrency value formation: An empirical study leading to a cost of production model for valuing bitcoin. Telematics and Informatics , 34 7 , De Vries, A. Joule , 2 5 , Library of Congress. Your Money. You join forces with other miners to share the rewards.

By signing up with a pool, you and everyone else in the pool are agreeing to split any Bitcoin you are rewarded with the other pool members. This means that you will receive small payments regularly. However, not all pools are the same. There are plenty of things you need to consider when choosing a pool. They are:. However, since the rewards will be split between more users, they will also be smaller! Biggest Mining Pools Source: blockchain.

Joining large cryptocurrency mining pools is usually a comfortable option for beginners how to mine Bitcoin. Another important thing to look at is the minimum payment that the pool will let you withdraw. By minimum payment , I mean the smallest amount of Bitcoin that the pool will let you take out. This will mean that you can be sure that it all works as it should do in a shorter period. Every pool charges a fee for organizing it all for you. The fee is usually a percentage of your profits.

However, their reliability is yet to be seen. Running a pool is expensive. There are lots of computer systems and data center space that need to be paid for. When talking about how to mine Bitcoin, mining alone is possible.

It probably seems like the best idea. Even if you have more computing power than every single miner in every pool, do you have more than the entire pool combined? Probably definitely not! That said, if you are a multi-millionaire , you could set up a profitable solo mining operation. To run hundreds of computer chips will take a whole lot of electricity. The best possible way how to mine Bitcoin now is with the help of the DragonMint T1 miner.

This runs at 1,W. To make matters worse, running hundreds of computer chips gets hot. Think about using a laptop for a few hours on your knee. They can get pretty warm, right? The average laptop runs at around 60W. Now, imagine of these bad boys running at once in a small room.

That means more power consumption! One of the concerns that will occur on your way to learn how to mine Bitcoin is the noise. With the constant buzzing of hundreds of computer components , plus industrial-scale cooling facilities running 24 hours a day, a professional scale solo mining operation is going to be hellishly loud! The top Bitcoin mining locations today are Iceland , rural Canada , and Russia. You might ask why someone would bother spending the huge sums of money on expensive mining equipment to rent it out to someone else.

The reason is simple. They want to guarantee profits on their investment and not have these affected by swings in the price of Bitcoin. The concept seems strange , but some people choose how to mine Bitcoin in this way. The company might require you to pay for damage done to their equipment!

If the price of Bitcoin drops considerably, you might be stuck in a contract and mining at a loss until the price increases again if it ever does. You take all the risk as the cloud mining operator is guaranteed a profit. In July of , Genesis Mining was hacked. That way, if the market takes a dramatic downturn, you can sell your position. Looking for more in-depth information on related topics? We have gathered similar articles for you to spare your time.

Take a look! Wondering how to buy Ethereum? Find out how and where to do so - right in this guide! Wondering where and how to get some NEO coins? Find your best places to buy NEO Coin with clear instructions on how to do that! Wondering how to buy NEM cryptocurrency? So, you probably want to start mining Bitcoin already?

There are a few things that you must have before you begin:. The specific setup options will vary depending on the model of ASIC miner you are using. The manufacturer should detail exactly how to do this in their user manual or on their website. The following guide is specific on how to mine Bitcoin with the Antminer S9 unit on the Antpool.

However, much of it will be useful no matter what ASIC miner you decide to use. Find the power draw of your ASIC. This should be clearly stated in the manual under specifications. The S9 uses 1, Watts. Match your power supply units to the power draw. Make sure all the necessary connections are made then power up the power supply.

Your Antminer S9 should now come on. On your computer or mobile device, use an IP scanning tool to show the devices connected to your internet connection. You should see your Antminer listed. You can then type the IP address of the Antminer into your browser window on your chosen device. The next screen you see should be the login window of the miner. In the case of the Antminer S9, the default login details are username — root, password — root.

I recommend doing this. You will now need to enter various details from the mining pool you will be using. You should be able to find these out easily from the website of your mining pool. On your path to learning how to mine Bitcoin, you can choose any Bitcoin mining pool you want. However, we recommend you choose from one of these recommended pools to begin with:. Note: Pool addresses are for users from Europe where indicated.

Other addresses will apply from other parts of the world. Every mining pool will have its user interface. However, the idea is always the same. This will let you see all the information about your Bitcoin mining efforts so far. Some pools will let users set how much they want to mine before their Bitcoin is automatically sent to the external wallet address they specified. If you want to check how much you should be earning, you can use a mining calculator. CryptoCompare provides an easy to use one.

Our electricity is about the average rate in the UK. When you factor in the price of the unit itself, this example operation is going to be incredibly expensive! With this highly advanced bit of kit, it would take just over three and a half years. As more miners work on the network, the difficulty increases, and the number of Bitcoin a miner can expect decreases. Learn what is the best time to buy Bitcoins, and when to sell Bitcoin, too!

Learn about the the most secure vaults in the world, and how you can acquire one of such vaults yourself! Learn how to convert Bitcoin to cash on Binance P2P, and start exchanging today!