The “Mining” of bitcoins is carried out by specialized computers in order to secure the network and to process each transaction. Miners do this by solving a computational problem that allows them to create new transaction blocks, which is why we are talking about Blockchain technology. For this service, minors are rewarded with newly created bitcoins and transaction fees.
While traditional currencies like the dollar or the euro are issued by central banks, the Bitcoin network creates new “coins” by rewarding the work of miners who receive new bitcoins as soon as they find the validation key necessary to creating a new block. The emission rate is defined in the starting algorithm of the Bitcoin network, so that minors cannot cheat the system or create bitcoins from scratch. The creation of bitcoins has been planned so that 21 million bitcoins will be created by 2140. The limited number of bitcoins thus contributes to the increase of the bitcoin price as well as to the smoothing of the bitcoin price in the long term.
Bitcoin mining is based on the realization of a “Proof of work” or proof of work
Proof of work is the mechanism behind the Bitcoin blockchain.
We observe below the stages of the proof of work mechanism of the Bitcoin network. Each new block is produced using the hash of the block before it. This is the way in which the validity of the blocks is confirmed. The process creates proof that this block and the one before it are correct. The process thus follows several stages:
- A transaction is integrated in a block;
- Minors check whether the transaction is valid or not;
- They select the header of the most recent block and integrate it into the new block as “hash”;
- They solve the mathematical problem;
- When the solution is found, the new block is added to the blockchain and then broadcast across the network.
Bitcoin Guide to Mining Bitcoin by Yourself
Open a Bitcoin Wallet:
This is the first step to secure all of your bitcoins, whether purchased bitcoins or mined bitcoins. To do this, there are several types of wallets, often called from the English term “Wallet”:
Directly installed on your computer or on your mobile via an app, they give you complete control over the wallet in one fixed location. Breadwallet, Mycelium, Coinbase, Blockchain and Circle offer this type of wallet.
They often take the form of USB keys, these physical devices can contain private keys electronically and facilitate payments. You can for example opt for the physical portfolios Trezor or Ledger.
Equip yourself with mining equipment
In order to mine Bitcoins, you will need to offer significant computing power on the network in order to generate profits by recovering fractions of Bitcoins during the validation of a transaction. With the expansion of the Bitcoin Blockchain, the difficulty of the calculations to be performed in order to validate a transaction has greatly increased and if the mining of bitcoin was mainly carried out using computers at the start of the Bitcoin adventure in 2008, today there are specialized and optimized machines for mining bitcoin. They are called “Bitcoin Miner ASICs”. You can buy one of these devices online today. When purchasing, remember to observe the following technical characteristics:
- The Hash rate: the higher the hash rate the more you can mine Bitcoins;
- Electricity consumption: mining machines consume a lot of electricity, analyze the Hash Rate / Electricity Consumption ratio in order to choose an efficient machine;
- The price: the prices of machines specializing in Bitcoin mining are high. It will take between 100 euros for an entry-level machine and up to 3000 euros for a high-performance machine.
The main manufacturers of ASICs for bitcoin mining are: Bitmain Technologies, Canaan Creative and Bitfury.
Opt for mining software and join a mining pool
There are two ways to mine: by yourself or as part of a team (a pool). If you choose the first option, you need to install Bitcoin software and configure it for JSON-RPC.
The other option is to join a “Pool” of miners: it is more or less a cooperative bringing together several miners in order to maximize the chances of mining bitcoin. There are several “pools” that you can join such as: SlushPool, AntPool, or even Genesis Mining with an offer intended for beginners.
Being part of one of these networks of miners will allow you to ensure more regular profits since the profit generated by each block from a member of the team will be divided between all the members of this same team.
Once you’ve joined a pool, the next step is to configure the mining software. The most popular software for GPU / FPGA / ASIC is CGminer or BFGMiner, a derivative designed specifically for machines like ASICs.
Bitcoin Guide to Mining Bitcoin via Cloud Mining
What is cloud mining?
Cloud mining allows you to use mining capacity in a company that specializes in bitcoin mining. It’s a good way to invest in Bitcoin. This allows you to manage mining from the cloud by taking advantage of the computing capacity that you have rented from the company. Thus, you do not have to manage all the expenses related to the purchase of Hardware necessary for a mining from your home thanks to an ASIC type machine. You also don’t manage electricity costs. However, you are dependent on the cloudmining company you go through to do the mining business, and therefore the payoff is less.
Choose a Cloudmining platform and open a Bitcoin Wallet to get started.
It is important to choose your Cloudmining platform carefully if you opt for this solution in order to mine bitcoin. You will find below a selection of offers available on the market:
This company has been mining Bitcoin since 2012. It has facilities in Iceland and Georgia. They use modern BitFury ASICs to deliver maximum performance and efficiency.
- Genesis Mining:
It is the first Cloudmining provider for Bitcoin. Genesis Mining offers three packages to perform Bitcoin mining in Cloudmining at a reasonable price and beginners access.
A member of the Bitmain company that produces Antminer machines, HashNest currently has more than 600 Antminer S7 for rent.
This platform allows you to get started in Cloudmining with an initial investment of $ 10.
Link your Bitcoin wallet to store your mined bitcoins via the Cloudmining platform you have selected.
Mining or buying Bitcoin, the best solution to invest in Bitcoin.
What investment to mine Bitcoin?
In addition to purchasing ASICs mining machines, you should also be aware that your activity will consume a lot of energy. In France, the cost of electricity used to extract bitcoin is more than € 6,920. With a bitcoin price between € 2,600 and 3,500 since January 2019, energy costs are too high to make the operation profitable in the short term. But in China, where most of the miners are located, bitcoin mining costs around € 2,600.
Mining Bitcoin is therefore risky and of low profitability if we take into account the current bitcoin price. However, if one apprehends bitcoin mining to invest in Bitcoin it can prove profitable in the long term taking into account the increase in the bitcoin price.
Calculate your profitability
There are many websites that allow you to calculate the profitability of the Bitcoin mining activity such as the Whattomine.com site. You can also find the performance of mining in other cryptocurrencies on these sites. Study the different returns in order to mine in the cryptocurrency which will be the most profitable according to your investment.
Other options to mine in cryptocurrencies and invest in Bitcoin
If bitcoin mining is a good way to get bitcoin, or at least fractions of bitcoin, you should know that this is not the simplest solution today especially for a lonely miner. This is why it is recommended to join a mining pool or even to go through a Cloudmining company. You can also choose to invest in bitcoin by buying bitcoins directly on an exchange platform. You can do this by referring to our guide “How to invest in Bitcoin? “
Guillaume has been passionate about Blockchain technologies and cryptocurrencies for 2 years now. He firmly believes in the massive adoption of these in the years to come. Eager for crisp news and always on the lookout for the latest trends in the cryptocurrency market, he enjoys sharing with you all their secrets!