How to Mine Bitcoin?

Mining is the process by which Bitcoin transactions are verified and added to the blockchain. The goal of miners is to find a valid solution to complex mathematical problems. When the user creates a new Bitcoin transaction, he must wait for other network users (nodes) to verify the transaction and confirm the transaction's validity. Miners are responsible for collecting new, pending transactions and grouping them into a candidate block.

The miner's goal is to find a valid block hash for the candidate block. A block hash is a string of numbers and letters that serves as a unique ID for each block. For example,

 

  • - 0000000000000000000b39e10cb246407aa676b43bdc6229a1536bd1d1643679

 

To generate a new block hash, the miner must combine the block hash of the previous block and the data of the candidate block and pass them all through a hash function.

But the miner - along with all other data - needs to find a nonce that will generate a block hash that starts with a certain number of zeros. The number of zeros varies according to the mining difficulty. A valid block hash proves that the miner has done the necessary work to validate the candidate block (hence the name Proof of Work).

After pooling the pending transactions and creating the candidate block, the only thing the miner can change is the nonce, and that's what mining equipment does. Mining machines constantly change the nonce through an intense trial and error process and hash the aggregated data several times until they find a valid solution for the block.

Once the miner finds a valid hash, they can verify their candidate block and receive their bitcoin rewards. This is also the moment when blockchain transactions in the block are verified while they are pending.

How Much Do Bitcoin Miners Earn?

Each new block offers its miner a block reward consisting of newly created bitcoins (block allowance) and transaction fees. Because the block reward consists almost entirely of the block allowance, many refer to the allowance as the block reward.

In Bitcoin, the block allowance started in 2009 with 50 BTC, and this reward is halved every 210,000 blocks (about four years). These halving events have caused the mining reward to drop to 25 BTC in 2012, to 12.5 BTC in 2016, and finally to 6.25 BTC in 2020. The next halving event is expected to occur in 2024. As of May 2021, the block reward to miners is approximately $300,000 per block.

Still, there are many factors to consider when evaluating mining equipment and profitability. The speed at which a mining rig generates and tests random nonces is an important metric to look at. This value is called the hash rate and is vital to the success of a Bitcoin miner. The higher the hash rate, the higher the speed of testing these random inputs.

Another important criterion is the energy consumption of mining equipment. If electricity expenditures are more than what is earned by mining, it cannot be profitable.

Which Mining Equipment Should Be Used?

Generally speaking, cryptocurrency mining can be attempted using a CPU, GPU, FPGA or ASIC machine. Some altcoins can still be mined with GPU cards. FPGA machines may also be an option depending on the mining algorithm, difficulty and electricity costs. But when it comes to Bitcoin, ASIC mining rigs are the most efficient.

CPU (Central Processing Unit)

CPUs work like a versatile chip responsible for distributing instructions to different parts of a computer. But CPUs are no longer efficient for mining cryptocurrencies.

GPU (Graphics Processing Unit)

GPUs can serve different purposes, but they are mainly used to render graphics and print them to a screen. They can split complex tasks into several smaller tasks to improve performance. Some altcoins can be mined with GPUs, but efficiency depends on mining algorithm and difficulty.

FPGA

The FPGA can be programmed and reprogrammed to serve different functions and applications. FPGAs are customizable and are considered more cost-effective than ASICs, but less efficient for mining Bitcoin.

ASIC

In ASIC, computers are designed for a single purpose. ASIC mining rigs are fully dedicated to cryptocurrency mining. ASICs are less customizable and more expensive than FPGAs, but their hash rates and energy consumption levels make them the most efficient option for Bitcoin mining.

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