Unless you’ve been living under a rock for the past few years, you’ve probably heard someone say they’re into bitcoin mining or they know someone who mines bitcoins.
Unless you’ve been living under a rock for the past few years, you’ve probably heard someone say they’re into bitcoin mining or they know someone who mines bitcoins. Perhaps you’ve come across a news story or an article on the web which talks about these modern day ‘miners’. Do you ever wonder what mining is and why so many people have suddenly started doing it? Let us take a closer look at this and try to understand what is mining as well as how to mine bitcoins:
Mining in the simplest of terms is the process of generating bitcoins. Before we get into what is mining and how to mine bitcoins, here’s why it is called mining: Mines in real life exist for for resources which lie beneath the surface of the earth. Let us take gold for example. Gold is a depletable resource and requires energy and manpower to be mined out. Consider a similar analogy for bitcoins too.
Bitcoins are a limited resource. There exist only a total of 21 Million bitcoins out of which over 16 Million have been mined. Mining requires energy and manpower. Energy here is the electric energy as well as the computational force which solves complex algorithms. It requires manpower too - which is why miners tend to mine in pools. Like you store your gold in your bank locker, you store bitcoins in a digital wallet. Fun fact, bitcoin is often referred to as ‘digital gold’.
In the past when Bitcoins were new, you would be able to mine Bitcoins using your regular PCs. However, as more and more users started joining the mining process, the difficulty increased. When Bitcoin was created, the developer known as Satoshi Nakamoto knew that soon a large number of people would jump in and begin mining. True to his thought that has happened. Hence, he designed the framework in such a manner that it becomes increasingly harder to mine for bitcoins. Since the number of bitcoins is limited, had the difficulty not been progressively harder, all of them would have been mined by now and the coins would have been divided unequally.
Let us now get into the details of how to mine bitcoins:
To mine bitcoins, you need to get various things set up:
The hardware aspect of it (Bitcoin Mining Hardware)
The software aspect of it (Bitcoin Mining Software)
The manpower aspect of it (Bitcoin Pools)
The equivalent of a bank locker (Bitcoin Wallets)
Let us take a detailed look at each of these. Putting them all together will give you a good idea on how to mine bitcoins.
Over the years, the face of the bitcoin mining techniques has been changing at a rapid pace. When it all began in 2009, you could have mined bitcoins from your regular garden variety desktop PC. However, things began to change as more and more people started to jump in. Gone was the era of CPU based mining and in came the GPU based Mining. Today it would take you about 100 years to mine one bitcoin using a PC.
A number of miners realized that it was possible to mine for bitcoins using graphic cards used for gaming. They migrated to GPU based mining rigs. However they consumed a lot of power. While they were 50 to 100 times faster in terms of mining, they were not efficient considering the energy efficiency. In came Field Programmable Gate Arrays (FPGA) which were highly energy efficient though they didn’t get as big a jump in terms of mining speeds as we got from CPUs to GPUs.
However, the latest trend in the mining technology is of using ASICs. An ASIC is an Application Specific Integrated Circuit - which is a chip dedicated to the cause of mining bitcoins and cannot be used for anything else. It offers a massive improvement over the mining speeds and a drastic reduction in the energy consumed.
(For a detailed analysis on bitcoin mining hardware and rigs, you can read our article on Bitcoin Mining Hardware)
After you select the hardware that you would use to mine bitcoins, you need to select a bitcoin wallet - which is where you would store bitcoins at. As explained above, if Bitcoin is the real world equivalent of gold, a bitcoin wallet is the equivalent of the locker where you would store your gold at.
There are a number of bitcoin wallets which users can choose from.(For a more detailed review on bitcoin which wallet to choose, read our detailed article on Bitcoin Wallet) After selecting a bitcoin wallet, you would get a wallet address which is basically a series of numbers and letters. Wallets give you a public bitcoin address which you would send to others who want to send you Bitcoins and you would get a private key which is basically the password to your bitcoin wallet.
After you have decided on which bitcoin mining rig you are going to buy and which bitcoin wallet you are going to use, you should consider joining pools next. Basically, the concept of a Bitcoin Mining Pool is that an average miner has a limited computing power at his disposal. However, if a number of miners get together and use their combined computing power, they could mine at a faster pace. A block of bitcoin rewards 12.5 bitcoins which are then distributed among the pool depending on each user’s contribution. Each pool has its own rules and regulations as well as limits and fees. Users are advised to be well aware of what they are heading into before they finally decide a pool to join.
(For those wondering how to select and join the best bitcoin mining pools, you can read our detailed review of Bitcoin Mining Pools).
Pools allow you to sign up and register all your mining units so that they can track the progress of each of them and reward you with bitcoins based on your contribution to the pool. Your bitcoins go to your mining wallet via the public address which we mentioned earlier. You will be asked for this address when you sign up for the pool.
Once you have your hardware, wallet and pool in place - you would need to decide a bitcoin mining software. While some pools have their own bitcoin mining software, sometimes it is up to the miner’s choice. There are many options available and miners have to make choice based on the kind of rig that they are using. It also varies if you are using a PC or a Mac.
(Confused in determining which software suits you best? You should take a look at our review of various Mining Software)
Now to answer the biggest question - how to mine bitcoins. We assume you have your hardware, software, wallet and pool in place. The moment is now here!
Plug your mining rig on to the power source.
Connect your mining rig to your PC
Start the mining software
Enter your pool, your username and your password
This will begin the mining process. You are now mining for bitcoins. After everything is said and done, based on how your pool sends payouts, you will be rewarded with bitcoins in your bitcoin wallet. This is how you mine for bitcoins! Got any questions? Comment below and let us know.
You can use our Bitcoin Mining Calculator to calculate profitability.