Mining bitcoin is an intriguing hobby — but is it possible today to make money doing it?
With the value of bitcoin soaring to new heights — nearly $1,200 in March 2017 — you may be tempted to invest in the equipment necessary to begin “mining” for it. But while bitcoin mining echoes the Gold Rush of 1849, it may take a bit more than simply showing up, pan in hand.
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What does it mean to mine bitcoin?
Mining bitcoin is how this cryptocurrency is released to the world. For you to mine bitcoin, you must attempt to complete a “block” containing recent bitcoin transactions. These transactions are recorded in a digital ledger called blockchain. Once a block is complete, a specified amount of bitcoin is given as a reward.
Blocks in a blockchain
The entire history of bitcoin transactions is recorded in a digital ledger called the blockchain. Because the blockchain is public, anyone can access it. Data is stored across a network, so it’s not susceptible to exploitation by hackers or central failure.
Each record or series of records on the blockchain is known as a block. A block is sent to the network and added to the blockchain after it’s accepted by the network as a valid transfer.
A block reward
Bitcoin miners across the globe race to solve a computational puzzle — called a “hash” — that will add the next block to the blockchain. Once the block is validated, a miner is issued a “block reward.”
A block reward is an amount of bitcoin given to the person who adds a new block to the blockchain. This amount is cut in half every time 210,000 blocks are solved. In 2009, the block reward began at 50 bitcoin per block. That value was halved to 25 in 2013 and will likely be reduced again in 2017.
What is cryptocurrency?
Cryptocurrency is a digital currency for which encryption techniques are used to regulate its use and generate its release. Unlike fiat currency — like US dollars, euros and yen — cryptocurrency is not regulated or controlled by any government or agency.
Where do I store my mined bitcoin?
Once miners receive bitcoin, they are given a digital key to the bitcoin addresses. You can use this digital key to access and validate or approve transactions.
You can keep these digital keys safe with a number of wallet options:
- Desktop wallets. Software like Bitcoin Core allows you to send and store bitcoin addresses and also connects to the network to track transactions.
- Online wallets. Bitcoin keys are stored online by exchange platforms like Coinbase or Circle and can be accessed from anywhere.
- Mobile wallets. Apps like Blockchain store and encrypt your bitcoin keys so that you can make payments using your mobile device.
- Paper wallets. Some websites offer paper wallet services, generating a piece of paper with two QR codes on it. One code is the public address at which you receive bitcoin and the other is your private address you can use for spending.
- Hardware wallets. You can use a USB devices created specifically to store bitcoin electronically and your private address keys.
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Are people still making money mining bitcoin?
Yes, people are making money mining bitcoin. However, times have changed.
With the value of 1 bitcoin rising to nearly $1,200 in 2017, a block reward of 25 bitcoin is a lot of money. When mining first began, there was less competition, and to complete a block required a lot less power. Mining could be done using CPUs found on standard desktop computers.
Making money mining bitcoin is much more difficult today. Some of the issues contributing to this difficult include:
- Hardware prices. The days of mining using a standard CPU or graphic card are gone. As more people have begun mining, the difficulty of solving the puzzles has too increased. ASIC microchips were developed to process the computations faster and have become necessary to succeed at mining today. These chips can cost $3,000 or more and are guaranteed to further increase in cost with each improvement and update.
- Rise in corporate miners. Hobby miners must now compete with for-profits — and their bigger, better machines — when mining to make a buck.
- Power costs. Power in the United States is more expensive than it is in other parts of the world, making it further difficult to compete with big-miner money.
- Puzzle difficulty. Bitcoin’s protocol adjusts the computational difficulty of the puzzles to finish a block every 2,016 blocks. The more computational power put toward mining, the more difficult the puzzle.
Making money by joining a mining pool
If you’re looking to make money mining bitcoin, you could consider joining a mining pool. These collectives pool the resources of its members and then divide the block reward according to shares. The pool gives these shares to members who can prove how their mining equipment contributed to completing the block. Current mining pools include SlushPool, P2Pool and BitMinter.
How do I get started mining bitcoin?
Bitcoin mining can be done for money or for the sheer thrill of it. Before you get started, you’ll need to invest in a few mining tools.
|Mining hardware.||You’ll need a custom bitcoin ASIC chip for your computer. Prices for ASICs range from $400 to $3,000. To avoid a skyrocketing electric bill, look for quality equipment.|
|Mining software.||Download free software like CGMiner or EasyMiner. Easy-to-follow instructions explain how these programs work with your ASIC.|
|Get a bitcoin wallet.||If you do complete a block, you’ll need to store your bitcoin in a wallet.|
|Current bitcoin news.||Prices for bitcoin have fluctuated greatly over the past few years. Read up regularly to know the best times to buy or sell your bitcoin.|
Can I mine other cryptocurrency?
Bitcoin is the better-known and most valuable cryptocurrency out there, but there are many others to explore — more than 700 at the time of this writing. These include Litecoin, Peercoin, Dogecoin, Monero and Ripple.
A simple Google search will reveal how you can get started with mining for other cryptocurrencies.
The rising costs of mining effectively and competing against large mining pools have made it harder for the hobbyist to profit on mining bitcoin.
You will not likely mine enough bitcoin to recoup your initial investment in equipment and electricity. But if you’re not so concerned about making a buck, you could have fun panning for this cool currency.