Mining is the process of validating transactions in the Bitcoin Blockchain, to ensure security is maintained in the network.
The Bitcoin mining process is accomplished by dedicating computational resources to run SHA256 hashes, a time-consuming and costly procedure. The number of hashes (calculations) that a computer system can process per second, to solve the mathematical puzzle, is called hash rate. The hash rate’s speed can vary depending on the computational power. The higher the hash rate, the higher the probabilities are to find a new block.
Each miner is rewarded with newly produced Bitcoins, as well as with a “per transaction” fee for his contribution to the network.
How Does Bitcoin Mining Work?
When Bitcoin was launched, it would be possible to mine by utilizing the GPU and CPU power of a home PC. However, these days are gone; the encoding difficulty on Bitcoin’s backbone is set to increase as more miners join. The purpose is to keep the time required for a new block to be found, at 10 minutes. On top of that, the Bitcoin reward is set to be halved every four years. At the moment of writing (January 2018,) there are 16,829,713 Bitcoins already mined, out of the 21,000,000 that will ever be created. The block mining reward is set at 12.5 Bitcoins per block, and the next halving will occur in June 2020.
There are three ways to mine Bitcoin, independently. The first would be utilizing the GPU power of your computer grid. Using a graphics cards from the two leading vendors (Nvidia or ATI) could generate a hashrate, that is much higher than a CPU can provide. The downside is that Bitcoin’s mining difficulty has increased so much, that GPU mining is now the least efficient solution. It is possible to enhance this power by building computer grids with multiple GPUs, but at the same time, electricity consumption would increase as well. It would be worth to note that, if you wish to do GPU mining, you should consider an altcoin, which could be more profitable than mining Bitcoin.
Secondly, there are custom-made solutions for mining, called Field Programmable Gate Arrays (FPGA). Those are programmable circuits that could be set up specifically for Bitcoin mining and could reach hash rates much higher than GPUs and CPUs can.
Lastly, the most powerful solution available at the moment is the ASIC mining. The Application Specific Integrated Circuits, offer vast hashing abilities for low energy consumption. Several vendors produce this Bitcoin-mining specific hardware, and the prices can vary from some hundreds of dollars to a few thousand (some of the most well-known devices are the AntMiner and the Avalon). Advertising hashing powers of up to 13.5 Th/s, ASICs are probably the ideal choice when deciding to mine Bitcoin.
After choosing your preferred mining method, you must download the Bitcoin client (wallet), from which will be able to download the Blockchain (takes a few days) and collect your rewarded Bitcoins. Also, you must download the appropriate mining software that suits the hardware you have acquired.
As solo mining has become extremely hard for most miners and the probabilities for discovering a new block are low, many miners join mining pools. A mining pool is formed by users who unite their computational resources to increase their chances of success. If the new block is successfully created from their pool, the reward is then distributed to every contributing miner of the pool. While the profits are lower, pool mining could generate a steady flow of income for miners.
Is Bitcoin mining profitable?
Before deciding about entering Bitcoin mining, the best would be to identify if it would be a profitable activity. To determine that, you would need to calculate your mining costs. Though, in most cases, this is not possible only until after you have started mining. There are several mining calculators available online, where you can input the number of Bitcoins generated, compared to your electricity consumption. After that, you will be able to tell if Bitcoin mining is a profitable business for you.
The calculations mentioned above will only provide you with profitability results up to that date. There are imprecise parameters that need to be considered as well. As the number of miners that will join in the future is unknown, the mining difficulty could increase significantly, fundamentally changing the mining conditions. Moreover, Bitcoin’s price is so volatile hence the conversion rate cannot be guaranteed. For the above reasons, no one can provide you with an answer about whether Bitcoin mining will be profitable in the future.