In this article, we’ll dive deep into the Bitcoin (BTC) mining process, answering frequently asked questions such as “how to mine Bitcoin at home?”, “how long does it take to mine Bitcoin?” and the most common – “what is Bitcoin mining?”!
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What is Bitcoin Mining?
The Bitcoin blockchain is a decentralized peer-to-peer payments network operating with a global community of mining nodes verifying its native BTC asset transactions. To achieve provable, verifiable confirmation of transactions, all nodes on the network must agree on their validity using a proof-of-work (PoW) consensus algorithm. Introduced by pseudonymous developer(s) Satoshi Nakamoto, PoW was the first consensus algorithm offering a solution to the “double spending” problem with digital payments in 2009.
Proof-of-work (PoW) requires nodes to solve immensely complex mathematical equations that cryptographically prove if a transaction is, in fact, valid. As the equation is quite complex, it is theoretically quicker to attempt to guess the correct answer than to solve the equation formulaically. Further, with each transaction, every node uses vast amounts of energy competing to find the correct answer. Upon achieving this, a transaction is placed into a block with a cryptographic link called a “hash” to the previous transaction. Blocks have a set “height” or amount of space for transactions. When a block is full of transactions, it becomes appended to the blockchain. At that point, the mining node will receive freshly mined Bitcoin (BTC) as a reward for their participation. This process is known as Bitcoin mining.
However, there are a few other things to bear in mind. For example, the amount of BTC rewards will continue to decrease over time. This is the result of the “halving event,” which we will discuss later. In addition to the new BTC entering circulation as rewards for energy expenditure and validation of transactions on the network, mining nodes also receive the fees sent with the transactions.
How to Mine Bitcoin – Things to Bear in Mind
As the coin has grown in popularity, so too has the question of how to mine Bitcoin. It is imperative to carry out extensive research first to learn how to mine Bitcoin profitably. Upon launch more than ten years ago, anyone could easily mine Bitcoin (BTC) from a standard desktop computer. This was because the network was much smaller and didn’t have as many energy requirements. However, this is no longer possible, with miners required to invest in expensive mining gear and electricity usage to participate in mining.
With that said, if you conduct thorough enough research on how to mine Bitcoin, the setup process isn’t too tricky. Rather, it requires a significant upfront investment. In addition, there are several liabilities that can affect the profitability of mining Bitcoin and how long it takes to mine Bitcoin. This includes the market price of Bitcoin itself, varying electricity costs, and the longevity of mining gear.
Mining Gear
Anyone learning how to mine Bitcoin must become familiar with application-specific integrated circuit (ASIC) devices. Mining Bitcoin using CPUs, GPUs, or even FPGAs is so much slower, and its costs far exceed any income. The best GPUs available before the launch of ASICs generated 800 million hashes per second, whereas the average ASIC on the market produces 100 trillion hashes per second (125,000x increase). The number of hashes per second is a performance measurement for mining gear, known as the “hashrate”. We’ll discuss this in detail later on.
When learning how to mine Bitcoin profitably, there are several key concepts to consider with ASIC mining gear:
Cost
Users can purchase ASICs from retailers or manufacturers directly, with international orders potentially subject to import tax. Also, consider the cost and time it will take to see a return on your investment.
Longevity
Using profitability calculators, work out the likely duration of profitability of a device. It is worthwhile always keeping an eye on the mining gear market. What once was a powerful mining device can become redundant almost overnight.
Power Supply
When purchasing an ASIC mining device, check with the retailer/manufacturer if a power supply unit is included. If not, this will be an additional cost to the budget.
Reliable Internet Connection
At present, all ASIC devices use ethernet cables to connect to the internet. Moreover, users can only configure ASIC devices by connecting a local IP address through a web browser. This is akin to setting up a home router. Maintaining a reliable internet connection is essential for successfully mining Bitcoin profitably.
Space
ASIC devices are not small, and it is commonplace in the community to operate using multiple racks of ASICs. As such, it is ideal to have a designated space for mining Bitcoin.
Ventilation
Crucially, this space will need to have ample ventilation. Often, Bitcoin miners invest in multiple fans to keep mining gear cool. Without this, mining equipment runs the risk of overheating and burning out internal components. When researching how to mine Bitcoin at home, ventilation is vital to the healthy maintenance of gear.
Electrical Grid Capacity
If you’re wondering how to mine Bitcoin at home, running an ASIC will likely be the most powerful device operating in your house. As such, there is a chance that some mining gear may exceed the maximum socket level of power rating. As a result, this could lead to power outages and electrical fires. It is always best to communicate with an electrical expert when learning how to mine Bitcoin at home.
Bitcoin Mining Energy Usage
In addition to the energy capacity available, another consideration should be energy consumption. If you’re learning how to mine Bitcoin at home and discover two mining devices with the same hashrate, the device using the least number of watts will be the most profitable.
The cost of electricity drastically varies worldwide. Moreover, residential electricity costs range from $0.15 to $0.25 per kilowatt-hour (kWh). Unfortunately, this is far too high to be deemed profitable. Most professional Bitcoin miners will operate specifically where energy rates are low. Typically, most miners spend approximately $0.06 or less per kWh, taking advantage of low-cost energy generations. This is often using renewable or sustainable energies such as hydroelectric dams. Some popular regions include parts of China, Russia, the United States, and Canada.
While mining Bitcoin is a permissionless process, there is a considerable upfront cost of energy usage in addition to mining gear. Most communities suggest that miners with energy prices below $0.10 stand the best chance of maintaining a profitable operation. Furthermore, miners’ profitability is individually different, with the cost of the energy usage varying through locations.
Network Difficulty
The PoW consensus algorithm operates using a variable network difficulty level. In short, the network difficulty controls how difficult it is for miners to solve the complex equation to confirm transactions. Furthermore, the difficulty level ensures that miners produce new blocks of transactions on the blockchain every ten minutes. This minimizes the risk of two miners finding the correct answer simultaneously.
One of the advantages of the network difficulty is its ability to adjust and change depending on the size of the network and the number of active mining nodes. As a result, this ensures that all miners put in sufficient computational energy to generate trillions of hashes to guess the answer to the equation to earn rewards.
The fundamental and technical answer to “how to mine Bitcoin?” is ASIC node devices generating trillions of different potential answers for the transaction confirmation equation called “hashes”. The correct answer is known as the “difficulty”. The difficulty condition and hashes are long strings of digits (numbers) known as “bits”. Moreover, the difficulty number must always be higher than the hash number to be correct. The higher the number of nodes active in the network, the lower the difficulty target (less than 1.0), and the more challenging it is to solve. Conversely, the difficulty target number increases (more than 1.0) with fewer nodes in the network and the easier it is to solve.
The network difficulty allows for confirmation of transactions every ten minutes regardless of the size of the mining node network. Further, the network difficulty is programmed to change every 2,016 confirmed blocks (or approximately every two weeks).
See our Blockchain & Bitcoin 101 course for a deep dive on network difficulty, mining nodes, and block heights at Moralis Academy today!
Bitcoin Halving Event
Another consideration when budgeting and researching how to mine Bitcoin (BTC) at home is monitoring the market price of BTC. A mechanism within the Bitcoin code controls the inflation rate of the asset. As such, with every 210,000 blocks confirmed, the amount of BTC rewards for miners reduces by half. With 21 million BTC available, Bitcoin miners between 2009 and 2012 earned 50 BTC per block. Then, from November 2013, this was reduced to 25 BTC per block. The halving event has occurred on two further occasions, with today’s miners earning 6.25 BTC per block. The next halving event, expected to be in May 2024, will reduce miners’ rewards to 3.125 per block. This will continue until approximately 2140, when no BTC will be left to mine.
Some people question whether miners will still have an incentive to maintain the network at this stage. However, miners also earn transaction fees that, theoretically, when that time occurs, will reimburse the initial costs of Bitcoin mining. Although the past cannot predict the future, following each halving event, Bitcoin (BTC) has entered a bull market, reaching new all-time highs. This is due primarily to increasing scarcity over time, thus, increasing value.
How Long Does it Take to Mine Bitcoin?
There are many variables to consider when answering “how long does it take to mine Bitcoin?”. With that said, there are a few ways of considering the question. For example, if you’re asking, “how long does it take to mine Bitcoin?” in general on the blockchain, one could argue that it is the block time, approximately ten minutes. A combination of the network difficulty, number of active nodes in the network, and to an extent, transaction sizes within a set block size can all affect how long it takes for a block to be appended, resulting in freshly mined Bitcoin.
However, if you’re asking, “how long does it take to mine Bitcoin?” as an individual miner, then the time this takes varies drastically. In addition, a more helpful question would be to consider, “how long does it take to mine Bitcoin profitably?”. Again, the answer to this varies drastically. It entirely depends on the upfront investment in mining gear alongside the cost of the electricity usage. Ultimately, this comes down to personal preferences and budget. Plus, the fluctuating market price and halving event can also affect the profitability of Bitcoin mining.
How to Mine Bitcoin at Home?
After reading this article so far, you may be thinking that mining Bitcoin at home isn’t profitable. Generally speaking, it’s not. With average residential energy costs in the United States between $0.14 to $0.25 per kWh, it is highly unlikely to break even. Furthermore, ASIC mining devices require constant ventilation and space. Large Bitcoin mining rigs worldwide operate hundreds if not thousands of ASIC mining devices. A single individual attempting to mine Bitcoin at home will have minimal hash power compared to a large mining corporation. As the Bitcoin network has grown over the years, mining Bitcoin is generally only profitable on a mass scale.
However, as there is a growing demand for people wanting to mine Bitcoin at home, there are a couple of other options. First, individuals stand a better chance of receiving BTC rewards if they are part of a mining pool. Mining pools are groups of individuals pooling their hash power together to stand a better chance of mining a block. However, as rewards are split between all members, individuals must find the careful balance of a mining pool with sufficient hash power to mine BTC frequently, but also small enough for the rewards to become profitable. In addition, individuals wanting to discover how to mine Bitcoin at home can also consider cloud mining. This involves outsourcing hardware requirements from other people across the internet.
Various Bitcoin mining profitability calculators available online are ideal for anyone researching how to mine Bitcoin at home. Below, a table from Cointelegraph displays a range of ASIC mining rigs – from the Canaan AvalonMiner 1066 at $900 to the top-of-the-line MicroBT M30S++ miner, worth $3,900. The table shows how long it would take (in months) to break even on the investment cost with different energy prices.
Exploring How to Mine Bitcoin – Summary
More people are querying Google “how to mine Bitcoin at home” than ever before. The leading cryptocurrency operates a borderless, permissionless protocol. However, it also presents a high entry barrier for individuals hoping to mine Bitcoin (BTC). As the network grows, so does the computational power needed to validate transactions. Moreover, this means that the energy required to hack into the Bitcoin blockchain also increases with continued adoption.
We hope this article clarifies any confusion around Bitcoin mining, including the question “how long does it take to mine bitcoin?”. See our Ethereum 101 course at Moralis Academy for a great follow-up to discover the fundamentals of the blockchain industry. Or, check out some of our other articles, including “What are dApps?”, “What is Metaverse?” and our “Top Games” article as we discuss the utilities of blockchain since its introduction through Bitcoin.
