How to mine Bitcoin? Understand how BTC mining works

Bitcoin mining has been one of the main topics discussed in discussions about cryptocurrency over the past ten years. The mechanism that ensures the issuance of new Bitcoins and, at the same time, provides security for the cryptocurrency has been the subject of debates about its viability and has also sparked the interest of people seeking income from Bitcoin. In other words, mining Bitcoin is not only a foundation of blockchain, but also a profession.

However, what is Bitcoin mining and how does it work? How does it protect the network and ensure the security of the cryptocurrency? And, most importantly, is the activity still profitable today? These are some of the questions that will be addressed – and answered – during this text.

What is mining?

Bitcoin mining is the process by which new units of the cryptocurrency are minted. Bitcoin creator Satoshi Nakamoto capped the number of Bitcoins in existence at 21 million. However, these Bitcoins are programmed to be minted gradually over a period of decades, according to the Bitcoin system.

The Bitcoin mining process involves trying to decipher codes with encrypted values ​​issued by the software. These codes are present in each transaction or set of transactions, called “blocks”. Nodes are responsible for validating transactions, while miners validate transaction blocks.

Thus, its goal is to make the use of cryptocurrency viable and ensure its scarcity. The act of mining Bitcoin also reinforces its allusion to gold, a metal that can only be obtained through the mining process. However, while gold mining involves the use of physical procedures and resources, Bitcoin mining is essentially a mathematical problem.

Proof of Work

Proof of Work (or PoW) is the most important aspect of Bitcoin mining. It is through this that the Bitcoin network can be audited 24 hours a day, with complete transparency. However, this mechanism was not created by Satoshi Nakamoto, but rather emerged at least 15 years earlier.

The idea first appeared in 1993, in a paper published by Cynthia Dwork and Moni Naor as a mechanism to combat email spam. In this system, the user would have to prove that he spent a certain amount of time finding an answer that satisfied some requirement that the verifier asked for. The task of finding such an answer must be difficult and laborious for the protocol to work, but not impossible.

This idea was later perfected by Adam Back, who created a Proof of Work system called Hashcash. The concept had a similar proposal to that of Dwork and Naor, and was so efficient that it served as inspiration for Satoshi when building Bitcoin’s PoW.

In cryptocurrency, the mechanism works by solving a mathematical code provided by the system. All miners are working with their machines, 24 hours a day, in search of the solution to this code. To do this, they lend their computing power to the search for this solution, which is linked to each new block of transactions on the network.

Eventually, one of these computers will find the solution to the problem. When it does so, it automatically sends this transaction, thus “proving” to the other computers that the “work” was successful. With this, the new block is found and added to the system.

This system requires a lot of computing power, which will generate a lot of expenses (which we will see later). To maintain the incentive for miners to spend computing power, the system offers Bitcoins as a form of payment for keeping the network online. Each block has a certain amount of rewards, plus the value of all transaction fees collected, which reward the PoW allocated by users.

How to mine Bitcoin?

How to mine Bitcoin is the next step, now that we know what mining is and the concept of Proof of Work. The activity is seen by many as a way to earn income and earn new Bitcoins passively. However, today it has a series of particularities and risks that need to be taken into account. Let’s get to know them.

Bitcoin Mining

A Bitcoin mining farm can mean two things. The term can refer to either the machines responsible for the mining process or the space where several machines are gathered to mine Bitcoin. In the latter case, the terms “mining farm” or “mining pool” are also commonly used.

Many people still think about mining Bitcoin at home and making good money with a simple computer. Unfortunately, this practice has not been viable since 2013. The unfeasibility began with the arrival of application-specific integrated circuits (ASICs).

These chips are much more powerful than regular computers and have taken mining to a whole new level. ASICs are found in all major Bitcoin mining machines, such as Antminer. These machines employ enormous computing power for one purpose: mine Bitcoin.

In addition, there are other factors that must be taken into consideration when entering the mining market. This is because the costs involved in this activity are usually quite high for individuals. Some of the main costs involved are:

• Mining price;
• Equipment maintenance;
• Electric energy;
• Climate and isolation of the location.

Bitcoin Mining Price

Mining Bitcoin with your personal computer is not feasible, as we have seen previously. Therefore, it is very important to choose your machine carefully. An example of a Bitcoin mining machine is the Antminer, produced by the Chinese company Bitmain, considered the most powerful and profitable in the sector. It is the most widely used mining equipment in the world.

However, these devices are not manufactured in Brazil, which can lead to difficulties in terms of price (since they are quoted in dollars) and transportation (shipping and import taxes in Brazil are very high). Since the miner is large (it weighs about 8kg), it is very likely that shipping and taxes will be very expensive.

For example, the most modern mining machine currently is the Bitcoin Miner S21 Pro, from Bitmain. This equipment costs US$ 6,318. With the current price of the dollar at R$ 5.64, the mining machine alone would cost around R$ 35,646.79. A very high investment for a single person.

However, Bitmain is not the only company that manufactures Bitcoin mining equipment. It currently has a number of competitors in this market, which makes the choice easier. Some of Bitmain’s biggest competitors in the industry are:

Equipment maintenance

Like all electronic equipment, Bitcoin miners tend to wear out and become obsolete over time. And since they are on 24 hours a day, wear and tear tends to be much greater. Therefore, replacing parts and maintenance are expenses that must be considered, and the estimate for these costs varies greatly.

Electric energy

This is the biggest expense that mining activity requires. Remember: the miner needs to be on 24 hours a day. Therefore, it will consume a good amount of energy. For example, a Bitcoin Miner S21 Pro, Bitmain’s top-of-the-line model, consumes around 3510 kilowatts per hour (kWh) in a month. If the cost of energy in your city is R$0.50 kWh, your energy bill will come out to R$1755 – and that’s just for the consumption of Bitcoin mining.

Climate and acoustic insulation

Electricity costs are not limited to the mining machine’s consumption. These machines also produce a lot of heat, which requires an air-conditioned environment for them. If you live in the northeast of Brazil, for example, where temperatures can easily reach 30 degrees, there’s no way around it: you’ll need to include an air conditioner in your expenses.

In addition, you will need soundproofing, as the machines are extremely noisy. Even a single miner can make a noise that can bother people living in the same house as it. Therefore, this is another expense that must be taken into account.

Other expenses

Along with these expenses, you need to take into account others such as: fees on the sale of the Bitcoins obtained, halving (the halving of the issuance of new Bitcoins), taxes and others. And remember that your only profit will be from the Bitcoins received from mining. Therefore, many calculations must come into play when considering mining Bitcoin.

Mining farms

Another point is the extreme competition that exists in this market. Unfortunately, Bitcoin mining has become increasingly professional. Today, there are several companies that work exclusively with this and operate hundreds or even thousands of machines. Mining farms occupy entire warehouses with miners, on an industrial scale.

Therefore, individual Bitcoin mining is no longer a profitable activity. Therefore, many users prefer to connect their machines to mining pools. Through these pools, they join forces with other users and employ part of their computing power to help in the quest for PoW.

When a pool member finds a hash and receives the reward, it is divided among all participants. Each of them receives according to the amount of computing power they gave to the search (this is calculated by the system). This way, small miners can join together and obtain profits more frequently, even if smaller.

Therefore, choosing a good mining pool is essential for the success of the venture. The larger the pool you choose, the greater the probability that one of its machines will be able to find blocks easily. This way, all miners are rewarded. Here is a list of the main mining pools today:

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