In the last 12 months, the value of bitcoin has gone from $1,000 per coin to almost $20,000. Despite a turbulent 2017, the cryptocurrency's price is expected to rocket upwards through 2018 and beyond. To many, bitcoin remains an attractive — if incredible volatile — investment.
But buying bitcoins — and hoping their price will go up — is just one side of the story. The other is mining, or creating of new bitcoins. While there is a finite number of bitcoin — 21 million — the computer-powered process to uncover them will continue until the final bitcoin is mined, expected around the year 2140. To date, about 16.8 million bitcoins exist — with roughly 1,800 generated each day. In other words: there's still time to get in on the frenzy if you wish.
What is bitcoin mining?
Every bitcoin transaction that occurs between one user and another must be authorized before added to the blockchain, a public ledger or record of all bitcoin transactions ever made since the currency was created in 2008.
Transactions are authorized by computers connected to the blockchain, completing incredibly complicated equations. These calculations aren't just complex for a human, they are phenomenally complicated, even for a powerful computer, and the difficultly keeps increasing as more bitcoins are produced.
Computers which successfully authenticate these transactions are rewarded with a block of new bitcoins. The number of bitcoins per block started at 50, but this halves for every 210,000 mined blocks that are recorded anywhere. The reward for each block is now 12.5 bitcoins. This will half to 6.25 bitcoins around June 2020.
In short, the reward for mining is falling in terms of how many bitcoins (or fractions of a bitcoin) you might receive. The converse is the value of each bitcoin is rising, and sometimes dramatically so.
First, you will need a bitcoin wallet
Much like physical money, bitcoins need to be stored in a wallet. If you plan on saving up lots of bitcoins before exchanging them for physical currencies like dollars or euros, you should consider an offline 'paper' wallet, which can be created here. Digital wallets can also be created with services like Electrum and are simpler and quicker to use. But with bitcoin's increased value comes the risk of digital wallets (stored on computer connected to the internet) being hacked.
Can I use my computer to mine bitcoin?
Yes, and in the early days of bitcoin is was possible to mine using the graphics card (GPU) of your own computer. Early bitcoin enthusiasts were able to mine more bitcoins than they knew what to do with — hundreds or even thousands of the currency which, for several years after it launched, was almost completely worthless. Early miners would give their bitcoin away and one even used 10,000 coins to buy two pizzas. At the time this seemed like a fair deal, but today those coins would be worth $150 million, such is bitcoin's rise in value.
You can still use a regular computer to mine bitcoins, but doing so takes a very, very long time. A laptop running an app like Bitcoin Miner for Windows could take over a century to mine a single coin.
Should I buy a better computer?
If you plan on seriously mining bitcoin the answer is yes. During bitcoin's first major spike in 2013 — when prices rose from $15 to more than $140 — there was a huge boom in graphics card sales. New companies were set up to sell a type of specially built computer known as an ASIC, or application-specific integrated circuit. These would employ several powerful graphics cards, programmed to work specifically with the algorithms used by the bitcoin blockchain equations.
It's said that real money during a gold rush is made in the spades. In 2013 the real money in bitcoin was in selling mining equipment. Mining new blocks was still easy enough for individuals to turn a tidy profit — even after the cost of the mining rig and its electricity consumption was taken into account. So companies soon began filling warehouses with rows and rows of ASICs.
You can use a calculator like this one to work out how much currency your rig will be capable of mining, and how much electricity it will consume.
Small returns are still possible today, but spending $1,000 or more on a mining rig, then feeding its hungry GPUs with electricity 24 hours a day — and replacing components when they burn out — is likely to cancel out most of your profit, unless the value of bitcoin increases substantially (again).
Can bitcoin miners work together?
Yes, and unless you have a warehouse full of mining rigs, this is going to be your best approach to earning a profit. Called mining pools, these are online groups whose members combine their computing power and work together to mine more quickly. When a block of bitcoins is mined, the coins are split among the members of that pool — minus a small fee which goes to the pool service.
One such pool mining platform is Slush Pool, which claims to be the world's first bitcoin mining pool and has been operating since 2010. You can create a free account and tell the website the address of your bitcoin wallet, ready for receiving your first funds.
Install bitcoin mining software
Almost there! Now that you've bought the necessary hardware — or are happy to use your own PC — created a bitcoin wallet and joining a mining pool, all you need to mining software. There are plenty of mining applications to pick from and some are designed to work on Windows, Mac and Linux. Here is a selection of six to pick from today. Some are incredibly simple, while others let you tweak your hardware to mine bitcoin in the most efficient way possible — without causing damage from excessive heat.
Heat is a hugely important part of bitcoin mining because the process pushes your hardware to the limit, potentially causing it to run less efficiently. Locating your miner somewhere with good ventilation is key, and you should also consider adding a cooling system. However, don't forget to factor in the cost of any active cooling process — air conditioning, for example — when working out your projected mining profits.
Remember, there's no point spending a fortune in electricity and cooling each month if your rig is only mining a small amount of bitcoin. And if bitcoin's value falls, you could end up losing money each month, even before you have made back the initial cost of your mining machine.
Is all this effort really worth it?
Honestly, it's hard to say. Years ago, and loaded with hindsight, mining bitcoin was a license to print money. Today, bitcoin mining is more of a hobby than a means of making real money. You might get lucky and mine a block relatively quickly, but you have more chance of winning the lottery, and there the rewards are far greater.
If you don't mind investing in dedicated hardware and paying for the extra electricity usage, then you will earn bitcoins — or rather, you will only earn fractions of a bitcoin, perhaps even after an entire year of mining. Then your profit (or loss) will depend on the price of bitcoin in a year's time. Over the last 12 months it climbed from $1,000 to almost $20,000 then fell to $15,000.
Will bitcoin do the same in 2018? Will there be a GPU breakthrough to make mining cheaper and more powerful? Will the price of bitcoin fall through the floor, causing miners to give up and sell off their equipment?
As with many aspects of bitcoin, it is impossible to say for sure.
Disclosure: The author of this article owns 0.0266 bitcoin
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