One of the big questions that everyone is asking is whether mining Bitcoins is profitable or not. Bitcoin mining serves many different purposes, both to transactions and the production of new Bitcoins.
The process of mining Bitcoins involves compiling recent transactions into blocks in order to try and solve a difficult puzzle. Essentially; the first person who solves the puzzle will then place the next block on the block chain and claim the rewards. It is these rewards that give people the incentive to continue Bitcoin mining.
Bitcoin was the first currency, which was controlled by a cryptographic protocol rather than a conventional central bank; which means you will pay for something by sending Bitcoins from the virtual wallet in your computer to the merchant’s computer.
So, what does it take to be a Bitcoin Miner?
Anyone can mine Bitcoins, as long as you have a computer and access to the internet. From there, all you need to do is download a free wallet to your computer, and a free miner programme, and off you go.
That all sounds really simple, right?? Technically, yes, it is; however, the computer power that is required is absolutely phenomenal, and this is where the costs can start to mount up. So, if you are using your own personal computer to mine Bitcoins, you are unlikely to see any rewards for a long, long time, and we could be talking years. There is a way round this though, and it is a path that many Bitcoin miners choose to go down, and that is to join a pool, where you and others can work together, and share any rewards that you have.
Regardless of how you choose to mine Bitcoins though, you will still need to purchase certain items to get you started, and this does not always come cheap. The cost can vary greatly, - some miners have been able to get all of the items they need for a couple of hundred, and others, it has cost them over a thousand. Because Bitcoin has grown so much in popularity, since it started, the mining of them has required even more power, which means that fewer people are being able to use their own computers, and instead are having to purchase new computers with a specialised card, that was used solely for mining.
So, on top of the mining hardware that you will have to be prepared to update regularly (more often than not it is once a year; however, this can of course change), there are a number of other items that are required. We should also mention the power supply that will be required, as mining computers will need a specific supply, which can be quite expensive.
It is also important to take into account the different regulations surrounding Bitcoin mining, before you begin to get involved with it. If you choose to get into Bitcoin mining, it is your responsibility to keep on top of any regulation changes, especially that are relevant to your region or country. The IRS has recently issued new tax guidance regarding Bitcoin mining stating that any income made from the mining could constitute as a self-employed income and therefore be subjected to tax. The Financial Crimes Enforcement Network will analyse any data used on financial transactions as well, to stop any financial crimes happening, such as money laundering and terrorist financing. FinCEN has since issued guidance that Bitcoin miners are not considered Money Transmitters under the Bank Security Act, as well as clarifying that providers of cloud mining services are not considered money transmitters either.
So, to put it simply, anyone can become a Bitcoin miner; however, it takes time and money to purchase the machinery that is needed to mine Bitcoins well. You have to be prepared that you are unlikely to make money from the mining immediately; however, in time, it can begin to make you a small profit; however, it is important to stick at it.
Is it difficult?
One of the questions that get asked frequently is whether mining Bitcoins is difficult or not. To put it simply, the process is not actually that difficult; however, it is all of the additional costs that will put people off.
You can actually begin to mine Bitcoins in fewer than 10 steps, assuming you have access to a mining computer, a fan, and the needed electricity.
Start by purchasing some custom mining hardware
Before you can start any type of Bitcoin mining, it is necessary to purchase some mining hardware. This is because Bitcoin popularity has grown, and it is very difficult to mine using your own desktop’s CPU and GPU.
The custom hardware is available in a card form; much like a graphics card, and can be inserted into the computer.
There is many different mining hardware available, but some popular ones are Bitcoin Ultra and Coin Terra; however, there are many more available, so it pays to research before you buy.
Do be warned though that these do not come cheap, and can cost from a few hundred dollars to tens of thousands, depending on the number of operations that it can complete per second.
Once you have purchased some mining hardware, you must then get a wallet
This is where your Bitcoins will be stored, and encrypted, which will then protect your money. It is worth remembering that the online services that are used to host your wallet, will not be able to access your money; however, they are considered less secure, as your money could be lost if something bad happens on their end, so they are not without their risks.
To reduce this risk, it is advised that you store your wallet locally, as opposed to online.
To store your wallet locally, will require you to verify the entire blockchain, which will ultimately keep Bitcoin running and secure; however, it is worth noting that this process can take a whole day or more.
Just like the mining technology, there are many different wallets available, from BitcoinQT, Airbitz Bitcoin Wallet, and Miltibit, which will not require you to download the entire blockchain. It is also worth remembering that the wallet apps for mobile devices generally do not require you to download the entire blockchain.
Don’t forget though, if you lose your wallet; you lose your money! It is that simple!
Secure your recently purchased wallet
It is important to protect your wallet, especially as there is no ‘ownership’. This means that anyone who gains access to your wallet, are then free to use your coins.
So, you need to prevent this. this is fairly easy to do, and will require you to enable a two-factor authentication, as well as storing the wallet on a computer that does not have access to the internet.
You could try storing your wallet on a memory stick or SD card, which allows your wallet to then be transferable, allowing you constant access to your Bitcoins.
You then need to decide whether you want to join a mining pool, or try doing it by yourself
There are pros and cons to both, but it is important to make a researched decision regarding this matter.
A mining pool will allow you to share resources and split any rewards, which, although might be smaller, can lead to quicker returns.
Mining by yourself can be slow and difficult to begin with, as it is a highly competitive business to get into; however, the benefit is that any profit you do make will be all yours, and you will not have to split it with anyone; however, it will likely take more than a year until you begin earning anything.
Most mining pools will charge a small fee, which is usually around 2% of your earnings. You will also have to create a ‘worker’; which is a subaccount used to track your contributions to the pool. You can many workers at once, and individual pools will have their own instructions on how to create workers.
You will need to download a mining program
They are almost all open source and free to download however there are different mining programs that are available depending on the type of hardware that you are running.
If you are connecting to a pool, you will need a batch file.
There are many popular mining programs, so it is important that you do your research prior to downloading.
If you are not considering joining a mining pool, it is essential that you connect your mining program to your wallet, allowing anything you earn to get deposited automatically.
If you have joined a mining pool, you will need to connect your wallet to the user account, and any coins will be transferred as they are earned.
After this, it is time to run your miner
Don’t be alarmed though if you see the rest of your computer slow right down as the miner begins to work.
Keep an eye on temperatures
Remember when we said a fan should be included in the initial start-up cost? This is because your new mining programme will push your hardware to the limit, particularly if it wasn’t initially designed for this.
Try and use specific programmes, such as SpeedFan, which will ensure that your temperatures do not go above the safe limits.
Finally, you can check your profit
Don’t do this immediately, as it will take time to build up, but once you have been mining for a little while, check all of your figures, and determine whether it will be worth doing or not.
Think about how much money you have made, and compare this to the cost of keeping your computer and all of the programmes running at full speed.
Is it profitable?
The thing that most people want to find out is whether Bitcoin mining is actually profitable or not.
So, are people still making money from mining Bitcoins? The simple answer is yes, it can still be profitable and people are still making money from it; however, the times have changed and mining has become somewhat more difficult than it once was. This is because Bitcoin popularity has increased, which has made mining more competitive.
There is no doubt that making money from Bitcoin mining has become much more difficult; there are a number of reasons that can contribute to this, along with the fact that it has become much more popular. These include, hardware prices. You can expect to spend a few thousand pounds on these, which will mean that it will take longer for you make any profit from your mining. Power costs; again, just like the hardware prices, the power costs can mount, due to the sheer volume of power used. Finally, it has become a lot more difficult to mine Bitcoins now. The protocol adjusts the computational difficulty of the puzzles to finish a block every 2,016 blocks. In simple terms, the computational power that is put towards mining, the more difficult the puzzle will be.
Don’t be completely put off the idea of Bitcoin mining though, and if you are looking to make a profit from it, it is worth joining a mining pool. Although, like we have previously discussed, you have to share any profits, the chances of making profits are far greater than if you choose to mine by yourself. There are a number of mining pools to choose from, so be sure to research them beforehand.