Bitcoin is in for the long haul, even if the cryptocurrency craze has settled down in recent months. And if you’re still wondering, “what’s this bitcoin mining thing actually about? Can I really make money out of it?” then take this to heart: Yes, bitcoin mining is a tech activity that can help you earn some extra cash on the side — as long as you’re ready for the challenge. Fortunately, we have just the guide to help you get started.
Step One: Understand the amount of effort involved
Mining for bitcoins is not a casual undertaking. The idea seems simple enough, but the practice of bitcoin mining takes a lot of work. You need to invest a significant amount of money when first starting up, be willing to upgrade your equipment regularly, and constantly monitor the conditions of the bitcoin market — and that’s just the beginning. To earn any appreciable money while mining Bitcoins, you have to work at it. Additionally, earning money via Bitcoin is more difficult than ever now that the monetary reward for mining bitcoins has been essentially cut in half, a process that’s supposed to occur every four years.
Bitcoin mining is the process of authenticating and legitimising Bitcoin transactions — sort of like being a bitcoin bank teller. Every time a new transaction comes along, it needs to be added to the final bitcoin ledger or blockchain, which records every bitcoin exchange. Transactions are added up until they reach “block” status, and the block is sent to miners. The miners use their specialised hardware and data keys called “nonces” to encrypt the block of transaction data into a “hash,” or an identification sequence that also includes all the block data (the hash has many useful properties, but this is its basic function). This hash is then added to the block, authenticating it, and the block is officially added to the blockchain. Miners are typically paid when they complete a block, but the rate of work can fluctuate based on how many people around the world are making bitcoin transactions. At the time of this writing, the rate of pay is about 12.5 bitcoins for every hash that’s successfully implemented.
As you can see, mining benefits those who already have experience in the tech world, especially when it comes to computer hardware and encryption (a little currency exchange experience is also very valuable). Without this background, mining takes, even more, research and work to keep up with. While newcomers can still jump in if they’re willing, it’s certainly not a fire-and-forget process. So let’s talk about just what’s involved when starting the process.
Step two: Choose your hardware
The heart of bitcoin mining is the bitcoin miner or mining rig, which is essentially a separate computer that handles all the mining work. A quick glance at the Amazon listings for Bitcoin miners will show you that there are many, many types of miners that span a host different shapes and sizes. If you have the tech skills, you may also be able to build your own.
You want the best of the best here: Buying or creating a bitcoin miner is inherently competitive. Think of how serious gamers always want the best displays, the fastest GPUs, the twitchiest controls, and the most customizable keyboards, all to give them slight advantages during gameplay. Choosing your bitcoin miner is a very similar process, but in this case, you’re competing to see who can make the most money. And a slower, less capable miner will earn you less money.
We recommend you visit a bitcoin calculator like the one offered by 99Bitcoins to help examine how much money any specific miner will earn you. These calculators are useful for two reasons. First, they help you judge miners based on profitability, which is always the most important spec. Second, they provide a crash course in miner specifications, which you may not be familiar with. This includes the “difficulty factor” (a rough measure of how easily the miner can mine), the “hash rate” which is an indication of speed, and the power use/cost, an important spec that shows how expensive a given miner is to operate. After all, you don’t want to be spending more on electricity than you’ll make in bitcoins.
The costs vary, but the best miners tend to be priced above $500, sometimes well above that. Returns vary greatly, but with a good-to-average miner and the right setup, you could be looking at around a $100 profit in a robust month — that should give you an idea of how long it will take to recoup the initial cost.
Step three: Choose your wallet
Unless you already have one, you will also need a wallet to help manage your bitcoin transactions. There is an assortment of bitcoin wallets, both online and software-based. They come with different features, including amount limits and payment frequencies, all of which you should consider when choosing a wallet. Copay and Breadwallet are both strong choices if you’re new to the bitcoin scene. Take some time to learn how they work, and make sure that you know both your private key and your public bitcoin address after you’ve signed up. You’ll need them for this next part.
Step four: Download the software
Now you need to pick out your mining software, or a client that allows you to control the mining process and check out the specs on your mining rig to make sure everything is optimal. Here’s another area where tech experience comes in handy. If you’ve ever experimented with overclocking your processor before, some of the features here may seem familiar.
Recommending any particular mining client is difficult, however. It’s best to pick software based on your particular situation. If you don’t have much experience with basic command interfaces, then GUIMiner is probably you’re best bet, as it offers an easily-digestible interface. If you have a Mac, you may want to try out MacMiner. For those with a bit more experience, 50Miner is an excellent choice. Many people also prefer GitHub’s BFGMiner.
Step Five: Join a mining pool (probably)
We’re opening a can of worms at this point, but it’s probably in your best interest to find a mining pool. Mining pools are communities of bitcoin miners who work together and share the reward. At least, that’s how they’re supposed to work. Even official bitcoin organizations usually refrain from recommending any specific mining pool, because they might be scams or at least cheat you out of some money. It’s hard to know which pools do it until it’s too late.
The benefits to a reliable pool can be considerable. They typically make it quicker to find blocks, which means payouts occur more regularly and everyone gets more money. So take a look at a few comparison charts, read up on the latest reviews, and see if a pool is right for you. Below are a few important features to consider.
- How long has the pool been around?
- What fees do they charge?
- How do they divide up the bitcoin rewards?
- How frequently, on average, do they find blocks?
- What sort of withdrawal options do they offer?
Step Six: Always update
Bitcoin mining has an unfortunate feature — if you don’t change, you’ll make less and less money over time. This isn’t just because of the four-year inflation prevention, but because all the other miners will be improving their equipment and nabbing blocks faster than you can keep up. You need to consistently update your software, wallet, and yes, even your hardware, if you want to keep making money. Stay on top of any important news or developments, watch how bitcoins compare to other currencies and cryptocurrencies, and don’t be afraid to change.