What is mining?

Mining is a process of adding transaction records to the Bitcoin’s public ledger, called the Blockchain. It exists so that every transaction can be confirmed, and every single user of the network can access this ledger. It is also used to distinguish legitimate Bitcoin transactions from attempts at re-spending money that has already been spent somewhere else.

Essentially, miners are serving the Bitcoin community by confirming every transaction and making sure that every single one of them is legitimate. Every time a new block is ‘sealed off’, a miner gets a reward. As of October 2017, the bounty stands at 12.5 Bitcoins per block.

The rate at which new coins appear resembles the rate at which commodities like gold are mined from the ground. Hence why the process is called ‘mining’.

How to choose hardware for mining

Hash rate

Considering the complexity that is involved in mining Bitcoins, it’s very important to invest in the right kind of hardware. There are a few characteristics to consider when choosing the equipment that will best suit you, and one of them is hash rate.

Hash rate is the number of calculations that your hardware can perform every second. It is a very important parameter, as a higher hash rate will obviously increase your chances of solving the mathematical problem, sealing off the block and collecting your reward.

What miners are looking for is a specified output of the hash function. When it comes to hash functions, the same input will always produce the same output, but they are designed to be unpredictable. So, the best possible way to find a specific output is to try as many random inputs as possible. Moreover, mining is very competitive, so in order to collect a reward, the miner will need to be able to go through those random inputs as quickly as possible. Hence why choosing hardware with higher hash rate is extremely important for successful mining.

Hash rates are measured in megahashes per second (MH/sec), gigahashes per second (GH/sec) and terahashes per second (TH/sec). The hash rate of hardware that was specifically designed for mining Bitcoins can range from 336 MH/s to 14,000,000 MH/s.

Energy consumption

Bitcoin mining hardware is an investment, and as such it has some associated costs. The more powerful your hardware is, the more electricity it is going to require. Before making a purchase, you need to consider your desired hardware’s electricity consumption in watts and work out how much more expensive your next electricity bill is going to be. You wouldn’t want to spend all your money on electricity to mine coins that won’t even be worth what you paid.

You can use hash rate and energy consumption numbers to work out how many hashes you will be getting for every watt of electricity used by your hardware. To do this, you need to simply divide the hash count by the number of watts. For example, if your hardware’s hash rate is 4,500 MH/s and it requires 32 watts of power, then you will be getting 140,625 MH/s per watt. You can use an online electricity price calculator or just check your power bill to figure out how much it is going to cost you in hard cash.

In some cases you will be using your computer to run the mining hardware. Obviously, your computer will have its own electricity draw on top of what mining hardware chews up, so you will need to factor that into your calculations.

Hardware for mining

In the early days of Bitcoin, many people were drawn to it, because to them it was a revolutionary and liberating idea. Indeed, a decentralized, self-governing network where ordinary users were in charge of ensuring that the transactions will go through was a breath of fresh air in a world dominated by banks, tax authorities and massive corporations keeping an eye on how people spend their own money. Back then, Bitcoin’s value was nowhere near what it is today. So, a lot of miners were motivated by the idea of Bitcoin and not just profit. They were able to generate hash sequences and confirm transaction using powerful enough computers and even laptops.

At some point, miners discovered that high-end graphics cards had the potential of significantly increasing Bitcoin mining power. Those graphics cards consumed far less power per unit of work, and the results were 50 to 100 times better than before. Subsequently, dedicated mining devices were introduced. They increased mining capabilities five-fold, which allowed for the fist mining farms to be constructed at an operational profit, and paved the way for the Bitcoin mining industry.

These days, Bitcoin mining has turned into a lucrative business. There are many people now who pay their bills by operating massive Bitcoin mining farms. These farms are assembled using various mining hardware, as well as graphics cards and coolers. Obviously, they require a lot of electricity in order to operate, so access to cheap power becomes paramount. It is the cheap electricity that made Chinese Bitcoin mining farms so profitable.

Those wishing to make some money on Bitcoin mining will need to compete against worldwide corporations with virtually unlimited resources to spend on mining farms, as well as hundreds of individual miners joining their forces and forming mining pools.

CPU

The least powerful category of Bitcoin mining hardware is your computer itself. CPU stands for Central Processing Unit, and implies your computer’s processor. It was the only way to mine Bitcoins back in the day, and it was extremely cost effective - all you needed was a computer with a powerful enough processor.

However, as miners tried to further secure the network and earn more Bitcoins, they innovated on many fronts. So, as of today, CPU mining is basically obsolete. You might mine for decades using your laptop without earning a fraction of a single coin.

GPU

GPU stands for Graphical Processing Unit, which is a feature of high-end graphics cards. These were designed specifically so that they can calculate all the complex polygons needed in high-end video games, which made them particularly great at hashing mathematics necessary to solve transaction blocks.

Despite costing several hundred dollars, GPUs gave miners a significant advantage over CPU hashing. For instance, a CPU will generally provide you with less than 10 MH/sec. On the other hand, an ATI 5970, one of the most popular graphics cards when it comes to mining, can give you over 800 MH/sec.

The widespread use of graphics cards led to the appearance of there first mining rigs, which were basically computers assembled with processing complex calculations in mind. Those rigs could either be solely dedicated to mining, or serve as a computer that fulfilled other needs, i.e. performed as a gaming system, and only used to mine on a part-time basis.  

However, much like CPU mining, GPU mining is largely dead these days. With the introduction of hardware specifically designed for mining, the Bitcoin mining difficulty has increased so much that graphics cards just simply can’t compete. These days, even if you have access to free electricity, GPU rigs will most likely never even pay for themselves.

FPGA

The next stage of Bitcoin mining development was the introduction of FPGA (Field Programmable Gate Array) mining. FPGA is an integrated circuit designed to be configured after being built. This enabled a mining hardware manufacturer to buy the chips in volume and customize them specifically for Bitcoin mining, before putting them into their own equipment.

The launch of the first few FPGA devices was a complete success and it changed the Bitcoin mining landscape. It was the first ever hardware manufactured specifically for mining cryptocurrency. They provided miners with the benefits of power efficiency and ease of use. While a typical 600 MH/sec graphics card could consume up to 400 watts of power, a standard FPGA mining device would provide a hash rate of 826 MH/sec at 80 watts of power. That improvement allowed for the first large Bitcoin mining farms to be constructed.

ASIC

An Application-Specific Integrated Circuit (ASIC), is a microchip designed and manufactured for the sole purpose of mining Bitcoins at breakneck speed. It offers a 100x increase in hashing power, while reducing electricity consumption compared to all the previous technologies. Some experts consider ASIC to be the ‘end-of-the-line’ technology, as there is nothing to replace it in the immediate future.

Due to those chips being specifically designed and fabricated for one task only, they can be quite expensive as well as time-consuming to make, however the speeds are unparalleled. Top of the line chips like AntMiner S9 have an advertised speed of whopping 14,000,000 MH/sec, but such a device will cost you $1265. Of course, there are more affordable chips with a price tag of around $50, but their advertised speed is considerably lower.

Mining profitability

Considering all the options that are out there, choosing the right hardware for mining can be quite overwhelming for newcomers. It’s expensive both in terms of the hardware itself, and the power that it requires to run. Hence why, before purchasing all the necessary parts and assembling your rig, it is very important to calculate the mining profitability.

There are several dedicated calculators in existence, such as the calculator from The Genesis Block or the BTC Mining Profit Calculator. You can input parameters such as the cost of equipment, hash rate, and electricity consumption, as well as the current Bitcoin price, in order to figure out how long it will take your investment to pay off.

Mining software

Depending on the kind of equipment you choose, you will probably need to install mining software. Using GPUs and FPGAs requires you to have a host computer running a standard Bitcoin client and mining software. The Bitcoin client is necessary to relay information between your miner and the Bitcoin network, while the mining software is what instructs the hardware to do its work, going through transaction blocks for it to solve.

Some modern ASIC miners are being shipped with everything pre-configured, including a BTC address. So, in most cases, plugging it into an outlet is all you’ll need to do. However, some older ASIC miners will still require you to run mining software.