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Lesson 8: Bitcoin Mining

13 minutes
Miguel A. Rodriguez
Miguel A. Rodriguez
24 červenec 2023
As time goes on, mining Bitcoin becomes more difficult, as more miners compete for the next block reward. Today, mining cryptocurrencies involves fewer rewards and higher costs.

Cryptocurrency mining is a tedious, expensive, and rarely rewarding job. Many investors are attracted to cryptocurrency and Bitcoin mining because they can earn crypto rewards for their efforts without having to use the money to buy the coins.  

Entrepreneurs see crypto mining as free money, but there is more than meets the eye and mining isn’t about getting coins for free. Far from it. For some, it may be illegal while for others may just not be worth it. Let’s dig deep into how crypto and Bitcoin mining works and if it works for you. If you are technologically inclined, why not? 

Understanding cryptocurrencies  

A cryptocurrency is a digital currency, and it is often referred to as virtual currency. It is protected by cryptography, making it almost impossible to counterfeit or double-spend. Many cryptocurrencies are distributed networks that use blockchain technology. This distributed ledger is enforced by a decentralized computer network. The most important characteristic of cryptocurrencies is that no single central authority owns or governs the cryptocurrency's network. This makes them theoretically impervious to government manipulation or interference.  

The first cryptocurrency was Bitcoin, and it was created in January 2009. Bitcoin was designed to be a peer-to-peer digital coin that could replace the traditional financial system. Over the years, Bitcoin became more of a means to store value, and investors got more interested in investing in Bitcoin than using it as a digital currency. Here is the 2022 Bitcoin price prediction.  

However, thousands of cryptos were launched in the years that followed, and some became profitable investments for their earliest investors. Here is a list of top cryptocurrencies to invest in for 2022.  

Today, there are many cryptocurrencies on the market (consult a detailed cryptocurrency list). Each cryptocurrency claims a unique function and specification. For instance, Ethereum (ETH) is a smart contract platform, while Ripple (XRP) is used to facilitate international money transfers. 

Many other cryptocurrencies have been created in the wake of Bitcoin's success. They are called "altcoins". While some of these currencies are clones of Bitcoin or forks, others are brand new cryptocurrencies. These include Litecoin (LTC), Cardano (ADA), Stellar (XLM), Chainlink (LINK), Bitcoin Cash (BCH), Dogecoin (DOGE), Tron (TRX), Compound (COMP), Dash (DASH), Aave (AAVE), EOS (EOS), Polkadot (DOT), Neo (NEO), Monero (XMR), Tezos (XTZ), (YFI). 

What is cryptocurrency mining? What is Bitcoin mining?

Mining is a metaphor to introduce new Bitcoins or other cryptos into the system. It requires computational work, just like mining for gold and silver requires physical effort. The tokens that miners discover are virtual and only exist within the blockchain's digital ledger. 

Cryptocurrency mining requires computational power to solve mathematical puzzles. There are also different algorithms to mine crypto, but they all work to verify transactions and create new blocks to be added to the blockchain. Bitcoin’s blockchain uses Proof-of-Work (PoW) to validate transactions.  

The blockchain is a distributed ledger that records details of an investment in cryptocurrency. The transaction is only complete when a "miner", or someone who validates the transaction, confirms it as valid. Once this is done, the transaction will be visible on the blockchain and is completed. 

The verification process requires miners to solve complicated equations. To solve the problem, they must race against each other to provide a result for the equation. The first to do so and validate the block is paid a reward as a fee. Each successful validation results in new coins being put into circulation. 

In the beginning, Bitcoin could be mined with any standard computer – however, that it’s not the case anymore. Although it is theoretically possible to mine cryptocurrency, it becomes increasingly difficult for PoW networks, because the difficulty of the cryptological puzzles increases over time. Bitcoin mining requires specialised equipment, called ASIC (Application-Specific Integrated Circuit) miner. While these special miners are also very expensive, they consume vast amounts of energy. Actually, it is estimated that 0.5% of the world’s electricity is used to power Bitcoin miners. This is roughly the amount of electricity Finland uses per year. Most Bitcoin miners use 60% to 80% of their mining money to cover the electricity costs. 

The other popular algorithm that doesn’t require cryptocurrency mining used by blockchains is called Proof-of-Stake (PoS). The PoS system requires validators, which are selected at random based upon their crypto stake. Some of the top cryptos that use the PoS consensus are Cardano (ADA), Polkadot (DOT), EOS (EOS) and others.  

Ethereum (ETH) is expected to complete the update to a PoS system by the end of 2022.  

Cryptocurrency mining pools 

The mining rewards go to the first miner to solve the puzzle. Participants with a low percentage of the mining power stand little chance of finding the next block by themselves. The chances of finding the next block are very low, so it can take a while before a miner finds one. And the difficulty going up only makes matters worse. The miner might never be able to recoup their investment. Mining pools are the solution to this problem. 

The third-party that manages mining pools coordinates groups of miners. Miners can receive a steady stream of Bitcoin by working together and sharing the payouts between all participants.  

How to Mine Bitcoin   

At the very beginning, people were able to mine Bitcoin using their personal computers. However, this is not the case anymore. This is because the difficulty of mining Bitcoin changes over time. 

The Bitcoin network strives to produce one block every 10 minutes to ensure that the blockchain works smoothly and transactions can be processed and verified. But if 1,000,000 mining rigs compete to solve the hash issue, they will likely find a solution quicker than if 10 are working on the problem simultaneously. Bitcoin's difficulty level is adjusted every 2,016 blocks. That's roughly every two weeks. 

To maintain stable block production, there must be more computing power available to mine Bitcoins. This means that mining becomes more difficult. The difficulty level drops when there is less computing power. Using a personal computer to mine Bitcoin today will probably result in nothing.  

To mine Bitcoin, you would need to take into consideration the right mining equipment and the cost of electricity. You can use mining profitability calculators which are available online, to decide if you could make a profit from your Bitcoin mining. Of course, you can mine any other PoW cryptocurrency. 

Bitcoin Mining hardware 

To be able to compete with the mining farms that exist all over the globe, you need to invest in specialised mining equipment. This equipment can cost anywhere from $500 to tens of thousands of dollars.  

ASIC machines are the majority of Bitcoin mining hardware today. They do one thing, and that is Bitcoin mining. ASICs today are orders of magnitude faster than GPUs and CPUs, and they gain more hashing power as well as energy efficiency with every new chip that is developed and deployed.  

Bitcoin mining: Risks and difficulties  

Bitcoin mining has both regulatory and financial risks. The financial risk of crypto mining is the most immediate, as the miner can spend thousands of dollars upfront, and the mining process might not generate the expected profit. However, smaller miners can join mining pools to unite their mining power and increase their chances of generating Bitcoin.  

Miners should also be aware of their local regulations regarding mining cryptocurrency. In some places, crypto mining is banned (China and others). Make sure to check your country’s regulations around cryptocurrency before you invest in mining equipment. 

The profitability of Bitcoin mining lies in the local price of electricity. Despite ASIC chips being more efficient, this technology is a huge energy consumer. Many high-profile personalities, including Elon Musk, have expressed concerns regarding Bitcoin mining's impact on the environment and carbon footprint. In the past, this news has caused the price of Bitcoin to plummet.  

However, there are ways to reduce the carbon footprint caused by Bitcoin mining. These include using carbon offset credits and looking for cleaner, greener energy sources. Another strategy is to switch to less energy-intensive consensus mechanisms such as proof-of-stake (PoS), following the example of Ethereum, which is due to finalize the upgrade by the end of 2022. For example, it incentivizes hoarding rather than using coins and runs the risk of centralizing consensus control. 

What Cryptocurrencies Can You Still Mine  

Investing in some of the popular cryptocurrencies may be difficult for some, considering the soaring prices and the market’s volatility, but you can still be part of the decentralized economy by actively supporting the blockchain and generating new coins. You might consider starting a small cryptocurrency mining business at home. 

Building a huge mining rig is unnecessary to make cryptocurrency easy to mine. Miners can easily join mining pools to increase their chances of generating a profit from their mining activity. 

However, it is slow and may cost more electricity than the value of coins that you can mine. GPU mining is an option for those who are serious about mining.  

Prices for GPUs can range from $600 to as high as $2000. Performance is the main reason for the difference in price. This refers to GPUs' maximum hash rate. In simple terms, hash rate is the amount of power/speed/calculation that the GPU unit can apply when mining cryptocurrency.  The hash rate can be expressed as a million hashes per second. One million hashes per second is 1MH/s. Hashrates are usually lower on GPUs with lower prices. The hash rates of CPUs found on laptops and desktops are lower. They are measured in thousands per second, as opposed to millions. 

Cryptocurrency mining is only possible for native cryptos of PoW blockchains, such as the Bitcoin blockchain. But Bitcoin isn’t the only cryptocurrency that uses a PoW consensus mechanism. Some of the most popular altcoins that can be mined include Litecoin (see Litecoin prediction 2022, 2025, 2030), Monero (XMR), Dogecoin (see Dogecoin prediction 2022, 2025, 2030) and Bitcoin Cash (see Bitcoin Cash prediction 2022, 2025, 2030) 

Alternatives to Bitcoin and Crypto Mining  

Cryptocurrency mining is not for everyone, and it’s one of the costliest options if you want to get started in the crypto world. If you only want to invest in cryptocurrency through speculating on their price movement, then CFD trading is a popular alternative.  

Trading Cryptocurrency CFDs 

CFDs (contract for differences) are derivatives that allow you to speculate on cryptocurrency's price movements without owning the underlying coins. If you believe a cryptocurrency price will increase in value, you can “go long” (open a buy position) or if you believe the price will decline you can “go short” (open a sell position). CFDs can also be used to hedge against losses in an existing portfolio.  

CFDs are leveraged products. This means that you only need to make a small deposit (known as margin) to have full access to the underlying markets. However, leverage can increase both profits and losses. 

But the finer details can often be a little more complicated – especially since cryptocurrency trading platforms and trading apps functionality vary from provider to provider. 

>> The benefits of Cryptocurrency trading 

Investing in Cryptos through stocks and ETFs  

Many investors are cautious because cryptocurrencies are new investments with little or no history. Cryptocurrencies are volatile and speculative investments, and investors should be cautious. The volatility of the crypto market keeps some investors away from it, but there are still ways to invest in cryptocurrency, even if you don’t want to buy or hold it. 

One of the best alternatives is to buy stocks in companies that have a future or a financial stake in cryptocurrency and blockchain technology if you prefer not to directly invest in it. 

These so-called cryptocurrency stocks can be broken down into a few broad categories:  

  • Public companies that own cryptocurrency. It’s a known fact that MicroStrategy (MSTR) and Tesla (TSLA) own substantial amounts of Bitcoin.  
  • Crypto exchanges. For instance, Coinbase (COIN) is a major cryptocurrency exchange. The company is listed on the Nasdaq exchange. 
  • Cryptocurrency miners. RIOT Blockchain (RIOT) is a Bitcoin mining company. 
  • Financial services firms. You can invest in CME Group (CME), which established the first bitcoin futures market, and Robinhood (HOOD), an online trading platform for stocks and crypto. 
  • Payment processors. Square (SQ) and PayPal (PYPL) allow users to buy and store cryptocurrencies. Visa (V) and Mastercard (MA) handle payments for several crypto-linked credit and debit cards. 
  • Tech companies. NVIDIA (NVDA) and Advanced Micro Devices (AMD) are the essential microchip producers for the blockchain hardware infrastructure. VMWare (VMW) is a leading cloud computing company that has blockchain-focused businesses. DocuSign Inc (DOCU), a platform that facilitates electronic signings and agreement processes, uses blockchain technology to secure signer identities and keep contract evidence. 

Exchange-Traded Funds (ETFs), are a type of investment fund that can be purchased just like stocks. ETFs are a quick and straightforward way to diversify because they invest in several stocks, bonds, or other assets. The so-called cryptocurrency ETFs include either one or more cryptocurrencies or stocks from crypto and blockchain-related companies. 

The first-ever Bitcoin ETF was launched in October 2021. The ProShares Bitcoin Strategy ETF (BITO) tracks Bitcoin futures contracts, and it is tied to the price of the cryptocurrency.  

Is Bitcoin and crypto mining for you? 

Bitcoin mining is the function that verifies and confirms transactions on the blockchain. It also helps to stop bad actors from double-spending. This is how new Bitcoins are introduced to the system. The miners must provide answers to complicated puzzles and the process requires a lot of energy. The mining process is imperative for the system to continue to function, and it keeps the decentralized system secure, reliable, and trustworthy. 

The profit generated from Bitcoin mining and any other cryptocurrency mining comes from selling the coin you’ve generated. If the value of Bitcoin is higher than the electricity bill and the cost of the equipment used, then your Bitcoin mining is profitable. Many voices have blamed the heavy energy consumption of Bitcoin mining to hurt the environment, but there are green energy sources that can be used. In this case, the energy is stored in Bitcoins, and its blockchain can be seen to store energy, which is otherwise impossible. This process might not be possible for everyone, and each miner must decide for himself if Bitcoin mining and cryptocurrency mining, in general, is profitable investment.  

FAQs (Frequently Asked Questions)  

Is Bitcoin mining profitable?  

Bitcoin mining requires cheap energy to be profitable. Regenerable energy sources should be the primary energy source for Bitcoin miners to continue building the network to ensure their profitability. Miners can also use the profitability calculators available online to easily see if mining with their equipment and from their location is profitable for them.  

How long will it take to mine 1 Bitcoin?  

Mining 1 Bitcoin could only take 10 minutes, the average time for a new block to be created on the blockchain. However, few miners afford to invest in this kind of equipment. On average, for smaller miners, it could take around 30 days to mine 1 Bitcoin. 

Can I mine Bitcoin and other cryptos from home?  

Yes, Bitcoin isn’t the only cryptocurrency that can be mined. Other popular cryptocurrency mining includes Monero, Dogecoin, and Bitcoin Cash. 

Can you mine Bitcoin cryptocurrency for free?  

No, you cannot mine Bitcoin for free. Bitcoin mining requires specialised equipment called ASIC (application-specific integrated circuit), and this equipment consumes lots of energy. Therefore, you will have to ensure that after you cover the cost of the equipment and the electricity bill, you are still left with something to call Bitcoin mining profitable.  

Is mining Bitcoin cryptocurrency illegal?  

Bitcoin mining has been banned in several countries around the globe, including Egypt, Iraq, Qatar, Oman, Morocco, Algeria, Tunisia, Bangladesh, and China.  

How much do Bitcoin miners get paid?  

Bitcoin miners don’t “get paid” like ordinary employees. Instead, they invest in the necessary computer equipment and start mining, either by themselves or join a mining pool. According to their success when mining Bitcoin and their share of the mining pool, their receive some Bitcoin. The coins are rewards from the blockchain to incentivise the miners to keep verifying transactions and creating blocks.  

What is the best Bitcoin/crypto mining software?  

While each crypto that can be mined may require a different mining software, some of the most popular Bitcoin mining software are Awesome Miner, EasyMiner and MultiMiner. 

Can you get rich mining cryptocurrency?  

Mining isn’t as easy as it was in the first few years of these PoW cryptocurrencies. However, miners can still make money from mining cryptocurrency.

Uvedené informace zpracovala společnost a nepředstavují investiční doporučení. Uvedené informace poskytujeme v rámci naší marketingové komunikace pouze pro informační účely, nebyly připraveny v souladu s právními předpisy upravujícími šíření nezávislého investičního průzkumu a nevztahuje se na ně zákaz obchodování před šířením investičního výzkumu.Uživatelé / čtenáři by se neměli spoléhat výhradně na informace, které jsou zde prezentovány, a měli by také provádět vlastní výzkum / analýzu a také četli skutečný podkladový výzkum. Obsah je obecný a nezohledňuje individuální osobní situaci, investiční zkušenosti nebo současnou finanční situaci.Společnost Key Way Investments Ltd proto nebere žádnou odpovědnost za ztráty obchodování z důvodu použití a obsahu zde uvedených informací. Minulá výkonnost a předpovědi nejsou spolehlivým ukazatelem budoucích výsledků.

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Miguel A. Rodriguez
Miguel A. Rodriguez
Financial Writer

Miguel worked for major financial institutions such as Banco Santander, and Banco Central-Hispano. He is a published author of currency trading books. 

Rozdílové smlouvy jsou komplexní nástroje a v důsledku použití finanční páky jsou spojeny s vysokým rizikem rychlého vzniku finanční ztráty. U 69.69% účtů retailových investorů došlo při obchodování s rozdílovými smlouvami u tohoto poskytovatele ke vzniku ztráty. Měli byste zvážit, zda rozumíte tomu, jak rozdílové smlouvy fungují, a zda si můžete dovolit vysoké riziko ztráty svých finančních prostředků.