Bitcoin mining: What is it, and how do I do it?

A single Bitcoin is worth around $45,000 today, and while some experts argue it could collapse more than 50 per cent in the next few months, others believe it could surge to more than $190,000.

Regardless, as the price of Bitcoin has increased, so has interest.

According to Google Trends, search queries for Bitcoin in January last year were near-zero. Now, they’ve reached a peak.

And given the only other way to get Bitcoin (other than buying it) is to ‘mine’ it, it follows that search queries for ‘Bitcoin mining’ have also peaked.

What is Bitcoin mining?

If ‘Bitcoin mining’ has you conjuring up images of men covered in soot, digging up golden coins in the outback, you’ve gone too far.

However, if you’re picturing hackers with multiple computer screens, working into the night to scour the dark web and crack hidden codes, you’re on the right track.

Here’s a breakdown.

There are only 21 million bitcoins in the world.

Around 18.5 million of these are already in circulation, meaning there are less than three million that are yet to be “mined”.

They call it “mining” because much like gold, it needs to be extracted from somewhere – but instead of an actual mine, people use computers.

So, Bitcoin mining is the process of extracting Bitcoin from the web.

According to Investopedia, Bitcoin ‘mining’ is “performed by high-powered computers that solve complex computational math problems”.

But it’s not just your everyday algebra equation – it’s a problem so complex, it can’t be solved by hand, and your run of the mill PC probably won’t cut it.

It’s also not just a random problem: miners are actually auditors, in that they verify the legitimacy of Bitcoin transactions. When an individual transaction is verified, it gets added to a block, which is then grouped together with other approved transactions to form a blockchain.

The blockchain is essentially a full transaction history of Bitcoin, which dates back to when the first block was mined in 2009.

The process was invented by Bitcoin’s founder, Satoshi Nakamoto, to stop ‘double-spending’, which is when Bitcoin holders try to transact the same Bitcoin twice.

When computers solve enough problems – 1MB worth of Bitcoin transactions – they are rewarded with Bitcoins.

When the process was first introduced, the reward for successful miners was 50 Bitcoin. But every four years, the reward halves.

In 2020, the reward was 6.25 Bitcoin. That’s around $281,250 worth of bitcoin.

The reward will continue to halve until every single Bitcoin is mined.

Am I guaranteed to get a Bitcoin if I verify 1MB worth of transactions?

Not every Bitcoin miner is rewarded with bitcoins.

You need to be the first miner to arrive at the right answer, or the closest answer.

How does Bitcoin mining work?

We know that miners need to solve complex math problems to verify the transaction of bitcoins, which then gets added to a chain of other verified transactions - in the correct order.

But to do that, Bitcoin miners use a cryptographic hash, which is a one-way encryption tool.

To decrypt it and figure out their input data, miners need to cycle through every single possible combination until the result matches the hash - and there are trillions.

That’s then used as an identifier for the block, which protects it from being tampered with.

Mining also works on a “difficulty” scale, which changes every 2,016 blocks, or every two weeks.

The difficulty relates to the amount of computing power, or “hash power” required to mine the block.

It’s designed to keep the time it takes to work out a single block, or verify a transaction, to around 10 minutes. It’s adjusted depending on the number of participants in the mining network and their hashpower.

What do I need to mine Bitcoin?

Unlike the good ol’ days, in 2021, you can’t mine Bitcoin from your home computer.

Instead, you’ll need to access a mining rig, which is a pretty nifty setup that’s been specifically designed for mining Bitcoins.

According to Finder, you can either mine Bitcoin personally or via a cloud mining platform.

Personal mining involves buying specialised hardware, called an ASIC miner, which is expensive. These can cost upwards of $5,000.

If you were to take the cloud route, the initial outlay is a lot lower. However, Finder warns cloud mining is “almost never” profitable, because the break-even point will continue moving backwards as the mining difficulty increases.

Is it bad for the environment?

Because Bitcoin mining requires such high-powered equipment, it’s actually not great for the environment.

According to a 2019 study, researchers estimate that crypto-mining can produce 3 to 15 million tons of global carbon emissions.

But even transactions are costly, with new data from TradingPlatforms showing it costs around $25.2 million daily in electricity to process transactions.

But as countries move to more renewable energy sources, Bitcoin’s carbon footprint should reduce.

“The future outlook will be influenced by efficiency improvements in hardware, Bitcoin price trends, and regulatory restrictions on Bitcoin mining,” the TradingPlatform report stated.

“Additionally, most mining regions are expected to turn to renewable energy like solar and wind in the future. These factors combined might lower or increase the energy consumption for Bitcoin transaction processing.”

Can you mine other forms of cryptocurrency?

Yes.

You can mine other forms of cryptocurrency, like Ethereum and Dash. It’s essentially the same process as mining bitcoin.

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