Bitcoin Mining A Life Changer

 Introduction

 It is no longer news that the adoption of digital currencies as a means of making payment is rapidly gaining momentum around the world. Bitcoin, which is the first example of the growing category of money known as the cryptocurrency, is the most popular and widely accepted of them all. Bitcoin is a peer-to-peer electronic cash system that was invented by a software developer called Satoshi Nakamoto, and it is currently taking the lead amongst other digital currencies. It is an electronic payment system based on mathematical proof that is created and held electronically. Bitcoin is also a decentralized form of cryptocurrency that is independent of any central authority – meaning, there is no single institution controlling the Bitcoin network. 
This eBook is going to help you go beyond a basic understanding of Bitcoin and the mining of it. When you are finished reading, you’ll be ready to get started mining Bitcoins today!

What is Bitcoin Mining? 

In traditional fiat currency systems, money is printed by the government and released into circulation whenever it is needed. Bitcoins, on the other hand, aren’t printed, rather they are mined. Computers around the world ‘mine’ for coins by competing with each other using software that solves mathematical problems. Bitcoin is mined by people, and increasingly, businesses using computing power in a distributed network. It can be transferred electronically and costs very little in transaction fees. The first groups of people to stake their claim in Bitcoin mining were cypherpunks, cryptographers, technically-minded libertarians and multi-talented hackers. Miners get rewarded in Bitcoins for each new block that they discover and for every transaction that gets finalized. Bitcoin mining usually involves two main aspects; these are: confirming transactions to the blockchain and introducing new Bitcoins to the system. The blockchain is normally kept in a chronological order to provide the proof needed to complete transactions. Hence, it makes it extremely difficult and nearly impossible to undo transactions because it will require new proof on not just one block, but on all the others. The network is programmed in such a way that when two blocks (or pending transactions) are found simultaneously, the entire Bitcoin network works on the first block they’ve found. It follows a one-block-ata-time process so that no new block is solved until the penultimate block has been finalized. Then, whoever solves the block gets rewarded with Bitcoins. The process of solving subsequent blocks continues on to the next block, and it keeps going on and on in circles with a reward for each successful block that gets finalized.

As the mining population increases in the field, there is a proportionate increase in the difficulty of finding new blocks. This difficulty is enhanced because the network is always wanting to ensure that the average time for miners to find a block is limited to 10 minutes. Hence, there is an inherent cutthroat competition lingering among the miners because they only have 10 minutes to finalize their transactions. With this rule actively in place, no one person can control the blockchain, rather, a series of miners get to finalize transactions.

Bitcoin Mining Terminology

To begin your journey into Bitcoin mining, you will need to run software with specialized hardware. We will go into further details about this in the next few chapters. But first, we are going to explain how Bitcoin mining works by defining the basic technical terms that are commonly used in mining. These terms include: 

Block: 

A block is a group of Bitcoin transactions that are collected during a set period from current pending transactions. These transactions are usually entered into an ever-growing list of blocks, also known as the blockchain, by the miner. It is clearly visible to everyone who is a part of the Bitcoin network. It is estimated that a new block is created on average every ten minutes. 

Proof of Work Hashing:

 This is the function which miners perform to define a new block. It is usually done to ensure that the Bitcoin blockchain is functioning properly. Miners compete with each other to solve a cryptographic "puzzle," known as a hash, by using raw computational power. When a miner correctly hashes the current block, he successfully solves the "puzzle," thus proving his investment of work. He is then rewarded with a certain number of newly-created Bitcoins. 

Block Reward:

This refers to the number of newly-created Bitcoins. Bitcoins usually undergoes a halving process every four years (or every 210,000 blocks). As first, the number was set to 50, then it was halved to 25 in late-2012, and 12.5 in mid-2016. It is the only way in which new Bitcoins can be created by miners following the code’s rate and limit. This process is expected to continue until all Bitcoins are created.  

Hashrate:

 This is the measure of a miner’s computational power. It is the number of hashes per the amount of time it took to solve them. The higher a miner’s relative power is, the more solutions he is likely to find, thus earning more Bitcoins for himself. The unit of measurement of hashrate was initially in hash per second H/s), due to the increasing speed of mining hardware. However, H/s eventually began having prefixes with SI units which consists of the following: 

• Kilohash = KH/s (thousands of H/s), then 
• Megahash = MH/s (millions of H/s), then 
• Gigahash = GH/s (billions of H/s), then 
• Terahash = TH/s (trillions of H/s), and finally 
• Petahash = PH/s (quadrillions of H/s). 

Why Do People Mine Bitcoin?

 There are several reasons why people mine Bitcoin. Mining is the only way Bitcoin is produced. Also, unlike conventional currency which is based on gold and silver, Bitcoin is based on mathematics. 

People around the world use software programs that follow a mathematical formula to produce Bitcoins. The beauty of this is that the mathematical formula is freely available, so basically, anyone can check it. Also, the mining software is open source, so anyone can look it up to verify that the inputs correspond to the desired outputs.

People want the freedom that the mining of Bitcoins provides, and the benefits that come with it. The reasons why they mine Bitcoins can be summarized by the characteristics of Bitcoin itself. These characteristics are practically absent or inconsistent in the conventional governmentbacked currencies listed as follows: 

1. It is decentralized

 This is one of the major reasons why people mine Bitcoins, and that is because the Bitcoin network is not controlled by one central authority. Conventional currency’s central banks can just decide to take people’s money away from them, like was experienced in Cyprus in early 2013 by the Central European Bank. With Bitcoins, every machine involved in its mining forms part of a large network, and they all work together, although competitively. Also, even if some part of the network abruptly goes offline for some reason, the money keeps on flowing nonetheless. 

2. It is easily set up

 Getting started with mining Bitcoins is a relatively faster and easier process compared to conventional banks. With Bitcoin mining, you get your Bitcoin address in seconds, with no hassle and no fees payable. Unfortunately, the same cannot be said of conventional banks which make you jump through hoops simply to open a bank account. Not to mention the herculean task and bureaucracy synonymous with setting up a merchant bank account. 

3. It is completely transparent 

Another reason why people mine Bitcoins is because of its transparency. You can access details of every single transaction that has ever been made on the Bitcoin network via a large version of a general ledger known as the Blockchain. You can also confirm the total amount of Bitcoins stored in a publicly-used Bitcoin address, though the identity of the owner of the address remains anonymous. For those who want to make their activities even more opaque on the Bitcoin network, they can do so by making use of different Bitcoin addresses and by not transferring large amounts of Bitcoin to a single address.  

4. Minimal transaction fees

 Unlike conventional bank systems that charge high fees on international money transfers, mining of Bitcoins eliminates going through the middleman; you get to enjoy very minute transaction fees.  

5. It is fast 

Nothing beats the speed of a Bitcoin transaction. You can send money from any part of the world to another, and it will arrive in the recipient’s Blockchain wallet in minutes, as soon as the Bitcoin network processes the payment. 

6. It is non-retrievable

 Once a transfer has been completed, and the Bitcoins are sent, there is no possibility of retrieving them back. This is because it requires the proofs for all of the transactions before the one you want to reverse. The Bitcoins you send out are gone forever and can only be reversed if the recipient agrees to send them back. It is therefore very important that you are sure that you really want a transaction before going ahead with it. 

7. It is secure 

The mining of Bitcoins allows individuals to become architects of their own wealth but also prevents any one person from gaining enough power to block transactions. This is seen as an advantage and another reason why people mine Bitcoins because of the security of its transactions. It is an ingenious means of payment that effectively ensures that the risk of fraudulent activities being perpetrated is significantly curbed.  

Getting Started Mining 

To get started as a major Bitcoin miner, there are two specific things that you’ll need. Aside from having cheaper electricity, you will need access to the latest mining hardware. Since the second halving event that took place in early July 2016, the mining of Bitcoins has become even tougher, with the reward for successfully mining a block dropping from 25 Bitcoins down to 12.5.

 Also, with the Chinese taking the lead in the Bitcoin mining game, you’ll need to work with the best available miners to be able to compete. However, before we delve into the Bitcoin hardware you will need, you must first gain an understanding of a few technical terms.

Hashrate

 As earlier explained, the hashrate refers to the measure of how many attempts at solving a Bitcoin block a miner tries per second. The more attempts, the more chances the miner has of solving the block and claiming the 12.5 Bitcoin reward. 

Joule per Gigahash (J/GH)

 A joule is a unit for measuring energy, and it represents one watt over one second. Electricity is a major recurring expense for miners, and therefore the joule per gigahash (J/GH) is especially important when making comparisons between miners. It is estimated that the electrical efficiency of an Application-specific integrated circuit (ASIC) miner is expected to go higher in indirect proportion to the fewer joules used to produce a Gigahash.

 Difficulty

 When the term difficulty is used in Bitcoin mining hardware, it simply refers to an automatic control measure that prevents Bitcoin blocks from being solved increasingly quickly. The difficulty level of mining adjusts to the current hashrate, ensuring the blocks are solved every 10 minutes on average.

Profitability 

This refers to a bottom-line number from calculating the current Bitcoin price and Difficulty, including your miner’s cost and hashrate and your electrical cost in fiat money per kWh. The Difficulty mechanism, which adjusts itself quite frequently, together with the volatile price of Bitcoin, creates uncertainty about the future profitability of Bitcoin mining. However, using an online mining profitability calculator can prove very useful for this purpose. You should also create a custom spreadsheet containing inputs showing various exchange rate and Difficulty projections. Also, ensure that you take into consideration probable downtime due to software or hardware failures, power cuts, and the like.  

Break-even point 

This refers to the duration taken for your miner hardware to pay for itself. 

Pool Fees

 As mentioned earlier, mining pools are cooperative groups of miners who pull together to improve their hash-power. They distribute any rewards the pool earns in accordance with each individual miner’s hashrates. There are various types of pools, and each has their unique fees and reward structures. The larger the pool, the more frequent returns can be expected, though often, the higher the fees. 

Top Hardware for Bitcoin Mining 

Now that we have acquired a basic understanding of the metrics used to assess Bitcoin mining hardware, we will now identify the various mining hardware that is currently in use. They include the following:

Bitmain’s AntMiner S9 

The AntMiner S9 is manufactured by Bitmain – the current leading manufacturer of publically-available ASIC hardware. It is the ideal Bitcoin mining hardware for mining-for-profit on a small scale. It comes with ahashrate of 11.8 – 14 TH/s (figures are approximate and may vary by 5%), it consumes 1350 Watts of electricity (figures are approximate and may vary by 10%), and possesses a power efficiency of 0.1 Joule per GH (figures are approximate and may vary by 10%). It has a built-in controller, produces 70dB noise at 4ft/1.2m (figures are approximate and may vary by 10%), and it has a chip process of 16nm. A brand new S9 currently costs between $1831 to $2016 less shipping fees (figures are approximate and may vary by 10%).

Its profitability is plausible (assuming an electricity cost of 10c (US) per kW/h, a 2.5% pool fee and at the current Bitcoin price), and it has a break-even point of 0.9 years, as per CoinWarz’s calculator, assuming an electricity cost of 10c (US) per kW/h and a 2.5% pool fee at the current Bitcoin price.
 The S9 is the latest model of hardware from Bitmain, and it is the first ASIC to market with a 16 Nanometer (nm) semiconductor fabrication process. This means that the circuits in the S9 BM1387 are approximately half the size of previous generation mining chips. 

The S9 is fully capable of running on a standard Power Supply Unit, (PSU) better known as a computer, but it is often recommended that you use Antminer’s APW3-12-1600-B2. It is high-quality hardware that is extremely power-efficient and designed specifically for mining. 

Bitmain’s AntMiner S7 

The AntMiner S7 is also a product of Bitmain, and it is the most popular of all the Bitcoin mining hardware. You can readily find the S7 in any major mining operation, and it also has a very good second-hand value. It comes with a hashrate of 4.73 TH/s (figures are approximate and may vary by 5%), it consumes 1350 Watts of electricity (figures are approximate and may vary by 10%), and possesses a power efficiency of 0.25 Joule per GH (figures are approximate and may vary by 10%). 

It also has a built-in controller, produces 62dB noise at 4ft/1.2m (figures are approximate and may vary by 10%), and it has a chip process of 28nm. A brand new S7 currently goes for $440 less shipping fees, while a secondhand S7 costs around $440 to $674 (figures are approximate and may vary by 10%).

 It has a marginal profitability (assuming an electricity cost of 10c (US) per kW/h, a 2.5% pool fee and at the current Bitcoin price), and reaches a break-even point of 2.6 years, as per CoinWarz’s calculator, assuming an electricity cost of 10c (US) per kW/h and a 2.5% pool fee at the current Bitcoin price.

 The S7 is loved for its affordable price tag among other things, which make it an easy introduction model for prospective miners. It provides a maximum efficiency that can be extracted from a 28nm process and has room for further improvement through skilled modification.

 It is great hardware for use in experimenting with alternative energy solutions or software and hardware modifications. It is a high-quality performer that can also turn a profit. It is also available as a variant model – the S7-LN model, which comes with a built-in 700W power supply. It is cheaper, uses less power and is suitable for home and office use.  

What software is needed?

 Bitcoin mining software is somewhat of the ‘middle-man’ between the hardware, and the users and the Blockchain network. They help the mining hardware by transmitting super calculations performed by the hardware on which they are installed to the Blockchain network. 

The mining software is also essential for monitoring the performance of the hardware on which they are installed. The software monitor activities like the hashrate, average speed, and the fan speed of the mining hardware.