The launch of the new Bitcoin Cash, after the hard-fork of Bitcoin has sparked the interest of new Bitcoin miners. But for many, the process is still unclear. In this article, we explain this practice and give tips on how to mine Bitcoin in 5 steps.
A large amount of them – 17 million – has already been mined by 2017. Nevertheless, there are still many investors looking into how to mine Bitcoin. Especially, after today’s hard-fork of Bitcoin with the split and introduction of the new version Bitcoin Cash. The interest into mining Bitcoin has sparked, considering that people now have to option to also mine the new Bitcoin Cash.
What is the purpose of Bitcoin mining?
Before we look into the 5 steps of how to mine Bitcoin, let’s have a look at the core purpose of Bitcoin mining? The mining of Bitcoin has two important purposes: one is the creation of new coins, and the other is the facilitation of transaction processing.
Mining of Bitcoin is a very competitive process itself. New Bitcoins are created at a fixed and predictable rate, which was first defined in 2008 by the creator of Bitcoin, Satoshi Nakamoto. The competition among miners to make a profit is high, not least because more and more of them are joining the network. Below you will find all the necessary steps in our comprehensive Bitcoin mining guide.
How to mine Bitcoin in 5 steps
#1 Invest in Bitcoin mining hardware and software
First and foremost, what is needed from every person to start is Bitcoin mining hardware and software. In the early years of Bitcoin mining, you could have simply used a personal computer’s CPU or GPU to mine Bitcoins. Now, personal computers are not feasible anymore, due to the fact that the network has become very competitive and the PC’s CPU will take a very long time to solve one math problem.
By now, Bitcoin miners only use specialized hardware and these can be in the form of dedicated video graphics card with a higher CPU processor. Some of these dedicated Bitcoin mining hardware can cost from a few hundred dollars to thousands. Next, to the specialized hardware, you will need to download a Bitcoin mining software. In essence, the mining program will perform the complex mathematical calculations, which is the process of mining.
#2 Open a Bitcoin wallet and secure it
You will need to store your hard earned Bitcoins, hence it is required to open a Bitcoin wallet. These are encrypted digital wallets for you to save and protect your Bitcoins. Bear in mind, when you open a Bitcoin wallet, there is no "ownership" of the wallets. Meaning that anyone who has access to your wallet, they are able to use those Bitcoins.
After you open a Bitcoin wallet, make sure to enhance the security of your Bitcoins. You can even store the wallets offline on a computer, USB stick or SD card which is not connected to the internet. But make sure not to lose the physical hardware, because if you lose your wallet it means that you have lost your money.
#3 Join a Bitcoin mining pool or mine alone
The next question is how to mine Bitcoin, alone or join a Bitcoin mining pool. Mining alone can nowadays be more difficult, due to the high level of competition and the difficulty of solving the math problems has become more complex. Meaning that it will take much longer for you to mine one Bitcoin. However, the advantage is that you will be able to keep all the profits to yourself when you plan on mining alone.
Optional is to join a Bitcoin mining pool, which will allow you to share resources needed to mine a Bitcoin and results in quicker returns. The disadvantage is that you will have to share the rewards with the others in the pool.
When it comes time to start mining coins, you have two main options: join in with an established pool or attempt to mine on your own. A pool allows you to share resources and split the rewards, which can lead to quicker returns. Mining alone can be difficult as getting new bitcoins are highly competitive, but you get to keep everything you mine.
#4 Start Bitcoin mining operations and monitor profits
Now everything is in place, you will need to configure and run your mining software. In essence, the Bitcoin mining operations mean that your computer will start solving math problems. Each time your computer solves a math problem, a new block is created and added to the blockchain. In return for this process, the miners receive the block reward, or in other words a particular amount of Bitcoins.
But like in every other business, you need to offset your costs of running the computer at full speed against the profit in Bitcoins. If your costs are higher than the costs of operations, then there is no sense in the continuance of your Bitcoin mining operations.
#5 Maintain your Bitcoin mining hardware
You should take proper care of your Bitcoin mining hardware and keep the system running optimally. To avoid the disruptions in work, any malfunctions should be detected and eliminated as soon as possible. The workload placed on a computer's processor through mining is enormous, and the hardware will have to run at full capacity all the time.
This means that temperatures of your Bitcoin mining hardware can run up high and eventually cause damage. So look into programs which you can control the temperatures of your hardware.
Useful Bitcoin mining tips
By now you should have a better an idea of how to mine Bitcoin. Still, there are several pitfalls which new miners should avoid. It will help to take a closer look on some of them.
- It is dangerous to follow the trend and start mining the coin which enjoys the highest popularity at the moment. When any of cryptocurrencies surges in popularity, there's usually a large number of new miners willing to try their luck. The coin becomes over-hyped – as a consequence, the network becomes even more complicated. In the end, none of the miners manage to make a reasonable profit – that's exactly the case which recently happened to Ethereum.
- Preparation is crucial. Without preparation, there is a high chance of trapping into high costs and small profit rates. Every decision you take should be weighted and calculated, especially in such a highly-competitive activity as mining. Otherwise, the participants are risking to go into minus, not being able to maintain profitable operations. Usually, such unlucky miners end up selling their hardware at a large discount.
Think we missed something or do you have other Bitcoin mining tips? Let us know in the comments section below.