Bitcoin Mining: Can You Really Make Money Doing it?
Virtual currencies are slowly but surely becoming more popular, as more people start using them. One of the most popular virtual currencies is the Bitcoin (BTC), and ever since its appearance in January 2009, it has spread like wildfire and many online businesses have accepted it as a payment method.
Even though some are still weary about the Bitcoin, as it is linked to the deep web and other dark corners of the Internet (such as the black-market Silk Road) is still remains a valid currency that anyone can use online with ease. Also, bitcoins have attracted users with the possibility of “mining”. Mining bitcoins can be easily done and the prospect of getting free money has both increased its popularity and raise some eyebrows.
What is Bitcoin?
According to Wikipedia, the Bitcoin is the first type of cryptocurrency that was introduced. It was first thought of by Satoshi Nakamoto in a paper about “peer-to-peer electronic cash system”, in 2008. Bitcoins had a few advantages over the so-called “real currency”, and for those who deal with bitcoins, these advantages make it far superior to regular money.
Existing only in virtual form, the bitcoin is a part of the Internet, and therefore, it is not regulated by a central authority. Also, since their introduction, bitcoins have been continuously created an managed by a open source cryptographic protocol and it will continue to do so for a long time now. The number of newly generated bitcoins is halved every 4 years, and it has been calculated that this process will reach 0 in the year 2140. By this time, there will not be any new bitcoins, and the total number of bitcoins in existence will be 21 million.
Bitcoins are generated on a pre-determined schedule, each new batch being called a “block”, and at the moment, there are 25 bitcoins generated with each of them. A new block is generated ever approximately 10 minutes.
The concept of “mining bitcoins” started from the way in which each block of bitcoins starts. When it is generated, a block is created by a very complicated mathematical algorithm, and it needs to be resolved in order to get the bitcoins. These algorithms are increased or decreased in complexity according to the amount of computer power that is used to solve them. However, due to this amount of computing power being on the rise, with every new block the complexity is higher (on average). The process of solving it somewhat resembles how a miner goes through a chunk of rock to obtain valuable ore.
Due to the complexity of today’s algorithms, the amount of computational power needed to solve a block is pretty high, and so, one single miner would have a hard time doing it. Also, thanks to the advances in computer technology, bitcoin mining has moved away from CPU processing and now, the number crunching is done with GPUs, as these processors are faster thanks to their SIMD (single instruction, multiple data) architecture.
In order to make it easier for miners to get bitcoins, some took advantage of the peer-to-peer algorithm that this currency was based upon, and created what are now known as “mining pools”. In these mining pools, multiple users join forces and break down the algorithm to make it easier to solve. After the block is solved, the 25 bitcoins that it has are divided amongst all the users who helped. The reward isn’t too big, but it is proportional to the amount of work each used did.
How much computing power your device generates is measured in Mh/s, and the higher the value, the more work you do, and therefore, the more rewarded you will be. Keep in mind that you will need a high-end computer or a specialized rig to mine bitcoins efficiently.
Bitcoin Questions & Answers
Q: How much are bitcoins worth?
A: Being a live market, just like any other real world currency, the value of bitcoins will fluctuate. At the time this post was written, 1 BTC was equal to ~$100, but it’s better to search on a real time converter like Preev or BitcoinExchangeRate.
Q: What do I need to start mining bitcoins?
A: First off, you will need to set up a bitcoin wallet. There are two options for wallets: local or online. After you set up a wallet, create an account to a trusted mining pool. You will receive your bitcoin address from your wallet, which is the same as a bank account number. You will enter that address to your pool and you will make and receive payments via this address.
Once all of this is done, the last software tool you will need is a bitcoin mining program. There are CPU and GPU clients, but due to relatively slow speed of the CPU, you will most likely use a GPU miner. There are many out there, so basically all you need is to take your pick and once installed, input your credentials from the pool and start mining.
On the hardware side, you will need a very powerful computer. A multi GPU setup is most likely required if you want to have a good hash rate. It is said that nVidia graphics cards are recommended for bitcoin mining. I have tried myself on a nVidia GTX 660 and it had very low speeds, so you might want to look for some powerful AMD cards.
Serious miners nowadays use ASICs (application-specific integrated circuit), which are devices that are tailor made for bitcoin mining. While regular miners can try out with their computers, those who have made a business out of it rely on ASICs to do the job. ButterflyLabs is one of the manufacturers of these customized bitcoin mining computers.
If you really plan on doing bitcoin mining, then you might want to invest in a dedicated bitcoin mining computer. These are custom designed computers that can only mine for bitcoins, but seeing that the algorithm gets more complex with each block, you will have to upgrade them from time to time.
Q: Is bitcoin mining safe/legal?
A: Yes, bitcoin mining is both safe and legal. However, in some countries, you must declare all income coming from any source, including the Internet, and not declaring will get in trouble with the IRS.
Q: Can I make a profit out of bitcoin mining?
A: It depends on how committed you are and how much you are willing to invest. Don’t think of just the hardware involved, even if it can cost a small fortune, but rather take into account the electricity bill, as your mining equipment will run 24/7. Also remember to take into account future upgrades and other possible expenses.
Q: Where can I use bitcoins?
A: Bitcoins can be used in a number of marketplaces. You can either buy goods and services with them from the websites that support such payments, or you can exchange them for other currencies and transfer them to your bank account.
For more information about bitcoins, you can check out the Bitcoin wiki, where you will find much more information on the economics of bitcoins or o general help. Just keep in mind that you need to do lots of research before you start mining bitcoins. Also, try to seek the best markets and pools so you won’t get scammed. There are a number of trusted websites where you can do bitcoin exchange and transactions.
How to mine bitcoins: resources
The process is fairly simple, and if you have the hardware to back it up, then from here on it’s smooth sailing. First off, you will need a Bitcoin Wallet. There are three types of wallets available, one is a software program that runs on your computer (local wallet), the second is an online account (online wallet) and lastly, there are mobile wallets which you can install on your smartphone. You can either wallet you please, as they both do the same thing. Here are a few examples of bitcoin wallets you can use:
- Software Wallets: Bitcoin-Qt, MultiBit, Armory, Electrum
- Mobile Wallets: Bitcoin Wallet, Blockchain.info, Paytunia, Coinbase
- WEB Wallets: Blockchain.info, BIPS, Coinbase
After you’ve set up your wallet, you will receive a bitcoin address. As mentioned before, with this address you will receive payments and make transfers or exchanges.
What you want to do next is join a bitcoin mining pool. Here, you will join a network that works together and combines the hashrates of all the users in order to solve the blocks as quickly as possible. There are mining pools scattered all over the world, so you will have a chance to find one near your location. For a full list of mining pools, follow this link. Also, here are a few examples of mining pools you could try:
The last thing you need before starting to mine bitcoins is a miner. This is the small software program that will do all the work. There are a number of such bitcoin clients that work on pretty much all platforms. In this client, you will input your pool credentials and start mining. Once you start, you will see the utilization of your graphics card or CPU go all the way up to 100%. Here are some of the best bitcoin mining programs you can find:
- GUIMiner (Windows, Linux)
- M0mchil’s GPU Miner (Windows, Mac, Linux)
- Phoenix 2 GPU miner (Windows, Linux)
- Diablo’s GPU miner (More info + Files)
- Puddinpop’s GPU/CUDA miner (Windows + nVidia)
- Ufasoft’s CPU miner (Windows, Linux)
After you’ve installed your bitcoin client, set up your credentials from the mining pool you joined. Also, on the pool’s website, be sure to add your bitcoin address, so they can send you your earnings. Once you earned a satisfying amount of bitcoins, you can start spending them. You have an option to seek out which online merchants use bitcoins as currency, or you can trade them for cash at an exchange market like MTgox.
Bottom line: can you reall make money from Bitcoin mining?
Image Credit: www.salon.com
Saying for sure that you can make money from bitcoin mining is not possible, as you have to take into account multiple factors. First off, you will want to calculate how much money will go in your mining setup. Then, think of the cost of running your mining gear, as it will run non-stop. Some pools also take a fee from the members, and while the fee isn’t much, you still have to take it into account. This handy bitcoin profit calculator might also help you determine if you will make any money.
Keep in mind that the price of a bitcoin will fluctuate. It can go wildly from $140 to less than $90, so it will be somewhat of a risk comparable to stock exchange markets. If you consider all the investment and maintenance cost of a mining setup, and you think you can make it work, then go for it, but be weary, because the algorithm is always getting more complicated, and so, your speeds will drop.
For more information on bitcoins and mining, you can take a look at the bitcoin wiki or the official Bitcoin website, or for real time price comparisons between BTC and other currencies, you can have a look at Bitcoin Charts.