How Bitcoin is Mined – A Complete Guide

There are high chances that you’ve heard about the phrase “Bitcoin mining” and that is the reason you have searched google with a term like “how Bitcoin is mined” which has led you to our wonderful website.

So, let me start by answering what’s Bitcoin mining? 

Bitcoin mining is nothing but a process that adds transaction records to Bitcoin’s public ledger, which is also named as the blockchain. While this process is far less glamorous and equally uncertain, this mining process is often done by high-performance computers, that can solve highly complex computational maths problems, which can not be done manually. However, the luck and work needed to solve such problems are enormous. Basically, the chance of a high-powered computer solving one of these problems is around 1 in 16 trillion.

So, now you might ask why Bitcoin mining is needed? The answer for that is; it needed so that each and every transaction can be confirmed and every one of the networks can access the ledger. It is also used to distinguish legitimate Bitcoin transactions from the illegitimate transactions. And every time a new block is sealed off a miner gets a reward.

So, instead of wasting any more time let us dig deep into the topic of how bitcoin is mined!

Is Bitcoin Mining Profitable Venture

During its initial days, the Bitcoin miners or the early enthusiasts used to confirm transactions using their CPUs. However, with people starting to mine Bitcoins using industrial level infrastructure, things have changed drastically. The easy money is not so easy anymore, and due to the growing nature of Bitcoin, it has become a lot more appealing for individuals and as well as for the large corporations, which eventually has increased the competition by quite a few folds.

So, now you may ask is Bitcoin mining worth it?

Err!! Yes! but currently, it is only profitable for those, who are using high powered machinery. If you are searching the term how Bitcoin is mined while planning for a smaller setup and smaller pools, then you’ll spend more money on your electricity bill rather than generating some from mining. So, if you don’t have an access to cheap electricity and high powered machinery, getting profit out of Bitcoin mining is next to impossible.

Additionally, if you stay in an area where the chances of power outages, network problems are high and still you are searching for the term how Bitcoin is mined then you must abandon the search process immediately.

However, as new mining software is in the process of development and reaching new heights along with sustainable and cheap electricity coming into play, again Bitcoin mining can be profitable for individuals in the near future.

So, if you are searching for the term ‘how Bitcoin is mined’ with the intent of starting the mining process with a small setup, then this might not be the best time for you.

However, if you want to invest in the high-powered machinery then there are few things that you should remember!!

Choosing the Right Hardware for Bitcoin Mining

As Bitcoin mining involves a lot of complexity, it’s very important to invest in the right set of hardware.

While answering the question how Bitcoin is mined? one can avoid hash rate. For Bitcoin mining hardware, the hash rate is a pretty big deal. It is basically the number of calculations that hardware can perform each second. And obviously the higher the hash rate is the higher is the chance of solving the mathematical problem and collecting your reward. Hash rates are measured in mega-hashes per second, giga-hashes per second, and tera-hashes per second.

Now comes electricity. It’s natural, that the more powerful your hardware is the more electricity you are going to need in order to run them. So, its always a great idea to consider the hardware’s electricity consumption in watts and to know how expensive your next electricity bill might be. Spending all your hard-earned money on the electricity bill is never a good idea.

In order to get a better picture of your average energy consumption, you can look at the energy consumption number and hash rates. To know that, you’ll have to divide the hash counts by the number of watts. So, you can now use an electricity price calculator or you can also check your electricity bill in order to know how much it might cost you in cash.

If you are searching for the term, ‘how bitcoin is mined’ with the intent of starting the mining of  Bitcoin, then you must not overlook the electricity aspect, as it can cost you significantly.  

Additionally, in a few cases, you might need your computer to run the mining hardware. And its quite natural that your computer will draw power on top of the mining hardware, which might chew up your profitability even further.

Hardware for Bitcoin Mining

During the initial days of Bitcoin mining, many of the people were drawn towards it. At that point of time, Bitcoin’s value was nowhere near what it is today. And it motivated a lot of people to mine Bitcoin, without the intention/idea of extracting a lot of profit out of it. At that point of time, miners used decently powerful computers and laptops to generate hash sequences and confirm transactions.

Later at some point, miners discovered the potential of high-end Graphics Cards, that can increase the Bitcoin mining power. The Graphics card draws far less power and results were much better than before. Later dedicated mining hardware was introduced, which in return increased the mining capability by quite a few folds. The newly launched mining hardware eventually helped to start the Bitcoin mining industry.

CPU for Bitcoin Mining

While searching for the term, ‘how Bitcoin is mined’ CPU is the least powerful part of the rig. During the initial days of Bitcoin mining, a computer and a decently powerful CPU used to do all the jobs. However, with each passing day, miners started innovating, which made CPU mining completely obsolete.  

GPU for Bitcoin Mining

GPU or Graphic Processing Units can’t be ignored while answering how Bitcoin is mined. These were specifically designed to calculate the complex polygons in video games, which made them great when it comes to solving complex transaction blocks.

Even after costing significantly more than the CPUs, these GPUs gave miners an added advantage. Soon the widespread use of GPU gave birth to the mining rigs, which were nothing but computers that can solve complex calculations. Those rigs were used to mine on a part-time basis and also served other computational purposes.

However, with the introduction of hardware specifically designed for mining, GPU mining is mostly dead nowadays.

FPGA for Bitcoin Mining

You can’t just avoid FPGA mining while searching for the term ‘how Bitcoin is mined.’ It is basically an integrated circuit, that can be configured after being built. FPGA eventually helped mining hardware manufacturers to buy chips in bulk and customize them for the purpose of Bitcoin mining.

The FPGA device gave the miners a much-needed benefit of power efficiency and ease of use, which changed the Bitcoin mining landscape quite quickly. As an example, a 600MH/sec graphic card could consume up to 400 watts of power, and an FPGA mining device would consume only 80 watts of power while giving a hash rate of 826 MH/sec.  

ASIC

ASICs can not be avoided while searching for how Bitcoin is mined. It is basically a microchip designed for the sole purpose of mining Bitcoin. This technology increased the hashing power up to 100x while consuming significantly lesser energy. According to some experts, ASIC is the end of the line technology, as nothing can replace it in the near future.

So, this is ‘how Bitcoin is mined.’ However, with recent political developments, many of our readers from India asked us a question many times, ‘is Bitcoin mining legal in India?’  So, in our next article, we share our views on the legalities of Bitcoin mining in India. Also, as you have finished reading this article don’t forget to read our guide to stay safe on the internet.