Bitcoin mining plays 2 major roles in maintaining Bitcoin Network:
- Confirming/Validating Bitcoin Transactions
- Issuing New Bitcoins to Miners Who employ their computing resources to this process.
We have already covered a detailed guide on “Bitcoin Mining”, You can check it here – How Does Bitcoin Mining Work. In this post, we will explain the step by step process to start Bitcoin Mining and earn money.
In the beginning, the only people who would mine Bitcoin were coders who were interested in cryptography or were just trying to expand the blockchain. However, as the price of bitcoins rose further and further, people started seeing it as a legitimate investment and went to the lengths of buying warehouses and server farms to mine bitcoins properly.
The main costs associated with mining Bitcoins are equipment and electricity. Buying powerful processors is one of the major expenses, but they last a relatively long while and don’t need regular replacement.
On the other hand, electricity is a constant requirement, so it makes sense to set up a mining operation in a place where electricity prices are low.
But all of this is only important if you know that mining Bitcoins will be profitable. The first step to mining is to figure out if there is any profit to be derived, or if attempting a mining operation is simply a waste of time and money.
How to Start Bitcoin Mining
- Step 1 – Calculation – Is Bitcoin Mining Profitable?
- Step 2 – Buying a mining rig
- Step 3 – Get a Bitcoin wallet
- Step 4 – Get mining software
- Step 5 – Joining a mining pool
- Step 6 – Start Mining
Step 1 – Calculation – Is Bitcoin Mining Profitable?
In the early days of Bitcoin mining, people could easily mine with a mid-to-high end Graphics Processing Unit (GPU). However, as the popularity of Bitcoin increased, more and more people took up mining professionally. Now, given the amount of time and power it takes to mine Bitcoin, the first thing you need to figure out is if your investment is worthwhile.
There are three variables you need to take into consideration.
- Hashing Power
- Power Consumption
- Cost per KW/hr
Hashing power is a measure of how powerful your mining rig is. Hashing power is measured in Hashes per second, and the best mining rigs usually have a processing power measured in Gigahashes per second or even Terahashes per second. The more powerful the rig, the faster the mining will progress.
Mining rigs consume electricity proportional to their processing power. The more powerful rigs draw in large amounts of power per hour, and all that power used costs money.
So this is the calculation you must perform before you decide to start mining. If you want to invest a certain amount of money into mining, the first step is to make sure that the Return on Investment is enough. After all, what’s the point of mining if it’s not going to turn the profit?
There are plenty of profitability calculators that you can use. Simply plug the three variables into the calculator and see if the amount you will mine is more than what you’ll spend setting up and running the operation.
If the projected earnings are more than the expenses, then setting up the mining operation will benefit you and you can move on to the next step.
Step 2 – Buying a mining rig
As mentioned above, it was possible to mine Bitcoins with GPUs. But now, it takes specific chips to mine effectively. Mining chips are called Application Specific Integrated Chips, which are made for the sole purpose of mining.
You can choose a rig based on price per hash and electrical efficiency. The best rig isn’t always the most expensive one, but the one that strikes the perfect balance of power and cost.
Step 3 – Get a Bitcoin wallet
A bitcoin wallet is a bank account specifically for your Bitcoins. If you wish to receive or send bitcoins, you need a wallet. A wallet consists of a public key and a private key.
The public key is what you give out to people. If they wish to send you bitcoins, they simply input your public key and send whatever the amount is. The private key is your password into the wallet, allowing you to access the money in it.
There are two types of wallets, physical and digital. One of the most well known digital wallets is called Copay, and it is great for beginners.
Physical wallets, also known as hardware wallets, are extremely secure, much more than digital wallets. Ledger Nano, TREZO, and OPENDIME are good suppliers of hardware wallets.