What is Bitcoin mining?
Bitcoin miners use computing power to add transaction records to the blockchain, which is a public ledger of transactions. Miners earn a certain number of Bitcoins for the work they contribute to this process and are paid a transaction fee by users sending transactions. The process of mining and adding a new block to the blockchain comprises the following steps:
- Verify that the transaction is valid.
- Compile valid transactions in a block.
- Insert the header of the most recent block into the new block as a hash.
- Solve the proof of work problem.
- When a solution is discovered, the new block is added to the blockchain.
The proof of work is designed to require a large amount of computational power, as this prevents the public ledger of transactions from being tampered with and controls the rate of new Bitcoins being introduced. The proof of work difficulty is updated regularly in order to maintain a controlled flow of new Bitcoins and improve the security of the system.
During the infancy of Bitcoin mining, many people used desktop processors to mine Bitcoin. However, as the difficulty continued to rise with the popularity of the cryptocurrency, specialized mining hardware was developed in order for miners to remain competitive. These days, mining Bitcoin requires a large amount of investment and work to make a profit, as there are many mining farms around the world.
While this increases the security of the system, it means that using your graphics card to mine Bitcoins in your spare time is no longer a viable solution for most miners. Most serious Bitcoin miners use hardware designed to mine Bitcoin. The efficiency of these devices is measured in hashes per second and their price can vary depending on performance levels.High-end hardware also draws a large amount of power and can be prohibitively expensive for casual Bitcoin miners.
Below are several Bitcoin mining hardware solutions available in South Africa.
Bitcoin Mining Hardware Pricing
|Hashes per second
|Avalon 721 + PSU
|Avalon 741 + PSU
|S9 Antminer + PSU
|Avalon 741 5 Unit Farm + PSU
Software and Bitcoin Wallet
After purchasing the required mining hardware, you will need to download Bitcoin mining software. This software connects you to the blockchain and ensures you are in consensus with the official Bitcoin network. If you are mining in a pool with other miners, data requirements are relatively small. If you are mining by yourself, you will need to download the official Bitcore client to synchronize with the blockchain. Bitcoin mining software is freely available online, with the most popular using a simple command line interface.
Below are a few popular Bitcoin mining programs:
- CG Miner
- BFG Miner
Miners also need a Bitcoin wallet to store their earnings. There are a number of Bitcoin wallets available online, but it is generally recommended that users download a wallet which allows them to hold their own security keys instead of an online hosting solution.
Saving keyboard money
Instead of purchasing physical hardware and using your own resources to mine Bitcoin, some miners opt to purchase cloud mining contracts. Cloud mining involves renting an amount of processing power from a service provider and earning Bitcoin relative to the amount of processing power purchased. There have been many scams involving cloud mining contracts, and there is no guarantee of security when using these services.
Miners can also choose to mine different cryptocurrencies using different blockchains, such as Ethereum. Each of these currencies has its own advantages and disadvantages, with some catering more to individual miners or offering reduced block time.
Alan Zibluk Markethive Founding Member