Bitcoin is the beginning of something great: a currency without a government, something necessary and imperative
— Nassim Taleb – Author and Risk Analyst

Creating Cryptocurrency: A Crash Course on Mining Bitcoin

Creating Cryptocurrency: A Crash Course on Mining Bitcoin

By Tyler Lacoma — October 29, 2016 7:00 AM

The heart of bitcoin mining is the bitcoin miner or mining rig, which is essentially a separate computer that handles all the mining work. A quick glance at the Amazon listings for bitcoin miners will show you that there are many, many types of miners that span a host different shapes and sizes. If you have the tech skills, you may also be able to build your own.

You want the best of the best here: Buying or creating a bitcoin miner is inherently competitive. Think of how serious gamers always want the best displays, the fastest GPUs, the twitchiest controls, and the most customizable keyboards, all to give them slight advantages during gameplay. Choosing your bitcoin miner is a very similar process, but in this case, you’re competing to see who can make the most money. And a slower, less capable miner will earn you less money.

We recommend you visit a bitcoin calculator like the one offered by 99Bitcoins to help examine how much money any specific miner will earn you. These calculators are useful for two reasons:

First, they help you judge miners based on profitability, which is always the most important spec. 

Second, they provide a crash course in miner specifications, which you may not be familiar with. This includes the “difficulty factor” (a rough measure of how easily the miner can mine), the “hash rate” which is an indication of speed, and the power use/cost, an important spec that shows how expensive a given miner is to operate. 

After all, you don’t want to be spending more on electricity than you’ll make in bitcoins.

The costs vary, but the best miners tend to be priced above $500, sometimes well above that. Returns vary greatly, but with a good-to-average miner and the right setup, you could be looking at around a $100 profit in a robust month — that should give you an idea of how long it will take to recoup the initial cost.

Unless you already have one, you will also need a wallet to help manage your bitcoin transactions. There are an assortment of bitcoin wallets, both online and software-based. They come with different features, including amount limits and payment frequencies, all of which you should consider when choosing a wallet. Coinbase and BitPanda are both strong choices if you’re new to the bitcoin scene. Take some time to learn how they work, and make sure that you know both your private key and your public bitcoin address after you’ve signed up. You’ll need them for this next part.

Now you need to pick out your mining software, or a client that allows you to control the mining process and check out the specs on your mining rig to make sure everything is optimal. Here’s another area where tech experience comes in handy. If you’ve ever experimented with overclocking your processor before, some of features here may seem familiar.

Recommending any particular mining client is difficult, however. It’s best to pick software based on your particular situation. If you don’t have much experience with basic command interfaces, then GUIMiner is probably you’re best bet, as it offers an easily-digestible interface. If you have a Mac, you may want to try out MacMiner. For those with a bit more experience, 50Miner is an excellent choice. Many people also prefer GitHub’s BFGMiner.

We’re opening a can of worms at this point, but it’s probably in your best interest to find a mining pool. Mining pools are communities of bitcoin miners who work together and share the reward. At least, that’s how they’re supposed to work. Even official bitcoin organizations usually refrain from recommending any specific mining pool, because they might be scams or at least cheat you out of some money. It’s hard to know which pools do it until it’s too late.

The benefits to a reliable pool can be considerable. They typically make it quicker to find blocks, which means payouts occur more regularly and everyone gets more money. So take a look at a few comparison charts, read up on the latest reviews, and see if a pool is right for you. Below are a few important features to consider.

  • How long has the pool been around?
  • What fees do they charge?
  • How do they divide up the bitcoin rewards?
  • How frequently, on average, do they find blocks?
  • What sort of withdrawal options do they offer?

Bitcoin mining has an unfortunate feature — if you don’t change, you’ll make less and less money over time. This isn’t just because of the four-year inflation prevention, but because all the other miners will be improving their equipment and nabbing blocks faster than you can keep up. You need to consistently update your software, wallet, and yes, even your hardware, if you want to keep making money. Stay on top of any important news or developments, watch how bitcoins compare to other currencies and cryptocurrencies, and don’t be afraid to change.