Mining for Everyone: complicated things explained in easy words!
By: Clos Belmont
Tags: Mining, Clos Belmont, Bitcoin, Cloud Mining, Bitcoin Mining

Wikipedia refers to mining as to “the process of adding transaction records to Bitcoin’s public ledger of past transactions (and a “mining rig” is a colloquial metaphor for a single computer system that performs the necessary computations for “mining”). This ledger of past transactions is called the block chain as it is a chain of blocks. The block chain serves to confirm transactions to the rest of the network as having taken place. Bitcoin nodes use the block chain to distinguish legitimate Bitcoin transactions from attempts to re-spend coins that have already been spent elsewhere.”

Complicated, isn’t it? In other words Bitcoin mining is a decentralized computation process that confirms transactions and creates new bitcoins. By the way, not only Bitcoin can be mined, but other altcoins too.

Things are easy in this set-up:

1. verify if the transactions are valid

2. bundle transactions in a block

3. select the header of the most recent block and insert it into the new block as a hash

4. solve the Proof of work problem

5. when the solution is found, the new block is added to the local blockchain and propagated to the network

In other words, Bitcoin mining is the processing of transactions on the Bitcoin network and securing them into the blockchain. Each set of transactions is processed into a block. The block is secured by the miners. Miners create a hash that is produced from the transactions in the block. This cryptographic hash is then added to the block. The next block of transactions will refer to the previous block’s hash to verify it is legitimate. Then the miner attempts to create a new block that contains current transactions and new hash before any other miner.

Note that bitcoin mining is highly competitive. If. one solves or “finds” a block before any other miner, he/she gets the block reward and all transaction fees from the block. The first transaction recorded in the first block was a single transaction paying the reward of 50 new bitcoins to its creator Satoshi Nakamoto in 2009.

Nowadays a large amount of mining companies aka “mining farms” invaded the markets. Chinese companies mine the greatest numbers of Bitcoin. Electricity in China in comparison to Europe or US is quite cheap. This fact has allowed Chinese Bitcoin miners to gain a very large percentage of hash power. China is home to many of the top Bitcoin mining companies: F2Pool, AntPool, BTCC, and BW. It’s estimated that these mining pools mine about 60% of all new bitcoins. Georgia is home to BitFury, one of the largest producers of Bitcoin mining hardware and chips. BitFury currently mines about 15% of all bitcoins. KnCMiner, a Bitcoin mining company based in Stockholm mines about 7.5% of all bitcoins. The US is home to 21 Inc., a Bitcoin mining company based in California and mines about 3% of all bitcoins. The countries mentioned above mine about 80% of all bitcoins.

As more and more miners competed for the limited supply of blocks, individuals found that they were working for months without finding a block and receiving any reward for their mining efforts. To address the variance in their income miners started organizing themselves into pools so that they could share rewards more evenly.

Prepare to become a Bitcoin Billionaire!

All by yourself vs. Pool?

If you want to earn cryptocurrencies you can mine them by yourself or you can use “cloud mining”. On the one hand, you have to find hardware (and GPU’s are SUPER expensive at the moment) and have to worry about electricity, noise, and cooling, as mining is active 24/7. You can mine directly to the blockchain or you can mine to a mining pool. However, a mining pool could be a scam.

Users have used various types of hardware over time to mine blocks.

CPU Mining. Early Bitcoin client versions allowed users to use their CPUs to mine. The advent of GPU mining made CPU mining financially unwise as the hashrate of the network grew to such a degree that the amount of bitcoins produced by CPU mining became lower than the cost of power to operate a CPU. The option was therefore removed from the core Bitcoin client’s user interface.

GPU Mining is drastically faster and more efficient than CPU mining.

FPGA Mining

FPGA mining is a very efficient and fast way to mine, comparable to GPU mining and drastically outperforming CPU mining. FPGAs typically consume very small amounts of power with relatively high hash ratings, making them more viable and efficient than GPU mining.

ASIC Mining. An application-specific integrated circuit, or ASIC, is a type of microchip manufactured for a very specific purpose. ASICs designed for Bitcoin mining were first released in 2013 and have been improved upon since, with more efficient designs entering the market. They are vastly faster than all previous technologies and already have made GPU mining financially unwise in some countries and setups.

Computers have a CPU, and video cards have a GPU (Graphics Processor Unit). GPU’s are a different instruction-set than a CPU, and are intended to do repetitive, mathematically-intensive operations. Normally, that would mean figuring out how to display your video game. However, since cryptocurrencies require cryptographic operations (which are nothing but math), GPU’s are well-suited for mining. Thus, in the past 6–12 months, miners have been finding and buying the GPU’s that have the highest rates of processing power. Now, video cards cost 2, 3, or 4 times more than they costed a year ago. Due to the increased level of demand you can even hardly find any. Every major retailer’s video cards have already been sold out.

Most software runs on Linux or Windows, and some are operated on macOS.

If you are mining at home you can have full control over what you are currently mining, though that also requires you to monitor everything and make sure that it is fully operational and does not cause any problems. You can decide if you want to mine and hold everything you mine for a period of time or you can sell immediately a part of it to cover costs. You can also decide to sell the hardware at any point of time should you decide to stop mining as it is no longer profitable or you can only shut down for a moment the mining farm and come back online if things change after some time. You have full control over everything, unlike when you purchase hash rate at a cloud mining service.

Home Mining Pros:

· Home mining is less prone to outages resulting in higher uptime.

· Home mining doesn’t incur any fees. For each discovered block, 12.5 BTC and the transaction fees are paid to the miner.

Home Mining Cons:

· Home mining tends to generate more erratic income.

· Home mining wastes time due to only supporting getwork pull.

Cloud mining is where you pay a service provider to mine for you and you get the rewards. The unit of trade is 1 Gigashash per second. And the price is accordingly indicated for it. The price is constantly changing depending on the bitcoin rate. There are some clear advantages to cloud mining that are making it attractive for many users:

· no need to buy actual mining hardware,

· don’t have to set it up yourself and monitor it,

· don’t have to care about the electricity it uses,

· no need to worry about the heat and noise generated as well.

The disadvantages are that:

· you don’t own any hardware after your renting contract ends (if you did, then it probably wouldn’t be worth much for selling),

· you may have to pay more upfront to start mining (depending on the hashrate you purchase),

· you are not sure if the company will be there until the end of your contract (there is a risk involved).

Mining to a Pool

Mining pools are groups of cooperating miners who agree to share block rewards in proportion to their contributed mining hash power.

Another key selling point is that mining pools are desirable to the average miner as they smooth out rewards and make them more predictable, they unfortunately concentrate power to the mining pool’s owner. Miners can, however, choose to redirect their hashing power to a different mining pool anytime. Most mining pools are located in China. Many of them only have Chinese websites and support. There are two supposed advantages to using a public pool:

1) you don’t have to have a machine to sync to the blockchain (as described above) and

2) you could potentially get other rewards from the pool.

3) pooled mining generates a steadier income and can generate a 1–2% higher income.

The downsides are:

· The pool takes 1%+ of your proceeds

· Every single part of this could be fraudulent!

· The pool can lie and skim your hashing power

· The pool could not give you your payout

· The pool might be part of attack scenarios.

· The pool mining can suffer interruptions from outages at the pool provider.

There are several types of mining pool payout systems. You can choose which one is the best for you, based on your own personal requirements. Choosing a Bitcoin mining pool is up to which pool you feel is the fairest and which can get you the highest amount of payouts for your investment. Most pools are provably fair and will pay out fairly based on their type of pool approach.

Mining pools are a good way of smoothing your returns but they do cost — usually 1–2% of your winnings.

What is the Best Advice?

There is no right or wrong here, so the answer to Cloud Mining vs Real Mining vs Pool Mining is not easy. What would work best is if you don’t do just one, but instead try to get into couple of things. Yes, it may be harder, but then the risk of losing everything invested in just a single thing is also smaller.

In the end the best advice is probably to be more careful and not risk everything on a single decision, try to play it more on the safe side in order to avoid being sorry later on!

References:

https://www.investopedia.com/terms/b/block-bitcoin-block.asp

https://www.bitcoin.com/bitcoin-mining

https://www.bitcoinmining.com/

https://en.bitcoin.it/wiki/Mining

https://qz.com/1055126/photos-china-has-one-of-worlds-largest-bitcoin-mines/

http://www.bbc.com/future/story/20160504-we-looked-inside-a-secret-chinese-bitcoin-mine

https://www.lifewire.com/cryptocoin-mining-for-beginners-2483064

https://spectrum.ieee.org/computing/networks/why-the-biggest-bitcoin-mines-are-in-china

https://www.buybitcoinworldwide.com/mining/pools/

https://blog.robseder.com/2017/07/16/cryptocurrency-mining-at-home-2017-megapost/

https://www.cryptocompare.com/mining/guides/#/overview

https://www.cryptocompare.com/mining/guides/what-is-a-mining-pool/

https://steemit.com/crypto/@cryptos/cloud-mining-vs-real-mining-vs-buying-crypto-directly

http://uk.businessinsider.com/bitcoin-pools-miners-ranked-2015-7/#4-btc-china-pool-1374-118

https://en.bitcoin.it/wiki/Pool_vs._solo_mining

https://www.buybitcoinworldwide.com/mining/china/https://www.cryptocompare.com/mining/calculator/btc?HashingPower=4730&HashingUnit=GH%2Fs&PowerConsumption=1293&CostPerkWh=0.12