What is Bitcoin Mining?
For the past year I have been trying to wrap my head around what Bitcoin mining really is. You can set up a computer to solve a problem and it spits out Bitcoin? Sign me up.
Well, not so fast. Now that I understand how Bitcoin is generated (when computers use complex computational power that randomly guesses long numbers, see Proof of Work), I also can be a bit more realistic about whether it is a venture worth getting into (spoiler: probably not unless you have huge startup capital and can operationalize outside the US).
What You Need
Computers that mine bitcoin (rigs) are specialty devices that are configured for max computational power. This isn’t your normal desktop – in fact, it has nothing that would remind you of your dear old Dell computer. Most rigs are built up of the following:
- One or more GPU (Graphic Processing Cards) or ASIC (application specific integrated circuit) cards
- A motherboard to plug them into
- CPU and RAM to run the system
- Power source to power them
- Cooling system
While early miners may have used one GPU (circa five years ago), or maybe even their own CPU from their personal computer, almost all mining rigs are daisy chained GPU or ASIC cards. GPU Cards and ASIC cards are now specifically designed for mining cryptocurrencies – some coins can only be mined by one or the other.
After putting together the rigo, one must add the other most rudimentary elements to make the computer usable – download an operating system to the motherboard (Windows, Linux), add a graphics driver, and then download a bitcoin mining software. A mining computer is like a Porsche without the body, leather seats or steering wheel, but instead, an 800hp engine designed to just blast the car directly forward as fast as possible.
Why It Is Hard
Now just like an 800hp engine burns crazy amounts of gas and emits tons of heat, so do mining rigs (in this case electricity and heat). Therefore it is all about how cheap you can get the electricity to run the rig and can you keep the rigs cool to avoid overheating and frying. So interestingly enough, people have invested in huge mining farms in countries with cheaper electricity, or colder climates (Iceland, Canada, Norway). This is operationally difficult, and if you search the internet you can find countless calculators where you can plug in the cost of the rig, how fast it computes, how much power costs. Here is a link to a good one on the website CryptoCompare.
Should You Do It?
Can the average joe get into mining and make a killing? No. If you look at the calculators, you will see the only way to make money is to have massive scale (large numbers of computers). The cost of setting up enough mining rigs in the right place is just too expensive, and with one rig out of your house at home, the deck is stacked against you because of bigger more organized and deep-pocketed players in the space. Some individuals have opted to join mining pools, where everyone combines computing power and then shares the spoils. Others just pay to join cloud mining pools – but in my mind if you are going to do that just speculate on the currency itself.