Bitcoin Mining: A Beginners Tutorial

There is no better time than right now to start mining for bitcoins. Bitcoin mining is a way to get bitcoins.

Lets be clear, mining for bitcoin is certainly not the easiest way to amass the coin, the cash or peercoin but it can be the most fruitful way to do it.

When Bitcoin was new, all you need was a computer to mine for bitcoin, today things are a little different.

You need specific hardware, a client and you need to run the setup continuously until you start to generate the coin.

To capitalize on the opportunity getting started sooner than later is critical.

What is Bitcoin Mining?

Mining is a process that is a verifiable process. The process adds transactions to the public ledger.

The Blockchain is the public ledger. It is an activity that releases new Bitcoins.

It is something that anyone can do, as long as they have the right hardware and internet access.

The process compiles transactions into blocks and requires solving computational puzzles.

It is a competition of sorts between miners. The first miner that solves the problem or puzzle, is the one that gets to place the block on the blockchain and reap the rewards.

Of course, the next question would be “what are the rewards?” The rewards for mining are associated with transaction fees and the new Bitcoin that is created!

Still confused? Read on!

Understanding The Block Reward

The block reward simply put is the amount of new Bitcoin that is released with each block that is mined.

Every 210,000 blocks or around every four years the reward is halved. In 2009 the block reward started at 50, today it is roughly 12.5.

The reward will decrease with time. Ultimately the decrease over time will result in a total release of coin of around 21 million.

The Difficulty of Mining

Of course, new comers to mining always want to know, how hard are the puzzles to solve. There is no simple answer to that.

There are variables that will increase the difficulty of the puzzles that are out of the participants control.

For example, if there are many people mining across the network, than the puzzles will be more difficult.

Every two weeks the difficulty level is adjusted.

The protocol is setup so that the difficulty level is self-adjusting to keep the discovery of blocks consistent and constant.

If there is more computational power on the network, than the difficulty will be adjusted to make it more difficult, likewise if there is less computational power devoted to mining, than the difficulty will be adjusted to make it less difficult.

Overall, mining is typically never easy, if it was easy everyone would do it but the rewards can be tremendous.

In The Beginning

Early on mining was done with simple CPU’s. As the idea of mining for Bitcoin became more popular, the CPU was replaced by the GPU.

Eventually ASIC (application-specific integrated circuit) was specifically designed for mining in 2013 with more efficient designs popping up since.

Today, mining is so competitive that having the right equipment is key.

Having outdated ASIC can run the cost of energy consumption up so much that it makes mining not a very profitable activity.

Mining is very competitive, so having every advantage possible like the latest ASIC’s is crucial.

Understanding Application-Specific Integrated Circuit’s

Wikipedia breaks down the meaning of ASCIC’s into the simplest terms:

ASSP’s are a go between ASIC’s and standard circuits like the 4000 series and the 7400 series.

Over the years the evolution has shrunk sizes while improving design tools.

The maximum function today has substantially grown from the earlier versions of 5000 logic gates to over 100 million.

Today, ASIC’s typically include microprocessors, ROM, EEPROM, Flash memory and RAM memory blocks.

System of Chip is often used to describe the ASIC of today.

ASIC Types for Mining

There are several good ASICs options out there for mining:

Antminer S9

The Antminer S9 was produced by Bitmain. It offers 13.5TH, and can be purchased for a little less than $2500 which makes it one of the most popular and best machines for the at home miner.

It is a proven option for mining that offers some of the best results.

With 13.5TH for about $2320, this is one of the best machines on the market for the home Bitcoin miner. Info:

Ebit E10 Miner 18T

The EbitE10 miner 18T is crafted with Air forming Cooling Technology. It contains the DW1228 chip, and it is one of the newest ASICs. Info:

The DragonMint 16T (April Batch)

The DragonMint 16T is an ASIC SHA256 miner. The price can range on the DragonMint from around $2300 to $2400. Info:

Whats Miner M3

The M3, is manufactured by Pangolin Miner. The Pangolin Miner website offers a great tutorial on how to set up and offers detailed information that can prove to be useful In your decision making.

The M3’s web interface makes configurating the M3 convenient. There are some definite benefits to the option like a lower cost than other options.

The down side is that this device tends to draw lots of power. A more detailed review will be posted soon about the M3.

AvalonMiner 821

The  AvalonMiner 761 is a nice setup but like all setups there are a few things to know:

That is about it for the ASICs, now we will take a look at what USB miners have to offer.

USB Miners

The first thing you should know about USB miners, is that it is not the best method to mine with.

As a matter of fact USB miners are actually the primitive way of mining. Anyone that wants to make a profit mining, does not use a USB miner.

On the upside, the USB mining tools can be an easier and less costly way of getting your feet wet in mining.

Early on in Bitcoin mining, USB miners were “state of the art”.

Initially people were just using their desktop CPU’s to mine, than for a brief period USB miners were the way to go, however as mining became more difficult, more reliable high powered devices started to take over.

Today, the USB miners are just not effective in mining. Today if you used a USB device it would take you hundreds of years to see even the smallest profit.

So why are we even taking a look at USB miners? They are a great way to learn.

They are inexpensive, they do not consume a lot of power and they will help you to break into mining without a large investment.

Best USB Miners

The USB miner technology is obsolete, there has been no new production since 2017 and the “best of the technology” is about 4-5 years old at this point.

Sapphire Miner

The Sapphire Miner was one of the very first USB miners to be created. It has a Hash Power of 330 MH/s and if you used it today you would earn approximately $0.01 each month.

The cost? About $30! If you are really in it for the long haul, the way long haul, you can make $1.00 every 100 months!

Avalon Nano 3

Cheap, slow, and will earn you about $1 per year, after about 5 years you would have enough for a Happy Meal from McDonalds.

The cost? Less than $20. If you mined for 20 years with the Avalon Nano 3 than you would be able to recoup the costs.

It has mining power of 3.6 GH/s. On the upside it is one of the cheapest and easiest to use miners, you can literally attach it to any computer and it will mine for coins.

GekkoScience Compac USB Stick Bitcoin Miner

The Gekkoscience Compac USB Stick Bitcoin Miner has 8 GH/s. With this miner you can make up to $.15 per month.

The cost is about $50. It would take you about 50 years to earn enough to make your money back for the cost of the stick.

Antminer U2

Antminer U2 is a trusted name in USB miners. The device is often used today for testing setups.

It is about $50 which is on the high end for USB miners. You can earn about $1 per year with this device.

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Keep in mind that none of the USB miners will result in profitability.

Bitcoin prices are on the steady rise, as more people join the community the difficulty level is rising.

Every 4 years the block rewards decrease while the difficulty increases, having the most up to date technology evens the playing field and puts the odds in your favor.

Bitcoin Mining Software

Once you have your USB miner, it is on to choosing your software.

There is a wide range of software that is available, some of which are OS specific, others are pool specific and some are even device specific.

Choosing software comes down to which pool you are registered with and what device you are using.

Before you start mining, you will want to join a pool.

Understanding the Mining Pools

The “mining pool” is like any pool, it is a pooling of resources.

Members share their processing power over a network with the goal of sharing the reward among the pool.

Each share of the reward is distributed by the proof of work.

The share of the reward is equivalent to the amount of work that the member contributed to finding a block.

Pools were started in answer to the increasing level of difficulty.

Instead of taking years to generate a block as an individual, a pool can generate blocks more quickly by combining their computing power.

The idea is to generate blocks more consistently.

While members do not see the large rewards of going solo, they see more frequent rewards, more often.

Bitcoin Mining Pools

Some of the top mining pools are:

Joining a pool is highly recommended especially for novices.

You can mine and see rewards, quicker and easier if you are mining in a group.

The Bitcoin Wallet

You will need a “wallet”. A bitcoin wallet is really a software program with the coins are stored.

Actually coins are not technically stored anywhere, it can be hard to wrap your brain around Bitcoins and the fact that there is actually nothing tangible when we are all used to currency either in hand or in the form of plastic.

Each coin has a secret number (private key) attached to it, it is an address.

The wallets facilitate the sending and receiving of these secret numbers and identify ownership of the Bitcoin.

The wallet is often referred to as a digital wallet because in essence that is exactly what it is.

You will need a wallet, to hold your bitcoins.

Your digital “wallet” will manage all the information about your Bitcoins and manage all the transactions.

Types of Wallets

There are mainly four types of wallets used for Bitcoins. The desktop, web, hardware and mobile wallets.

The types are self describing, for example the desktop wallet is installed on your desktop (Bitcoin Core, MultiBit, Armory, Hive OS X, Electrum).

Mobile wallets (Bitcoin Wallet, Hive Android and Mycelium Bitcoin Wallet) are installed on your smartphone, web wallets (Coinbase and Blockchain )can be accessed from anywhere you have a device connected to the internet.

Hardware wallets are still rather limited because they are still being developed.

No matter how you plan on using your wallet or which version you decide is best for you, you do want to take care to protect that wallet from intrusion.

Using a very strong password and considering offline storage can help to protect your information.

The Top Five Bitcoin Wallets

1. Paper wallet or other cold storage
2. Ledger or Trezor (hardware wallets/dongles)
3. Electrum (software wallet)
4. Blockchain.info (online wallet)
5. Coinbase (online exchange)

How Do You Turn Bitcoins Into Traditional Currency?

Cryptocurrency is great, it can be used to make online purchases and even some of the big retailers are now accepting it as payment, but if you want to pay the rent with your cryptocurrency you may run into some snags.

Turning your digital currency into good old fashioned cash requires that you can make a deal with someone or an agency that is willing to pay for the cryptocurrency.

You can use the CoinDesk Price Index to get an idea about the exchange rate for Bitcoin to ensure that your trade delivers the true value of your Bitcoin.

Read the following to lean about the 4 ways you can turn Bitcoin into cash:

1. Online Options

You will need to setup a sellers account with one of the online trading sites.

These sites are intermediate sites that facilitate the sale and purchase of coin for a fee.

There is an ID verification process and in some cases there is a “hold” placed on the sale for a specific number of days to reduce fraudulent activities, so be prepared for that.

Here are a few of the sites that manage these types of transactions:

Coinbase

There is a payout fee with this service but that is the only cost you have to contend with.

The fee is structured around how the coin is sold: 1%-2% for a U.S. bank account, 1% for a Coinbase USD wallet, and 3.75% for PayPal.

Bitstamp

This was the very first Nationally Licensed Bitcoin exchange in April 2006.

The fees are 0.05 percent. A minimum fee of 7.5 USD/EUR. The transaction takes 2-5 business days.

International Wire withdrawals cost 0.09 percent with a minimum of 15.00 USD/EUR. There are other caveats.

This is one of the more expensive options.

2. Selling Offline

If you want to avoid all the fees you can sell your coins offline in a private deal there are ways you can do that as well using these websites:

LocalBitcoins

LocalBitcoins is a leader in helping to connect buyers and sellers. This site allows you to review ratings of potential buyers which is a nice feature.

The website bases potential matches based on your geographical location. The service fee is 1% for all transactions.

You will need to open a wallet to get started, but the rest is relatively simple. Meet a buyer in a café, sell your coin!

Mycelium

Mycelium is also a popular website for buying and selling bitcoin.

It has a chat feature where you can connect with the buyer, you can check their trust worthiness, and your bitcoin is not released until you confirm payment.

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Using a trusted site is far safer than visiting forums and meeting random potential buyers where there is no safety net.

3. Trading Exchanges

Another option for turning bitcoin into cash is to use a trading platform, think stock market trading, it is the same thing.

You will need to open an account, set your price for your coin and wait for a buyer to come along.

This is a transaction that you will have little involvement in, the service does all the work for you, but it can take some time, and the rate can fluctuate, including the amount of fees that you will have to pay.

Bitfinex

The trading fee will range from .10% to .20%, there is a bank wire fee of .100% a minimum of $20.

It is worth a look to see if this is the way you want to convert to cash.

4. Cryptocurrency Converters

You can use cryptocurrency converters to turn your bitcoins into real coins.

There are exchange services that are popping up all the time that will convert your digital dollars into actual dollars that you can get out of the ATM.

These exchanges are like any currency exchanges, they assign a dollar value to your cryptocurrency and pay you out.

However there is of course some things you need to keep in mind before you jump on the band wagon to covert your bitcoins.

There are a lot of fraudulent sites out there that will take advantage of you.

You will need to do you due diligence to ensure that you are working with a reputable currency exchange site.

Take a look at when the site was established read the ratings and reviews by other users and check to see if there have been any complaints filed against the site.

You can never be too cautious when it comes to ensuring the safety of your transactions.

Magnetic-money.org is a great resource for finding what the exchange rate is.

BestChange.com will compare dozens of sites to find you the best exchange rate.

Okchanger.com is another site that can help you to do the research that you need to do to learn about the rates.

In a few years none of this will be necessary. Cryptocurrency will be widely accepted as a form of payment everywhere.

As the currency becomes more popular more and more retailers, corporate entities and even individuals will start accepting cryptocurrency as a valid form of payment.

You won’t have to sell, trade or convert Bitcoin anymore to have the “cash” you need. It will be the “cash”.

Good luck in your mining endeavors, and prepare for success!