What is Bitcoin Mining?

The purpose of bitcoin mining is to approve transactions by adding them to the blockchain.

At its core, Bitcoin mining is a guessing game. Here is a simplified version.

You tell a friend: Guess a number between 1 and 10.

• They guess 7
• They were right
• They get a prize

When you mine Bitcoin..

• You have to guess a very LARGE number
• The prize is 6.25 Bitcoin (~$250k)

This large number can vary. But it is on the order of many many zeroes.

Note: Bitcoin has an auto difficulty adjuster. If numbers are guessed too quickly, the puzzle automatically increases in difficulty (ie. more numbers to guess). The converse is also true.

Fundamentally, it’s a compute-power game. The more compute power you have, the faster you guess the right number, and the more likely you are to win the prize.

Compute power increases linearly with input size. Here is a piece of code that shows this relationship. All it does is iterate through numbers.

• 10 Numbers - 42 nanoseconds
• 100 Numbers - 708 nanoseconds
• 1000 Numbers - 6375 nanoseconds
• 1,000,000 Numbers - 0.006 seconds
• 1,000,000,000 Numbers - 3.6 seconds
• 10,000,000,000 Numbers - 36.5 seconds

As numbers get very large, it quickly overwhelms your computer.

How to Mine Bitcoin?

You want to use specialized equipment to mine Bitcoin, ie. Application-Specific Integrated Circuits (ASICs) that are designed to mine Bitcoin. ASICs are far more efficient than general-purpose CPUs (ie. your laptop).

To illustrate the difference, compare the two hash rates:

• General-purpose CPU (Mac): 1200H/s [*]
• ASIC: 110TH/s

A terahash (TH) is 1 trillion hashes. A laptop computes on the order of 10^3 hashes per second, while an ASIC computes at 10^14 hashes per second. That’s an 11 order of magnitude difference, meaning you’d need 100 billion laptops to match 1 ASIC. Laptops simply cannot compete.

Note: The hash rate is simply the speed at which you mine Bitcoin.

Cost Breakdown

You can buy a Bitcoin miner on Amazon. These can range anywhere from $1k to $20k.

When buying a miner, you should consider these factors:

• Hashrate (TH/s)
• Electricity Consumption (kWh)
• Cost of Electricity in your Area (Price / kWH)

Hash rate is how fast you can guess numbers. Electricity Consumption is how much electricity the machine uses. Electricity prices are location-dependent. Rural areas generally have cheaper electricity than urban areas. North Dakota is ranked #1 in the US.

You also have to consider these factors:

• Bitcoin Price
• Network Hash Rate

These fluctuate over time. So you’ll have to make assumptions. For this reasons your calculations will vary.

Here is a calculation I did back in January 2022. The assumptions I made:

• $46k Price of Bitcoin
• 138M TH/s Network Hash Rate
• Ithaca, NY

Note: As of May 2022, the price of Bitcoin is $39k and network hash rate is 223M TH/s.

Mining Pools

Bitcoin mining is a winner-takes-all game. People have realized this, so they created mining pools, to distribute the rewards more evenly.

A mining pool is when people pool together CPU power. When one person wins, they distribute the reward to everyone in the pool.

The top 4 China-based mining pools (F2Pool, AntPool, ViaBTC, and Poolin) account for over 50% of new blocks [*].

Joining a mining pool is free, but they come with fees. Here are some example rates:

• 4% - F2Pool
• 2% - SlushPool

Other Factors To Consider

Besides cost, there are other factors to consider.

• Heat
• Noise

You probably don’t want to mine Bitcoin inside your home. They are LOUD. Here is what they sound like:

Video: Link

You want to make sure your landlord is okay with you using a LOT of electricity. Failure to disclose may result in upset landlords.

I hope this helps. Let me know what you think. Will you be mining Bitcoin? Send me an email.