Bitcoin, the world’s biggest cryptocurrency, isn’t issued by a central bank. Rather, it is created or ‘mined’ by ordinary people – or at least it was until professional mining operations emerged.
Bitcoin mining is a way to acquire valuable bitcoins without paying for them directly. However, the cost of the computer hardware, software and electricity required for mining is significant.
Here’s a look at how to get into bitcoin mining in 2023, and whether it’s still economically viable for individuals.
The cryptocurrency market is largely unregulated in the UK, so you will have no protection if something goes wrong. Buying cryptocurrency is speculative and your capital is at risk, meaning you may lose some or all of your money.
What is bitcoin mining?
To understand bitcoin mining, you first need to understand how bitcoin works.
The principle of bitcoin is that, unlike with a traditional currency such as sterling, there’s no central bank involved in issuing it, and no traditional banks or intermediaries involved in facilitating payments and storage.
Instead, it’s bitcoin holders themselves who control everything.
Records of bitcoin holders’ balances and payments/transfers aren’t held by a single organisation, such as a bank. Rather than a centralised ledger, anyone can hold and edit a digital copy of the records via a ‘distributed ledger’.
And why would anyone want to spend time doing that? Because in doing so, they have an opportunity to earn valuable bitcoin.
The chances of a miner doing so depends on their computing power.
Here’s what happens: miners compete with each other to be the first to guess a string of letters and numbers called a hash, or to get the closest solution within a 10-minute window.
The string has 64 characters, so it’s not like miners can simply guess it off the tops of their heads – at least not fast enough to win. Instead, they use their computers to generate guesses.
For every target hash, there are trillions of possible combinations. The more powerful your computer, the more guesses you can submit per second (this is called a ‘hash rate’), and the better your odds of winning.
If you’re lucky enough to win, your record of bitcoin transactions is submitted to the community of volunteers to verify. If 51% agree yours is an accurate record, it is added to a chain of previously added records on something called a blockchain.
The 51% consensus ensures record-keepers stay honest. One could try to alter their own record of transactions to give themselves more bitcoin than they actually owned, but they’d need agreement from more than half of the community to cheat the system..
It takes a lot of hardware to guess the target hash, but it takes a lot more to control 51% of votes on the network to approve a doctored copy of a ledger. This makes cheating practically impossible.
There was a time when competition between miners was less fierce, and normal people could become miners using their home computers. If their machines had powerful graphics processing cards – the kind often used for high-end PC gaming – they had an even better chance of earning bitcoin since their machines were capable of a higher hash rate.
But as the value of bitcoin rose and the asset became more interesting to speculators, competition increased, prompting something of an arms race between miners in terms of computing power.
This largely took mining out of the bedrooms and basements of enthusiasts and into professionalised, larger-scale mining operations spending serious money on their mining rigs to claim the rewards.
Finally, there’s an upper limit on the total number of Bitcoins that can ever be mined. Its creators put a cap of 21 million tokens on the system. Once that number is reached, no more new bitcoins will be minted.
As it stands, around 900 Bitcoins are mined each day. The number of coins given as reward to miners for each block of transactions they add to the ledger is currently 6.25BTC, but the reward halves every four years.
There’s a ‘halving’ due next year, but even at the current rate the 21 million limit isn’t expected to be reached until around 2040.
Can the average person still mine bitcoin?
Yes, you can still mine bitcoin in one of two ways.
You can either mine solo in hopes of taking the bitcoin reward all for yourself, or you can pool your resources with others to mine bitcoin collaboratively in hopes of winning a share in the rewards.
To mine on your own you’re going to need a powerful computer with lots of RAM, a powerful CPU and plenty of memory, plus either:
- a top-of-the-line graphics card such as the Nvidia GeForce RTX 4090, costing around £1,600
- at least one Application-Specific Integrated Circuit (ASIC) miner such as the Antminer S19 Pro for around £800.
So in terms of initial outlay, you’re talking about thousands of pounds in investment.
Since greater hardware means a higher hash rate, there are mining operations set up with rows upon rows of ASIC miners linked together for even greater guess-power. This is hard to compete with as an individual, and it’d probably cost you a lot more to set up than you’d ever see in returns.
Whatever the size of your mining rig, set up costs are just the start. The electricity required to run ASICs also affects your potential for returns. As you may have read, bitcoin mining uses more energy globally each year than does Norway.
Since bitcoin mining doesn’t stop, miners leave their rigs running around the clock. The Antminer S19 Pro ASIC miner has a power consumption of 3250W, which means it costs around £26 to run for 24 hours, based on an electricity unit price of £0.34 per kWh.
The chances of a solo miner successfully guessing a target hash and earning bitcoin are vanishingly small, but not zero. Last year a software engineer beat estimated odds of 1 in 10,000 to successfully solve a hash, even though his hash rate put his chances at somewhere in the region of one correct guess per 27 years.
At the time of writing, the reward for bitcoin mining was 6.25 BTC and the value of one BTC was £14,155. That means the current reward is worth around £88,000 – though this is much lower than when bitcoin’s value peaked at £48,000 in November 2021.
Back then the reward would have been worth closer to £300,000.
Pooling your mining resources
Another route to mining bitcoin is to join a pool. You’ll still need a powerful computer with beefy CPU and GPUs, and perhaps even an ASIC, but you’ll improve your odds by pooling your resources with others operating similar rigs.
If one miner can make 330 million guesses per second, a pool of ten miners can make 3 billion per second. Of course while your individual odds improve tenfold as part of a pool, the potential reward reduces tenfold since you’ll need to share it with your fellow miners.
Pool mining rewards aren’t shared equally, either. Only guesswork which successfully contributes towards the solving of a hash is rewarded. So, if the processing a miner does is deemed not to have contributed towards a solve, a reward is not assigned.
It’s entirely possible for a pool to be awarded the 6.25 bitcoins and have some of its members miss out on a share.
There are then variations on how rewards are allocated to those whose work was contributory. Some pools pay out proportionately to the work a miner contributes, while others pay a weighted reward based on a miner’s individual effort relative to the pool’s overall effort.
Some pools charge a fee for membership while others are free, some pools assign specific work for participants to complete while others allow participants to choose their own area of work.
There are even pools of pools, combining the computing power of one pool with that of another pool. It’s worth checking carefully what you’re signing up for before joining a pool.
Is bitcoin mining a good idea?
Even if you have the funds to set up a mining rig, mining is a gamble.There’s no guarantee you’ll even earn back the money you spent setting up, whether you go it alone or join a pool.
If you see bitcoin mining as some fast track to untold riches, you’re probably going to be disappointed. You’re going up against huge, well-funded organisations with far more capital and computing power, and much shorter odds.
Consider this: BIT Mining Limited in Hong Kong has an energy capacity of 82.5 megawatts. Its theoretical hash rate is equivalent to 971 petahashes per second – that’s 971 quadrillion guesses per second. Solo miners are the David to Goliaths such as this.
If you’re not expecting a quick return, joining a pool might be a better way to go – with expectations of far, far lower but more frequent returns on your investment that could pay dividends over longer periods of time.
Finally, you’ll need a bitcoin wallet in which to store the private and personal keys that will be associated with your bitcoins, if you’re lucky enough to mine some successfully.
Free user accounts on crypto exchanges like Coinbase and Binance offer crypto wallets with no charge and are an easy way to get a bitcoin wallet. Your wallet will be assigned an address which you’ll need to share in order to receive your mined bitcoins.