Bitcoin mining is open to anyone, though technical and financial barriers have grown over the years. Miners can only produce new Bitcoins until reaching the supply cap of 21,000,000 BTC. Bitcoin mining produced the first digital currency, which, over the years, discovered a fair market valuation.
Mining aims to earn enough BTC from each block to achieve a profitable investment. Each block receives a reward of 450 BTC daily. Spread across thousands of miners, the reward must consider the costs of buying and running mining equipment.
This guide will focus on what makes mining viable and choosing the best way to join a mining pool and receive the best possible mining rewards. We will also preview available mining equipment for the Bitcoin protocol, technical support, electricity costs, and other issues that make Bitcoin mining profitable.
Mining and cryptography
What is hashing?
Hashing is the cryptographic transformation of a string into another string based on mathematical rules. The process is practically impossible to reverse without knowing the key but produces verifiable messages. Hashing through a strong algorithm makes the Bitcoin blockchain ledger highly secure.
Hashing is also a computation-heavy task which transforms a random string into a string of predetermined length and qualities.
Bitcoin miners must perform hashing in rapid cycles under time constraints to produce a block in 10 minutes on average. The Bitcoin mining process takes all the transactions in a new block, together with the solved header of the previous block. Then, a cryptographic message is forged and has to fit certain criteria. The target hash value also used as a block header, is represented by a 64-digit hexadecimal number.
Bitcoin mining work also includes verifying Bitcoin transactions, which are used as data for the hashing function.
Bitcoin uses the SHA-256 algorithm, which is the most difficult to crack. After hashing, tampering with the data within a block is immediately noticed. Even one character change will produce a unique hash value. Cryptocurrency mining ensures that a Bitcoin transaction will be immutable when verified against its hashed value.
Miners create the right hash value as fast as possible in return for receiving a reward for each block header. This task is at the heart of Bitcoin security and the economy of block rewards.
A block reward is a preset amount of BTC awarded to the first miner who discovered the block. The Bitcoin blockchain started with a 50 BTC reward, halved every four years. This reward makes up the bulk of miner revenues and is based on the proof-of-work economy. If the reward is insufficient, it drives the decision to buy new equipment, work harder, or switch off machines.
Proof-of-Work
Generating a block header is also known as proof-of-work. The work in question is computational and energy-intensive. Miners must take the data from each block and generate multiple answers to the hashing value. Values are tested against a target, so the first miner to discover the right value receives the block reward. Proof-of-work also secures the distributed ledger by validating the longest existing chain and discarding shorter branches.
One of the main reasons mining is so energy-intensive and requires high computational power is that miners compete with each other. Each miner must produce the optimal number of hashes per second to compete with others and discover the block header first.
To qualify for working on solving a Bitcoin block, each miner must secure enough computational power, measured in hashes per second. To do this, miners must secure specialized machines with chips capable of efficiently generating potential hash numbers for the specific Bitcoin algorithm, SHA-256. Miners can also choose to run nodes, which requires additional storage space and Internet bandwidth investments.
Miners also propagate a block header once it’s discovered and validates transactions. Block propagation requires a reliable internet connection and can reach all nodes between 6.5 and 40 seconds. The most remote nodes may need more than a minute to verify a block. Block confirmation goes through six validations.
An accidental or deliberate network fork will exist if a miner or miners do not verify the same block. Here, the validity is with the longer chain of verified blocks. Accidental forks usually resolve within minutes. Many miners have tried, as with Bitcoin SV, but the available hashrate was insufficient to mine the longer chain and claim validity.
How to profit from Bitcoin mining
Bitcoin mining profitability has become complex, mostly because of the need for upfront machine investments, peripheral equipment, and energy sources. There are ways to calculate simpler mining cases, but a market for consultant services has emerged for more involved operations.
Bitcoin mining must first secure a share of the block rewards and fees based on a reasonably high work capacity or hashrate. Afterwards, it is up to the miner to cash out favourably, based on their cost basis per BTC mined.
The mining difficulty of Bitcoin and the current hashrate will determine whether a Bitcoin mining operation or a pool will be competitive enough to gain the entire block reward or at least earn a share. A profitable Bitcoin mining operation may vary depending on costs, ranging from individual miners to large-scale operations with additional location and staffing costs. The price of Bitcoin will also determine whether the block rewards are viable or the operation will have to find other ways to subsidize its costs.
Mining costs and investments
Solo mining means competing for blocks as a single entity while retaining all block rewards. Individual miners can be small operations with one machine or dedicated mining operations that compete with pools to gain the biggest possible reward.
Pooled mining means connecting the hashrate to one of the existing entities by configuring a wallet to receive the rewards. Pools have different payment schedules and levy a small fee on all withdrawals.
Mining consultants can balance all costs and investments with predicted BTC income and the opportunities to cash out profitably. Regarding profitability, the amount of BTC mined for a given period is an estimation, which may vary based on luck and mining conditions.
The miners will be guaranteed to receive at least some rewards for the new BTC, which has no transaction history and no proven origin. However, profitability considers the market price of BTC and all related expenses, so miners often find themselves with a net loss.
Mining consultants offer advice on profitability
Mining consultants will offer packaged services and analyze the starting mining operations. Proof-of-work has grown its energy, hardware, and cooling requirements, raising the question of the viability of home-based mining. While acquiring all mining hardware and peripherals through Bitmain is possible, other ways exist to mine SHA-256 with more efficient energy sources.
To find the best solution for a mining operation, consultants offer options for acquiring hardware and hardware hosting services. Consultancy can come from Bitmain itself, mid-range companies, and even freelancers. Sources of consultancy include:
D-Central: a consultant on any size of operations, including remote hosting solutions.
BlueWheel Mining: consultant for mid-range corporate clients linked to Binance Pool.
Bitmain, the leading centralized producer, offers hardware support and mining training.
They are hiring freelancer consultants to make custom financial statements using UpWork and Fiverr platforms. Results may vary, though miners may expect a more detailed breakdown.
Advanced consultants for data center creation, like Sabre56, focus on large-scale clients, going beyond hardware and hosting into staffing and operations.
Resources for small-scale miners
Home-based mining or solo mining requires different resources. After consulting a basic profitability calculator, a Bitcoin miner can try a riskier process, even with older equipment.
For miners with more than 1GH/s, a basic solo mining portal is all that is needed to connect available machines. Services like Solo CKPool offer mining access for any size of operation, even with obsolete machines with a very low probability of finding a block.
Solo CKPool is a relatively old facility that offers mining without running a full Bitcoin block. This vastly reduces the equipment and storage space requirements. The pool is anonymous, and support is available via a thread on the Bitcointalk forum.
How Bitcoin mining evolved
Bitcoin: the first 10,000 blocks
Bitcoin mining started with the operation of consumer electronics, at first only by the pseudonymous creator of the network, Satoshi Nakamoto. Early mining was not competitive for years, though it still held the principles of rival miners with investment in computing power.
The blocks mined by Satoshi Nakamoto bear a differentiated signature. | Source: Satoshi Blocks
The first miners added their machines in the first months after the Genesis block. Satoshi’s specific block signature can be observed until block 50,000.
In those initial days, mining was also becoming more competitive, but it was still in its early stages before introducing specialized rigs. Since then, the Bitcoin network has exponentially grown the amount of computing power to the scale of quintillions of hashes per second. However, the initial process happened at a rate of thousands of hashes per second.
ASIC mining and profitability
Mining hardware requires specialized machines that efficiently solve the hashing puzzle. Cryptocurrency mining is possible with graphics processing units, but for Bitcoin mining, specialized, overpowered machines are required to stay competitive.
ASIC, or Application-Specific Integrated Circuit, is a device suitable for only one type of cryptographic algorithm. Bitcoin-specific ASICs appeared in 2013 and have gone through multiple iterations. Usually, a new, more powerful ASIC is available, with Bitmain monopolizing the market.
After adding ASIC, mining became competitive, creating surge pricing for the machines. Often, only the latest models are profitable on the machine level. In contrast, older models can be pooled to produce a higher hashrate or mine with a very low probability of finding a block.
Mining profitability for some of the available models is only calculated in hindsight based on specific mining conditions. As the Bitcoin chain evolves and difficulty levels change, so will profitability. Owning an ASIC does not guarantee the same daily positive earnings. Other miners also buy more computing power, sometimes leading to surge-demand pricing for new ASIC miner rigs.
The demand conditions for new ASIC miner machines may be tracked through data by the Hashrate Index, showing which machines are in decline and which are surging.
ASIC price index shows the current profitability of specific mining rigs. | Source: Hashrate Index
ASIC miners also require infrastructure, which is even more difficult for individuals to provide. Considering additional ASIC costs will affect the final profitability of Bitcoin mining.
How to start Bitcoin mining
One must acquire or lease adequate mining equipment and a reliable power source to begin mining Bitcoin.
Starting with Bitcoin mining requires a minimum of 1 GH/s to test the processor investment in an appropriate SHA-256 mining rig with the required power adapter, rack, and cooling. The initial investment in the latest SHA-256 model may run up close to $15,00,0, and offers often involve future models to be released by Bitmain.
New mining machines offer profitable mining on a small scale, giving a competitive advantage to big farms. | Source: Bitmain
Some older models previously at the top now command much lower prices. The Antminer S19 has fallen to a rate of $1,312 per unit, or $11 per terahash, a fraction of the price of newer models.
The next decision is whether to take up home-based or hosted mining. Home-based mining may not be viable or legal in some jurisdictions. The alternative is to find a hosting solution that would come with a more reliable electricity contract and automated connection to a pool.
Miner hosting services will run the machine at a remote location with favorable electricity costs. Finding a location may precede the purchase of a miner. Locations vary in terms of conditions and machines accepted. Some of the mining hosts also offer purchasing and consulting services and technical support. The hosting solutions are also tied to minimal usage contracts.
A wallet and a selected pool are enough to start mining for home-based and solo mining without running a Bitcoin node.
Finding and joining mining pools
Mining pools vary in their influence and blocks discovered. The bigger pools have a bigger chance of discovering a block but also split the reward among more workers. To start mining Bitcoin with a pool, the first step is selecting the mining pool with the best cost structure and relatively low fees.
For a brief calculation, Foundry.USA has periods of solving 40% of all blocks, while Via.BTC solves around 17%. If all miners connected were equal, they would earn 0.00008 BTC per 100 blocks from the Foundry pool but only 0.000054 BTC per 100 blocks from ViaBTC. Individual miners may have a bigger share based on their hashrate, but more miners in a pool do not always translate into lower earnings.
Joining a mining pool
Except for a few remaining anonymous services, all reputable mining pools will require a basic registration. Download the required mining software after signing up for the chosen pool through the official website.
Before starting Bitcoin mining operations, configure the software with the pool’s stratum address and the worker credentials.
Pool selection may be automated or already chosen, especially if hosting services are used. Mining is still mostly pseudonymous, though large-scale mining pools like Antpool also introduced know-your-customer (KYC) verification.
After mining, each worker can check and withdraw the accrued rewards based on a pool’s terms and conditions. The next step is to either store the BTC acquired for the long term or sell it to cover costs.
Mining pools also go above and beyond the aggregation of workers. Large-scale operations like Foundry in the USA specialize in consulting, logistics, locations, and hosted mining. It is possible to start the mining process through a similar curated process, though at a higher initial cost. Mining farms have already taken over the majority of ASIC miners. However, it is possible to gain a share of the Bitcoin reward through hiring rack space or a share of the mining capacity.
Choosing a pool also affects the payout potential. For solo mining, the mining reward will reach the user’s wallet directly. Large pools may sometimes accrue predictable rewards based on a user’s share of the pool’s hashrate. Each pool will have a slightly different payment and withdrawal arrangement and overall activity levels.
Avoiding mining bans
The legal status of Bitcoin mining varies by region, though most countries have no limitations on building data centres.
Because of noise or fire hazard restrictions, at-home mining may be limited on the regional or local level. Mining hosting and third-party sites may solve that problem.
Very few countries ban crypto usage outright. Though ASIC production and shipments continued, mining operations have been banned in China since 2021. When choosing hosted mining, ensure the site has a history of reliable energy and no pending bans or restrictions by authorities.
How to keep track of profitability
Even after choosing a mining pool, there may be times to recalculate profitability and viability. For instance, some pools offer advice on shutting down the machines during unfavourable mining conditions.
Binance offers variable hashrate depending on profitability at the moment. | Source: Binance Pool
Some pools may smooth out the rewards based on shares, but solo mining may require shutting down the machines while waiting for lower-difficulty conditions. The final profitability may depend on the moment of cashing out. For most miners in the past few years, the cost basis per BTC has remained under the market price.
Miners produce fewer rewards but still benefit from the better energy efficiency of new mining ASIC. The efficiency of each model may be verified through an interactive chart. Miners remain more profitable during a bull market, with much thinner margins in 2024. After the 2024 halving, some mining operations require prices close to the $70,000 range to be in the money. Some miners are still viable only due to their reserves, which are produced at a much lower price.
Mining operations must also account for damage and repair costs. Launching a new mining operation may also result in delayed deliveries, especially during peak demand for new models.
Bitcoin mining insurance is one tool available for equipment malfunctions, attacks, or other adverse events. Small-scale, riskier operations with a limited number of ASICs may need smaller insurance and ASIC warranties.
How to find alternatives to Bitcoin mining
Bitcoin mining may require a significant initial investment or a steep learning curve. Even with second-hand equipment and a solo pool, the activity may go on for months without payout. The most direct alternative to Bitcoin mining is to buy BTC at its fair market value, where the cost basis becomes the current market price. Under certain conditions, the market price may even go far below the cost basis of miners.
Another niche alternative is a mining contract, where the client buys a share of the mining power available. The contract can hide fractions of mining power at a fixed daily rate. Mining contracts differ from simulated, cloud, or other app-based gimmicks.
A contract will hire part of Binance Pool’s machines and establish a share of the pool’s total hashrate and all rewards earned. The mining contract will also resolve the issues of choosing optimal mining or arranging the delivery or shared rack space for a fully owned ASIC.
Mining other assets and GPU mining
The alternative to mining BTC is to use either SHA-256 or other machines for altcoins. Mining Bitcoin Cash is an alternative for pools to redirect their machines. The Bitcoin Cash difficulty is recalculated more often, allowing more agile chain switching.
Given favorable market conditions, BCH estimated mining earnings can offset some of the earlier SHA-256 models. However, the mining estimations can change over time, and rewards are not guaranteed.
The other alternative is to choose an entirely different mining algorithm, which retains higher rewards. Mining is mostly available for well-established, older coins. However, new minable assets are also being launched in 2024. Some of those assets may be more volatile and include a large team premise, which would undermine profits. While block rewards can be higher, the market value of those rewards can be minimal.
Mining moves at the speed of the Internet but may suffer from geographic constraints. Distributing a coin’s nodes and mining operations may be important for some miners. The mining pool’s server may still have some latency if it is too distant from the miner’s location.
