Best Ways To Mine Bitcoin
Bitcoin mining encompasses a multitude of technological approaches to earning a valuable digital currency. Bitcoin miners are also actively participating in one of the largest financial revolutions of our time and helping to protect the integrity of the Bitcoin blockchain itself. From the maker space around the corner with the homebrew mining rig to the Series A funded sustainable operation running at scale-out from Iceland, Bitcoin mining is a nuanced industry perpetually seeking more efficient and sustainable ways of operating at scale.
Before we go into specific mining methodologies, let’s define what Bitcoin mining actually entails.
Bitcoin Mining
Simply put, Bitcoin is the largest and most widely recognized cryptocurrency in the world. As of the beginning of Q2, 2021, Bitcoin surpassed a $1 trillion market cap. An anonymous person or persons identifying themselves by the fictitious name of Satoshi Nakamoto created Bitcoin in 2008.
Nakamoto published a white paper titled "Bitcoin: A Peer-to-Peer Electronic Cash System," describing a cryptographic system they devised, in part, as a response to the financial collapse of 2008. Nakamoto originally described the need for "an electronic payment system based on cryptographic proof instead of trust." As a result, every transaction on the blockchain is completely transparent and open for the public to see and analyze.
For these trustless transactions to be confirmed, a series of mathematical equations is conducted by computers worldwide, called nodes. These nodes are run and operated by "miners" using equations to verify transactions on the blockchain. In exchange for validating transactions, the miner is rewarded with an amount of Bitcoin equivalent to the work conducted by the miner to reach the confirmation.
The act of confirming the ledger transactions is called proof of work, or PoW, and is a vital distinction between Bitcoin and alternative cryptocurrencies, often referred to as altcoins. Many altcoins utilize a different method of confirmation called Proof of Stake, which is less controversial because it does not use the same scale of computational power for confirming transactions on the blockchain.
The activity of mathematical confirmation is called mining because the Bitcoin rewards generated for proof of work mirror that of physical miners extracting valuable and finite minerals from the ground. Only 21 million Bitcoin can be unlocked by miners, as designed by Bitcoin's creators.
Methods of Mining Bitcoin
When Bitcoin first surfaced, mining was a simple operation that anyone with a reasonably basic computer containing a CPU could tackle. In 2009, everyday computer users mined Bitcoin with many maker spaces devoting several computers to mining and generating tens of thousands of Bitcoins that had almost no financial value at the time. The stories of scouring old landfills for mining parts are real: Many computer users would toss an old computer once dedicated to mining and forget or not bother to copy the Bitcoin wallets to a safe location.
Fast forward to 2021, and the mining game is now a sophisticated industry, deploying specialized computer systems, such as an application-specific integrated circuit (ASIC) designed specifically to mine Bitcoin.
Individual Miners
An individual miner can participate in the mining system using a computer or specialized mining rig to run nodes and participate in ledger confirmation for Bitcoin. Such small operations are scattered throughout the world. They can range from one person running one node on their desk to someone running a small homemade mining rig in their basement using solar panels to power their rig.
Mining Pools
Individual miners have difficulty competing with large mining operations, so they often join a mining pool. The mining pool then awards the participants in portions of Bitcoin based on their hash rate. Bitcoin rewards are proportionally divided amongst the pool miners based on the individual miner's hash rate. The hash rate is a measurement used to compare the miner's computing power. Hashing is all about speed. In Proof of Work blockchains, like Bitcoin, miners compete against each other to calculate the correct hash first and earn the Bitcoin reward.
Participating in a mining pool may be the best option for independent miners as the pooling of resources helps the group increase its hash rates and generate more block rewards.
Small Scale Mining Farms
Smaller mining operations are run by small businesses with limited resources and fall short of the industrial classification. Smaller operations seek to operate in the most efficient way possible to create higher profit margins for their investments.
Small scale operations are an excellent way for small investors to actively participate in running the Bitcoin blockchain and find innovative methods for operating sustainably at very low or no energy cost.
Industrial Mining Farms
Large-scale mining operations are just that— large. These operations often consume massive amounts of resources, with hundreds or thousands of individual mining rigs running proof of work equations 24 hours a day, 365 days a year. Many of these operations are often located in countries where energy is cheap, such as in China, or in countries with cooler climates and large sustainable resources, like Iceland.
A large-scale operation can run hundreds or thousands of individual mining rigs. It can generate a sizable Bitcoin reward for its hash rates because of the scope of its operation.
Many large-scale operations seek to move their operations to a more sustainable or completely carbon-neutral power source as quickly as possible. As of May 2021, Inner Mongolia, known for its cheap energy sources, accounted for approximately 8% of global Bitcoin mining, and China itself accounted for 65% of Bitcoin mining. In March 2021, China began cracking down on existing Bitcoin operations, citing energy issues as one reason for the increased regulatory oversight.
As previously mentioned, running a large-scale mining operation with carbon-friendly resources and low-cost renewable energy is good business. The less money spent on energy equals higher profit margins for any size mining operation. When large-scale operations look at their bottom lines in the coming months and years as energy prices soar and energy becomes harder to secure, going carbon-neutral is a profitable and risk-averse means of running a successful mining operation.
Efficiency Wins the Bitcoin Mining Race
As noted, the methods of Bitcoin mining vary dramatically based on resources. The best Bitcoin mining method comes down to the most efficient computing system producing hash rates at a sizable scale using the most renewable and least expensive power source.
Proof of work is an energy-intensive activity and has stirred up many controversies in recent media outlets. If you are new to cryptocurrencies and concerned about the environmental impacts of investing in Bitcoin, understanding proof of work is vital to grasping the actual energy issues behind Bitcoin mining.
When placed into context, Bitcoin utilizes a fraction of the traditional global financial industry’s energy to operate daily. Yes, Bitcoin mining is energy-intensive, but what is often overlooked or misinterpreted in mainstream media outlets is that many mining operations are rapidly incorporating sustainable technology to run their mining operations.
Miners are under pressure to seek sustainable energy sources for two main reasons. First is the environmental impact of using fossil fuels to power Bitcoin mining operations. Second, the lower the energy costs of running a mining operation, the higher the profit margin for any Bitcoin rewards the miners generate through their participation in proof of work.
Implementing a mining operation with a zero-carbon footprint boosts the profit margins. It insulates the mining operation from any future impacts from the climate crisis or the scarcity of fossil fuels as supply chains dwindle or become interrupted due to climate disruption.
A carbon-friendly mining operation also shows the rest of the industry the possibilities when sustainability is placed at the forefront of a business model. Zero-carbon footprint mining operations also help individual Bitcoin investors and enthusiasts feel more confident that their support of decentralized finance is also helping the world find a more sustainable source of scalable and renewable energy.
Sources:
Bitcoin is the Fastest Asset to Reach a $1 Trillion Market Cap Visual Capitalist
Bitcoin What Happens to Bitcoin After All 21 Million Are Mined?