Disclosure: Privacy Australia is community-supported. We may earn a commission when you buy a VPN through one of our links. Learn more.
What is Bitcoin Mining?
Bitcoin (BTC) mining is the process of making new free bitcoins, adding them to the blockchain.
Rather than using a drill or cauldron, it’s performed by individuals running tricky ‘hashing code’ on special computers generating mathematical problems that result in new bitcoins.
In exchange for generating these bitcoins and adding them to the blockchain, miners are rewarded with new coins. This process, supposedly, ensures that the blockchain stays secure and tamper-proof.
Let’s explore the question more: What is Bitcoin mining?
Table of Contents:
- 💽 How Do I Get Started in Bitcoin Mining
- 💽 Bitcoin Mining Hardware
- 💽 Is Cryptocurrency Mining Dangerous
- 💽 Bitcoin Mining Laws in Australia: What You Need to Know
- 💽 How Much Bitcoin Miners Earn
- 💽 FAQs
How Does Bitcoin Mining Work? 📀
At a glance:
- Even Bitcoin futures exist and this is fuelling a wider digital money economy. Bitcoin mining is a form of digital investment, but it can also be very dangerous and even illegal depending on where you live.
- ⛏️ Before you start mining bitcoins, make sure you’re doing it in a safely and legally. Remember, BTC is a highly technical and risky investment.
- Though you can buy a bitcoin mining computer, you’ll still have to understand the risks involved, but it’s a lot safer than buying into a cloud mining scheme.
BTC miners use mathematics to problem-solve
Like the palaeontologists digging up fossils in that opening scene of the original Jurassic Park movie, Bitcoin miners dig up the new from the old…
Miners put these discovered pieces together, like bones of a T-Rex, to form new coins 🦖. Rather than gobbling you up, however, these BTC coins enter into the blockchain where bitcoin traders gobble them up.
In technical terms, bitcoin mining works by solving a complex mathematical equation that is part of the bitcoin code. In order to create the mathematical equation, miners use a special computer code and a few other “blocks.”
Blocks are a combination of data that includes the equation that miners must use. The more computations a miner runs through on their computer, the more likely they are to make the correct decision to solve the equation and earn bitcoin.
Miners are rewarded for their efforts through a 12/12 block reward schedule, which means that every time a miner solves the equation, they are rewarded with twelve new bitcoins.
How long does it take to mine Bitcoins?
The amount of time it takes for a miner to solve the equation varies from computer-to-computer and is dependent on how powerful the hardware is. In general, the more powerful the hardware, the less time it will take a miner to solve the equation.
However, because of the difficulty of solving mathematical equations, some miners may have better luck finding solutions than others. For this reason, miners are incentivized by rewards that are paid out in bitcoin over time as opposed to being paid in cash.
This ensures that miners have an incentive to continue mining until they find a solution or stop mining altogether.
How Do I Get Started in Bitcoin Mining?
Bitcoin mining requires special computer code, a high end graphics card, an internet connection and a lot of time.
To get started with bitcoin mining you will need to purchase specialised computer code from a website such as Nicehash.com or Genesis Mining.
You will also need to order specialised graphics cards from the manufacturer or manufacturer’s website. Once you have purchased your computer code and graphics cards, you will need to connect them together in order to run the bitcoin mining software on your computer in order to start generating bitcoins.
This can be very expensive, so it is always recommended that you do not mine unless you are confident that you know what you are doing with computers and they are your forte!
How to Start Mining Bitcoins
First things first, you’ll need to acquire some bitcoin mining hardware. Thankfully, you can find a wide range of suitable options on Amazon.
Once you have your hardware, you can get started by downloading the right bitcoin mining software. This can be done on almost any computer.
Next, you’ll want to connect your hardware to the network and select a bitcoin wallet where you’ll store the bitcoins you earn. Your bitcoin wallet will be where you send and receive your mined bitcoins. When you’re ready, you can start mining bitcoins.
To be successful in bitcoin mining, a miner must have access to both cheap equipment and electricity. In some areas, electricity is cheap; however, in other areas, it can be very expensive. For example, in the United States, a single bitcoin transaction requires an average of 3 kilowatt-hours (kWh) of electricity. This equates to about AUD$0.14 per kWh.
In contrast, the average monthly cost for residential customers is around AUD$0.09 per kWh. The cost to purchase a single bitcoin from exchanges can range from AUD$1,400 to over AUD$19,000 and is dependent on how much money the miner wants to invest and how many coins they want to buy.
Where to Buy BTC
Bitcoin and other cryptocurrencies are not something you can go shopping for at your local grocery store. They are not physical items that you can hold in your hand. And they are not something that you can invest in without time or expertise.
BTC is simply bits of data, or “coins,” that you buy by exchanging real-world money. If you want to get involved in the cryptocurrency world, the best place to start is by picking up a bitcoin or other altcoin wallet on your smartphone or computer.
You can use a wallet for storing your coins, sending and receiving payments, and even making purchases with your cryptocurrency. There are a number of different wallet options, including exchanges, desktop, and mobile wallets.
Bitcoin and other cryptocurrency exchanges are where you buy and sell coins, but they are not wallets in the traditional sense. They are more like centralised markets where you buy and sell coins and they charge fees to do so.
Bitcoin Mining Hardware
To mine a single bitcoin you need a computer that is capable of solving complex mathematical equations called hashes. The most popular hardware used by miners is called an ASIC (Application Specific Integrated Circuit).
An ASIC is a custom built piece of hardware designed to do one thing – solve the SHA-256 hashing algorithm and produce bitcoins! An ASIC can be customised for specific tasks (such as mining bitcoins) and will only be able to do that task at its best efficiency. Therefore an ASIC miner is specifically designed for mining bitcoins and will not be able to do anything else well or efficiently.
The world’s first bitcoin miner was created in 2009 by Bitmain Technologies Ltd, a Chinese company who has become known as the “King of Bitcoin”. Bitmain sells their products through their own website as well as through distributors such as Canaan Creative, Ebang Technology and Genesis Mining.
This has led to accusations of unfair competition against Bitmain, who are accused by many people of using their market dominance to force miners into using their hardware over other more efficient units such as FPGAs (Field Programmable Gate Arrays).
Bitmain also owns Antminer S9 which was the world’s most efficient bitcoin miner with a hashrate of 15 TH/s. This unit was also the most expensive miner in the world at an approximate cost of $9,000.
The Antminer S9 is set up to mine like a traditional Bitcoin miner with two physical computer boards mounted on top of each other and connected through an Ethernet cable. One board has eight “application-specific integrated circuits” (ASICs) that have been designed to do nothing but compute SHA-256 hashes, whilst the other board does nothing but manage and control all the hashing operations that take place on the first board.
These ASIC chips are specifically designed for mining bitcoins and cannot be used for anything else well or efficiently. This can be seen by comparing an S9 with a traditional FPGA bitcoin miner such as the Avalon Nano which is built around Altera FPGAs but can be used for many tasks besides just mining bitcoins because it is not designed to only do one thing well!
The Antminer S9 is also using 20nm ASIC chips which are smaller than normal 28nm chips and therefore will run cooler. It also has a built-in fan which runs at 100% all of the time even when idle, this helps prevent overheating of both boards which could lead to permanent damage to components due to stress fractures in silicon wafers!
One of the most important factors that could impact your mining success is whether or not you purchase your mining computer from a manufacturer or an e-tailer like Amazon or Newegg. There are many different manufacturers and models of bitcoin mining hardware available with varying costs and specifications.
Is Cryptocurrency Mining Dangerous?
Yes. It can be dangerous to your computer and threaten your data privacy and security. Mining computers run an intensive set of calculations that require the processor power of a powerful computer.
Because of this, some advanced mining computers use an uncommon type of processor called an Application Specific Integrated Circuit (ASIC) that is optimised to run through mathematical equations much faster and more efficiently than a standard computer.
This, coupled with the fact that mining computers are designed to maximise computational power, makes mining a very dangerous process. While mining is not illegal, it is certainly not a way to make money.
Mining is also extremely time consuming adding to involving a significant amount of risk. With the difficulty of mining increasing all the time, the amount of investment needed to become a miner is also increasing.
This means that it is becoming increasingly difficult for anyone who is not using an extraordinarily powerful computer to participate in mining.
- 💻 Although mining computers are designed to run through mathematical equations much faster and more efficiently than a standard computer, they are still susceptible to the same issues as a standard computer.
- 📊 Your mining hardware can be damaged or destroyed by hardware failures. One of the biggest risks of mining is the possibility of your hard drive failing, which will cause all the data on it to be lost.
- 📈 The cost of energy bills and replacing a hard drive is high and can quickly add up over time.
Risks of not mining
Interestingly, there is a cost to not mining too.
The global demand for new BTC is increasing all the time. As this demand increases, so does the price of bitcoins. As this price continues to rise, so will the value of coins you have stored in your BTC wallet.
The value of bitcoins has risen significantly in recent years and this trend is expected to continue as long as global demand continues to increase.
If you do not wish to participate in bitcoin mining, then there are several other ways that you can invest in bitcoins without placing yourself at risk for potential losses or damage to your computer or data security due to mining activity on your device.
Bitcoin Mining Laws in Australia: What You Need to Know
The Simple Answer Is: Yes, Bitcoin Mining is Legal in the AU
If bitcoin mining seems like a good option for you, you might be wondering about the legality of the process. Bitcoin mining is actually legal in Australia, but there are a few key areas that need to be understood.
First and foremost, there are a few things you should know about the legality of bitcoin mining. This is an area where it’s very important to consult with your local attorney when making decisions about whether or not to mine bitcoins. The following is a list of some of the laws that govern bitcoin mining in Australia:
• The Australian Securities and Investments Commission (ASIC) oversees the regulation of all financial services in Australia. ASIC has issued detailed guidelines on how cryptocurrency should be treated under Australian law. In short, officials have said that cryptocurrency exchanges are not considered financial institutions by law and thus don’t fall under their regulatory umbrella. This means that they can’t be regulated by ASIC at this time. This is likely to change as cryptocurrencies become more mainstream and more people start investing in them.
• The Australian Taxation Office (ATO) has indicated that it will treat bitcoin miners as self-employed “businesses” for tax purposes if they are running their own physical facilities for bitcoin mining operations with at least one employee on staff per day. If you have employees running your facility, you will have to pay income tax on any profits generated from selling bitcoins mined using your equipment or facility.
• The Australian Competition and Consumer Commission (ACCC) has the power to regulate cryptocurrency exchanges, but at this time it has not issued any such regulations. However, it does have the power to issue penalties for any illegal trading activity.
• The Reserve Bank of Australia (RBA) is responsible for issuing new regulations governing bitcoin and other cryptocurrencies in Australia. The RBA has indicated that it will ban all Australian banks from dealing with cryptocurrency exchanges and businesses starting in November 2017. This means that if you want to trade cryptocurrencies in Australia, you will need to do so through an exchange that doesn’t have a bank account with a major Australian bank.
• The Financial Ombudsman Service (FOS) was created by the government in 2007 as an independent service provider that can help people resolve disputes with their financial institutions or credit providers they have a complaint against. FOS can also help individuals navigate their way through financial services in general, including cryptocurrencies like bitcoin.
FOS can provide advice on how cryptocurrency should be treated under Australian law as well as how complaints should be handled by financial institutions under the Financial Services Act 2008 (FS Act).
In short, if you are looking to invest in cryptocurrency or start a bitcoin mining operation on your own, make sure you follow the rules set out by your government’s financial regulator before doing so!
How Much Bitcoin Miners Earn
The amount of bitcoins that are mined is fixed, which means you can’t just get more bitcoins.
Also, the bitcoin reward for miners halves every 210,000 blocks (approximately every four years), meaning there will be diminishing returns as time goes on.
At one point, if you mined for 10 years starting from today, you would have mined around 98% of all bitcoins that will ever exist.
One bitcoin can be broken down into 100 million satoshis (bits) or 0.00000001 bitcoin (1 satoshi). You can use this figure to calculate how much money a miner would make per day if they mined 1 bitcoin per day for a year:
25 BTC x 365 days = 115,250 BTC/yr = $115,250 USD
All of this is theoretical, but a miner who mines 1 bitcoin per day for one year would earn 115,250 USD/yr or $1550 USD/mo.
This doesn’t include electricity costs or other expenses like crypto taxes. Some of these miners make extra money by mining bitcoin and then cashing out your profits through a cryptocurrency exchange and selling the coins at market value, known as “mining with profit”.
What is Mining with Profit?
Mining with profit is when you mine a coin that is appreciating in value quickly. This can be done by mining on a pool and then selling the coins at an exchange. The easiest way to do this is to join a mining pool and then sell the mined coins at an exchange.
There are several leading exchanges that specialise in cryptocurrencies, but the most popular one is Binance which has over 100,000 users! You can also sell your coins through LocalBitcoins or Paxful (an online marketplace for buying and selling bitcoin).
What Are the Benefits of Bitcoin Mining?
The primary benefit of bitcoin mining is that it can be used to generate bitcoins. The bitcoins generated by bitcoin mining are rewarded to people who solve complex mathematical equations, and this process ensures that the blockchain is secure and tamper-proof.
What is the Best Way to Mine?
That depends on what you want to do. If you just want to make a few dollars, you should use a CPU miner. If you want to mine without having to spend a lot of money, then there are a few different options for you.
You could try mining with your smartphone, but this is not recommended due to the power requirements of mining. You could also try mining with your tablet or laptop if it has an integrated GPU (graphics processing unit), but this would require that you have an extra monitor or TV connected in order for your computer to be able to display the information from the miner.
Finally, if all else fails, you could always buy yourself an ASIC miner and join the Ethereum craze!
What is Cryptojacking?
The goal of cryptojacking is to install the malware onto your device and then start mining for bitcoin without your permission. This increases the power usage on your device, which results in higher electricity bills. If you try to remove the malware, then it will launch another attack on your device in an effort to continue mining for bitcoin.
The majority of cryptojacking malware that has been observed so far attacks browser extensions, but there are other methods that it can attack as well. Cryptojacking is a form of malware that can be installed on your device without you knowing. It can infect your device by using various forms of malware to mine for bitcoins without you knowing.
How Much Money Can Be Made From Mining Bitcoin?
To check out the profitability of different cryptocurrencies, check out this calculator: https://www.cryptocompare.com/mining/calc/
You Might Also Like: