Bitcoin, the world’s largest cryptocurrency, is not issued by a central bank. Rather, it is created or “mined” by ordinary people – or at least it was until the advent of professional mining.
Bitcoin mining is a way to obtain valuable bitcoins without paying for them directly. However, the cost of 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 financially viable for individuals.
The cryptocurrency market is largely unregulated in the UK, so you won’t have any protection if something goes wrong. Buying cryptocurrency is speculative and your capital is at risk, meaning you could lose some or all of your money.
What is bitcoin mining?
To understand bitcoin mining, you must first understand how bitcoin works.
The principle of bitcoin is that, unlike a traditional currency such as the pound, there is no central bank involved in issuing it, and no traditional banks or intermediaries involved in facilitating payments and storage.
Instead, it is bitcoin holders themselves who control everything.
Records of bitcoin holders’ balances and payments/transfers are not kept by a single organization, such as a bank. Instead of a centralized ledger, anyone can hold and edit a digital copy of the records via a “distributed ledger”.
And why would anyone want to spend time on it? Because by doing so, they have an opportunity to earn valuable bitcoins.
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 series 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 just guess it off the top of their heads – at least not fast enough to win. Instead, they use their computers to generate guesses.
For each 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 chances of winning.
If you are lucky enough to win, the record of bitcoin transactions is sent to the community by volunteers to verify. If 51% agree that yours is an accurate record, it is added to a chain of previously added records on something called a blockchain.
Consensus of 51% ensures that record holders remain honest. One could try to change their own record of transactions to give themselves more bitcoin than they actually owned, but they would need the consent of more than half 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 the votes on the network to approve a tampered copy of a ledger. This makes cheating virtually impossible.
There was a time when the competition between miners was less fierce and ordinary people could become miners using their home computers. If their machines had powerful graphics 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, leading to something of an arms race between miners for computing power.
This largely brought mining out of the bedrooms and basements of enthusiasts and into professionalized, larger mining operations that spent serious money on their mining rigs to claim the rewards.
Finally, there is an upper limit to the total number of Bitcoins that can ever be mined. The creators put a cap of 21 million tokens on the system. Once this number is reached, no more new bitcoins will be minted.
As it stands, around 900 Bitcoins are mined every day. The number of coins given as a reward to miners for each block of transactions they add to the ledger is currently 6.25 BTC, but the reward is halved every four years.
There is a “halving” due next year, but even at the current rate the 21 million limit is not 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 alone in the hope of taking the bitcoin reward all to yourself, or you can pool your resources with others to mine bitcoin cooperatively in the hope of winning a share of the reward.
Mining solo
To mine on your own, you need a powerful computer with lots of RAM, a powerful CPU and lots of memory, plus either:
- a premium graphics card such as the Nvidia GeForce RTX 4090, which costs around £1,600
- at least an Application-Specific Integrated Circuit (ASIC) miner such as the Antminer S19 Pro for around £800.
So in terms of initial outlays, you’re talking about thousands of pounds in investment.
Since bigger hardware means a higher hash rate, mining operations are set up with rows upon rows of ASIC miners linked together for even greater guessing power. This is hard to compete with as an individual and will probably cost you a lot more to set up than you would ever see in return.
Regardless of the size of your mining rig, setup costs are just the beginning. The electricity required to run ASICs also affects the potential for ROI. As you may have read, bitcoin mining uses more energy globally each year than Norway.
Since bitcoin mining does not 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 a power 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, although his hash rate put his chances somewhere in the region of one correct guess every 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 – although this is much lower than when bitcoin’s value peaked at £48,000 in November 2021.
At the time, the reward would have been worth close to £300,000.
Collect your mining resources
Another way to mine bitcoin is to join a pool. You’ll still need a powerful computer with powerful CPUs and GPUs, and maybe even an ASIC, but you’ll improve your odds by pooling your resources with others running similar rigs.
If one miner can make 330 million guesses per second, a group of ten miners can make 3 billion per second. Although your individual odds are multiplied tenfold as part of a pool, the potential reward is multiplied tenfold since you have to share it with other miners.
Rewards for pool mining are also not shared equally. Only guesses that successfully contribute to solving a hash are rewarded. So if the processing a miner is not considered to have contributed to a solution, no reward is awarded.
It is entirely possible for a pool to be allocated 6.25 bitcoins and have some of its members miss out on a share.
There are then variations on how rewards are awarded to those whose work was instrumental. Some pools pay out proportionally 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 work area.
There are even pools, which combine 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 means to set up a mining rig, mining is a game. There is no guarantee that you will even make back the money you spent setting up whether you go it alone or join a pool.
If you’re looking at bitcoin mining as a fast track to untold riches, you’re probably going to be disappointed. You meet huge, well-funded organizations 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 equates to 971 petahashes per second – that’s 971 quadrillion guesses per second. Solo miners are David to Goliaths like this.
If you don’t expect a quick return, joining a pool may be a better route – with expectations of far, far lower but more frequent returns on your investment that can pay dividends over longer periods.
Finally, you need a bitcoin wallet where you can store the private and personal keys that will be associated with your bitcoins, if you are lucky enough to mine any successfully.
Free user accounts on crypto exchanges like Coinbase and Binance offer crypto wallets at no cost and are an easy way to get a bitcoin wallet. Your wallet will be assigned an address that you must share to receive your mined bitcoins.
