How to mine Bitcoin in 2022

Mining Bitcoin means extracting pieces of code, called hashes, to confirm new blocks to be added to the blockchain: let’s see how.

Every 10 minutes or so, a new block is added to the Bitcoin blockchain, but in order to actually be added, in other words, paired with the previous one, it must be validated with a special code. This code is called a hash, and it’s basically guessed by randomly extracting a bunch of hashes until the right one is found.

Bitcoin mining: how it’s done and what it’s for

This mining activity is fundamental to Bitcoin because all transactions that must be recorded on the public blockchain must necessarily be entered into a confirmed block.

So effectively, those who perform mining validate transactions, and without their work there would be no transactions validated, and therefore confirmed, on the blockchain.

Precisely because this activity is so important, the Bitcoin protocol requires that it be well remunerated.

For each new block, there is currently 6.25 BTC, or around $100,000, up for grabs, which is awarded to the miner who successfully confirms the block by extracting the correct hash.

This figure is actually halved every four years or so, and the next halving will occur in the spring of 2024.

How to compete to mine Bitcoin

As can be easily understood, this is by all means a competition, because Such a prize is always and only paid by the first miner who finds the validation hash.

Since such hashes are drawn randomly, it is more likely that whoever can draw the most hashes will find the right one that validates the block, and thus collects the prize.

This competition starts again every 10 minutes or so, because as soon as a block is validated, they start extracting hashes to try to validate the next one, one at a time.

However, it is worth adding that the miner validating a block also collects all the fees paid by the senders of the transactions entered into the block itself.

How to mine Bitcoin

Therefore, in order to mine Bitcoin, it is necessary to equip yourself with machines capable of mining as many hashes as possible.

Such machines are available in the market, although they are not cheap at all.

They’re called ASICs, or Application Specific Integrated Circuits, and they do just one thing: they mine hashes.

In the old days, even simple computer CPUs, or at most particularly powerful graphics cards, could be used, but for several years now these tools have been uncompetitive.

The key point is actually competition. Those who mine using low-powered machines, such as computer CPUs or graphics cards, are only able to extract a limited number of hashes, thus reducing their chances of successfully confirming a block.

In fact, today only those using ASICs have enough computing power to be competitive in their attempts to successfully confirm a block and collect the prize. The others end up never collecting anything.

What are mining pools?

The problem is that there are some miners in the world who have so many synchronized ASICs, i.e. working in parallel searching for the simple hash that validates a block, that it is not possible to compete with them if you only have a few machines . .

For this reason, many small miners coordinate with each other by pooling the computing power of their machines, acting as if they were one big miner, but composed of many small miners.

These organizations are called pools, and there are several of them. A single miner with a few machines cannot compete with the big miners, but the pools are big enough to do so.

This means that there are two ways to mine Bitcoin.

The first is to do it yourself, investing huge amounts of money to buy lots of ASIC machines, at far from cheap prices.

The other is to participate in a pool and share with other participants any prize won if you succeed in mining a few blocks.

The profit from the mining business

However, the key point is different.

This activity actually has costs, and in order to make money from it, the revenue must exceed those costs.

Apart from the initial cost of buying the machines, they use huge amounts of electricity. Those who are forced to pay for electricity at high prices probably have such high costs that they cannot make any money at all.

They make more money either from those who can pay little for electricity or from those who have free electricity available to them.

Moreover, the income is by no means fixed, let alone guaranteed. Mining is a high-risk activity, the degree of difficulty of which also varies over time.

Difficulty: what it is and what it is used for

To ensure that approximately one block is always mined every 10 minutes or so, Bitcoin protocol requires the so-called difficulty rating to be updated once every two weeks or so.

Difficulty is nothing more than, precisely, the difficulty with which the correct hash that verifies a block can be found by randomly mining them.

As the total computing power allocated worldwide to Bitcoin mining increases, the average time it takes to mine the correct hash decreases. At that point, the difficulty increases so that the average duration of this process goes back to 10 minutes.

Of course, the opposite also happens, i.e. if the computing power goes down, the degree of difficulty also goes down.

Thus, there will only ever be a new block to be mined every 10 minutes or so, no matter how much computing power is used, whether it is a lot or whether it is little.

As the difficulty increases, of course the power consumption and thus the costs also increase. In contrast, the reward remains the same, so above a certain cost level miners stop adding computing power. The opposite also applies, i.e. if the difficulty decreases, consumption and costs also decrease.

The computing power allocated to Bitcoin mining in technical jargon is called hashrate.

The profitability of miners

No one knows exactly how much computing power is allocated in total on Bitcoin, but there are a posteriori estimates that depend on the difficulty level and the average time to confirm a block, called block time.

There are also estimates of the profitability of Bitcoin mining.

For example, lately an average of around $0.048 per Th/s hashrate can be collected per day, if you participate in an efficient pool or mine on your own with a well-optimized rig. The problem, however, is the cost of electricity, which can change a lot. So anyone looking to invest funds to buy BTC miners should always also contend with the costs they will be forced to pay for the electricity they use.

It is also websites which allows people to calculate initial rough estimates by entering their own specific data, as opposed to relying on generic estimates that often differ from the actual data of individual miners.

It is worth mentioning that since Bitcoin mining earnings are in BTC, profitability is also heavily influenced by the market value of BTC, because if this goes down, you actually make less money.

Now, Bitcoin mining has become such a difficult business to do successfully, and a very expensive one, that in fact only professionals in the field are able to make money from it. For private citizens who have been doing it as a hobby for some time, the chances of success are very limited.