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The beginner’s guide to Bitcoin mining

Are you interested in Bitcoin mining? Do you want to start a Bitcoin mining farm? If you answered yes, then continue reading. We’ll go through the practicalities of starting a Bitcoin mining business. What you need to take into account regarding equipment, electricity consumption, and taxation.

About Bitcoin mining in general

Let’s first take a brief look at Bitcoin mining in general. There is also a comprehensive beginner’s guide about Bitcoin and mining at AboutBitcoin.io. If you have limited knowledge of these topics, we recommend reading those articles first.

Bitcoin is the oldest and best-known cryptocurrency. At its core, there is a blockchain and a Proof of Work consensus algorithm. PoW defines how consensus is formed and information is stored in the Bitcoin blockchain. This is where miners come in.

The miners’ job is to maintain the Bitcoin blockchain. They pick up transactions sent to the network and store them in blocks. For this work, they are paid block rewards, which means new bitcoins are minted (created) with each block. The Bitcoin blockchain was launched on the 3rd of January 2009. The mining work has been going on ever since.

The miners are essentially custom-built computers also known as ASICs. They are designed just for the mining fork and cost from thousands of dollars up to tens of thousands of dollars per device. Miners are running at full speed 24/7/365 and they consume a lot of electricity in the process.

Today, the mining industry is dominated by large mining farms. These can cost hundreds of millions of dollars to build and can have tens of thousands of miners. Yet, it is still possible for an individual to mine Bitcoin profitable. We’ll explain how in this article

Bitcoin mining equipment

Let’s start with the mining equipment. The only way to mine Bitcoin profitably is to use the previously mentioned ASIC miners. If you want to mine with a computer processor (CPU) or graphics processing unit (GPU), you need to look at other cryptocurrencies.

Mining Bitcoin with a CPU or GPU is theoretically possible. However, the computation power of CPUs and GPUs is so modest that mining would be a waste of time and electricity. The best graphics card available just before the rise of ASICs (AMD 7970) produced 800 million hashes per second. The average ASIC now produces 100 trillion hashes per second.

The number of hashes produced per second is called the hash rate. It is an important benchmark of performance for miners. The best miner is, of course, a device that uses the least electricity and offers the best hash rate. We will come back to electricity consumption later.

You can find information on the electricity consumption and the hash rate on websites that sell mining equipment. For example, the product descriptions of the Finnish crypto mining company Cryptolouhimo include the calculated electricity consumption and the hash rate of each device, as well as other useful information.

antminer s19 xp

The picture shows the recently launched Bitmain Antminer S19 XP, a very popular Bitcoin miner. It has a power consumption of 3010W and a hash rate of 140 Th. Bitmain is the best-known manufacturer of ASICs, but there is more and more competition in the market.

It is easy to compare miners using comparison sites such as AsicMinerValue, Minerstat, CryptoCompare, and Nicehash. You can calculate the profitability of your mining equipment quickly and easily.

Bitcoin mining facilities

It is important to understand that a Bitcoin miner is not like a regular laptop or Playstation. A normal computer is almost silent, while ASICs make a lot of noise. For example, the Antminer S19 XP mentioned above produces 75 decibels. By comparison, 85 decibels is usually the limit for wearing hearing protection (at 8 hours exposure) under the health and safety at work regulations.

You’re likely to buy several ASICs, which will raise the noise to unbearable levels if miners are placed in the corner of your living room. It’s important to find a suitable space for mining before making any purchases. Watch the video below to see what kind of noise ASICs make.

So, where do people store their ASICs? Typical locations include garages, warehouses, outdoor buildings, and warehouses. There are also companies that rent storage space for mining equipment.

Another issue to consider is the heat produced by miners. It is smart to use this thermal energy, especially in winter. The heated air can be circulated to radiators or ventilation ducts. The only limit to your creativity here is your imagination.

In summer, the heat generated by the miners can become a big problem. If hot air is not effectively directed away from miners, they can overheat and shut down. This also affects the lifetime of the miner.

Investments and taxation

Once the mining equipment and facilities have been considered, the following questions often arise: does it make sense to mine alone? Should I build a team with friends? Should a company be founded for this purpose? There is no unequivocal correct answer to these questions. It depends entirely on the situation and person.

The fact is that a mining farm is a big investment financially. The Antminer S19 XP mentioned above costs over 11,000 euros. There are also machines available for less than 10,000 euros, but the most expensive ASICs cost well over 20,000 each. In many cases, there is also a desire to mine with more than one ASIC.

If you have the money for such an investment, mining alone is no problem. However, if you have friends who want to invest and bring in their expertise, a team could be a great idea. You can split the start-up costs between several people. Maybe your friend also has better technical skills to maintain the equipment? Someone else might own an empty warehouse.

Setting up a business can be smart in terms of the electricity bill. You may be able to get a business electricity contract at a lower price than a private individual could. In some cases, electricity may also be included in a lease. It is also easier to share income and expenses with several people if you run your business through a limited company.

Remember that income from mining is taxable income. Tax practices vary from country to country, and anyone planning mining should familiarize themselves carefully with the tax rules before starting.

Many miners use Koinly to calculate their mining income. This is a cryptocurrency tax software, which is also popular with crypto traders. Koinly calculates your mining income automatically and checks the daily prices for coins. The site also offers advice and answers to common tax questions.

Calculating the profitability of mining

The profitability of mining is driven by three factors: the price of electricity, the price of Bitcoin, and the hash rate of the mining equipment. The better the electricity contract, the higher the Bitcoin price, and the more efficient the equipment, the more money you make from mining.

Electricity consumption is the biggest issue for many. Especially now that electricity prices are soaring. Large mining farms can be built next to hydroelectric power stations, but a person living in a standard house cannot make such a deal. Too high electricity prices will water down the profitability of the operation, even with powerful quipment.

A rise in the price of Bitcoin can save a lot, but profitability should also be assessed at lower rates. For example, you can use the 200-week average of Bitcoin as a lower price limit. Bitcoin has historically spent only short periods below this trend line.

The profit from mining can be calculated using various online calculators. For example, minerstat.com and asicminervalue.com are good sites to compare the yield and power consumption of equipment. Take the example of the Antminer S19 XP mentioned earlier from the Minerstat website.

bitcoin mining profitability

If electricity costs €0.1 per kWh, you would get at best €9.81 daily return by mining Peercoin or €9.57 through a Bitcoin mining pool. If the price of electricity rose to €0.2 per kWh, the return from mining would collapse to €2.58 (Peercoin) or €2.35 (Bitcoin).

Bitcoin is not the only cryptocurrency using the SHA-256 mining algorithm. In addition to Peercon and DigiByte, the forks of Bitcoin (e.g. Bitcoin Cash) also use the same algorithm.

The starting point for mining is, of course, profitability. In addition to this, it is important to outline the return in relation to the purchase price of the equipment. The Antminer S19 XP mentioned earlier costs over 11,000 euros, so its payback period would be about three years at a daily return of ten euros.

Setting up the Bitcoin miner

Let’s move from theory to practice. If you have the space, the equipment, and cheap enough electricity, how do you start Bitcoin mining? You need not only the mining equipment itself, but also an internet connection. It doesn’t need to be particularly fast – stability is more important. You’ll also need some Ethernet cables to connect the miner to your modem (or router).

Next, you need a Bitcoin wallet. This means a Bitcoin address, to which the mining rewards will be directed. If you don’t know anything about Bitcoin wallets, read our comprehensive wallet guide first. It goes through the different wallet options and their advantages.

When you switch on the mining device and attach an ethernet cable, it connects to the internet and creates an IP address for itself. You can access the settings of the miner through this IP address. Find the miner’s IP address on your own network by connecting to your internet modem with a browser.

Set the device URL (mining address), wallet address, and password. The mining address is the address of the mining pool. In practice, everyone should join a mining pool, because it provides you steady daily returns.

Almost all miners have a graphical user interface that makes it easy to do configurations using a web browser. The device will start mining for you as soon as you set up the mining address and the wallet address.

bitcoin mining

You should log in to your device and mining pool account regularly. Make sure that the device is really mining!

We will not go into the configuration of the miner in detail. If you need help, please contact a mining specialist like Cryptolouhimo. If you order a miner through them, you will also receive free consultation with every order.

Maintenance of a Bitcoin farm

Purchasing and installing the hardware is only the first step. Mining also involves maintaining equipment, buying spare parts and, in time, replacing equipment.

First, let’s go back to the excessive heat the miners produce. It is very important to find a sufficiently cool space so your miners won’t overheat. If you are using GPU rigs, too much heat can cause circuit boards to melt. At least the ASIC miners turn off automatically.

Facilities and equipment must also be kept clean. This applies in particular to dust. Ensure that cleaning is done on a regular basis (about every two weeks). A room that is too hot and dusty can significantly reduce the life of the miner.

What about spare parts? You can replace a fan of an ASIC miner yourself. This is also preferable if the miner starts making strange sounds. Some miners require a fan replacement every 1-2 years, but others have not needed to be replaced for many years. GPU rigs require more technical skills than ASIC miners.

gpu miner

The replacement interval for mining equipment is a concern to many. What is a realistic lifetime for equipment worth more than 10,000 euros? There is no unequivocal answer to this question. According to Cryptolouhimo, Bitcoin has been mined with equipment up to seven years old without any problems. Keeping the miners sufficiently cool and clean will significantly extend their lifespan.

Manufacturers are releasing more powerful miners at regular intervals. Generally, we are talking about a cycle of 1-3 years. This does not mean that you need to upgrade your ASIC every couple of years. The profit on old equipment will only start to get smaller as competing miners begin upgrading their hardware.

At some point, the miner’s yield may drop so low that the equipment has to be replaced, even if it is technically working well. This can happen, for example, when the price of electricity rises. An extraordinary collapse in the Bitcoin price for an extended period of time can also throw a spanner in the works.

It is impossible to give precise estimates of the need to replace equipment. It also depends a lot on how efficient (competitive) the equipment you have already bought in the first place.

Summary

We hope the article gave you a good idea of Bitcoin mining. It went through a number of different things that anyone interested in mining should be aware of. Buying mining equipment is just one step. After that, there is still a lot of work ahead.

In summary, good planning and getting consultation from mining professionals will save you a lot of time and money in the long run.

Remember that Bitcoin miners are not ordinary computers. They require very specific facilities and heat management. Don’t buy an ASIC to be placed in the corner of your bedroom. Think carefully about how mining would make sense.

Building a Bitcoin mining farm is expensive. Finding more investors can be a good idea. You should be prepared to pay more than 10,000 euros for one ASIC miner. On top of that, there are electricity bills and possible rental costs, as well as spare parts and maintenance over time.

It is also important to calculate the potential return under different scenarios. What if the price of electricity rises by 50% or the price of Bitcoin falls by 50%? Of course, mining can be done at zero return or even at a loss for a certain period of time. In the long run, it doesn’t make sense though, because you would get a better result by simply buying bitcoins.

This article was written in cooperation with Cryptolouhimo. You will find a comprehensive range of miners and accessories on the site. Cryptolouhimo also offers consulting and repair services related to mining.

Photo by NisonCo PR and SEO on Unsplash, Photo by Daniel Hatcher on Unsplash

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