You no doubt know that Bitcoin is one of the largest cryptocurrencies in the world. But did you know that you can make bitcoins yourself? Read on for a complete guide to making Bitcoin and what you need to prepare for it!
What Is Bitcoin?
Bitcoin is a virtual currency and decentralized payment method, free from the influences of central banks or governments. Bitcoin was developed by an anonymous developer using the alias Satoshi Nakamoto and launched to the public in 2009.
Nakamoto also published a white paper entitled “Bitcoin: A Peer-to-Peer Electronic Cash System” that discussed the breaches of trust across the history of fiat currencies, in response to the 2008 financial crisis.
Because Bitcoin isn’t tied to any government or central banks, the community builds on the currency through Bitcoin Improvement Proposals (BIPs). Notable Bitcoin upgrades include the Taproot upgrade, which improves security and implements anti-fee sniping methods.
Bitcoin was originally designed to be a globally accepted replacement for conventional currency. However, its price volatility means it’s not the most stable virtual currency. Instead, as prices rose, bitcoin became an investment vehicle.
At the time of launch, a bitcoin was worth less than 1 cent per coin. However, the price of bitcoin rose to an all-time high of $65,000 in 2021. Because one bitcoin (BTC) is very expensive, most people trade bitcoin in smaller units called satoshis, which are fractions of bitcoins up to eight decimal places.
Bitcoin is created through a process called “mining”, which involves validating transactions and securing the network. In 2009, the reward for mining a new block was 50 bitcoins. However, bitcoin rewards are halved for every 210,000 blocks mined to manage inflation. So far, there have been three halvings – mining new blocks now rewards you with 6.25 bitcoins.
Is Bitcoin Legal?
Unlike conventional cash, bitcoin’s legality depends on the country. The United States and Canada both accept bitcoin as legal tender and recognize the cryptocurrency industry. However, Americans must check state laws because different areas may have different bitcoin regulations.
In recent years, some countries have also changed their opinions on bitcoin and the cryptocurrency industry. Up until the first half of 2021, China was one of the top countries for bitcoin mining. However, the Chinese government has since taken a stance against cryptocurrency and banned crypto mining in the country.
Here’s a quick overview of the legality of bitcoins in other parts of the world:
- Europe: Legal tender in 45 countries, illegal in North Macedonia
- South America: Accepted or has no legal precedent in most countries, prohibited in Bolivia
- Africa: Legal tender in four countries, illegal in three
- Asia: Legal and regulated in Japan, banned in China
- Australia and Oceania: Legal in Australia and New Zealand
How Does Bitcoin Work?
Bitcoin consists of many moving parts – let’s break it down to make understanding it easier.
Like traditional currencies, you store bitcoin in a wallet. Essentially, your digital wallet is a “bank account” that keeps track of where your bitcoins are on the blockchain and displays how much you have.
Since bitcoins are essentially data with ownership tags, you need keys to access them. The two types of keys are:
- Public key: Public keys are attached to your wallet and work like an email address. If somebody wants to send bitcoin to you, they need to input your public key.
- Private key: Private keys are essentially passwords you need to access the bitcoins stored in your wallet. If you lose this, you lose access to all your funds.
Bitcoin wallets are divided into two categories based on who holds the keys:
- Custodial wallets: Custodial wallet users entrust their keys to a third party like a bitcoin exchange, similar to traditional bank accounts.
- Noncustodial wallets: Noncustodial wallet users are responsible for their keys – if they lose them, the wallet will be inaccessible.
Additionally, you have “cold storage” digital wallets, which consist of:
- Hardware wallets: These are electronic devices that act as offline storage for your bitcoins.
- Paper wallets: Paper wallets are printed pieces of paper containing your essential wallet information. Whenever you want to make a transaction, you have to scan the QR code or input the codes manually.
The Bitcoin blockchain is a digital ledger that organizes all bitcoin transactions. Your cryptocurrency wallet pulls from this public ledger to check your balance, record changes, and verify transactions.
As the name implies, the blockchain ledger consists of data blocks that hold transaction data. Once each block is filled, it’s closed and attached to the previous block, becoming a part of the chain. This structure makes cyberattacks challenging because attackers have to reverse-engineer all subsequent blocks to change the contents of one block.
Everything entered into the Bitcoin network is immutable and cannot be altered or destroyed. Additionally, the entire blockchain, from its genesis block to the most recently added, is publicly viewable by every user for full transparency.
When you transfer bitcoin from one cryptocurrency wallet to another, you’re initiating a transaction. All bitcoin transactions need to be verified and added to the blockchain by miners before it arrives in the recipient’s wallet. This process generally takes 10 to 20 minutes.
Who Accepts Bitcoin Payments?
At first, only crypto investors accepted bitcoin payments. However, as the popularity of crypto grew, more and more companies took bitcoin payments in addition to cash transactions. Some companies now also accept other electronic cash alternatives like Ethereum, Litecoin, and Bitcoin Cash.
Here are several companies that accept bitcoin payments, by industry:
- Communications services: AT&T, Dish
- Food and beverage: Domino’s Pizza, Burger King, Subway
- Financial institutions: Paypal, Goldman Sachs
- Online marketplaces: Newegg, Shopify, Rakuten
- Charity organizations: Red Cross, Save the Children
- Movies and entertainment: AMC Theaters, Lionsgate Films
- Online media: Wikipedia, iTunes
- Software and hardware: Microsoft, Trezor, Ledger
- Gaming: PlayStation Network, Xbox, Zynga
- VPN: NordVPN, ExpressVPN
How Is Bitcoin Made?
New bitcoins are made by mining, and miners are paid in new bitcoin to validate transactions and secure the blockchain. The Bitcoin network needs to validate transactions to prevent people from spending the same bitcoin twice.
Miners validate a block by “guessing” a certain 64-digit hexadecimal number. Their computers generate nonces (numbers only used once) to generate a hash matching the block’s hexadecimal number. If their nonce generates the right hash, that miner will get the bitcoin reward plus all the transaction fees in that block.
Additionally, bitcoin miners get extra voting power to support Bitcoin Improvement Protocols. This means miners have extra sway on the future development path of Bitcoin.
Bitcoin mining is a competitive task. Miners compete to be the first person who finishes a certain block and wins the new bitcoin generated. The rest will have to start over from zero with a new block to get another chance at receiving bitcoin.
Most bitcoin miners use specialized hardware called ASIC (application-specific integrated circuit). However, some miners created powerful rigs with GPU (graphics processing unit) cards, which contributed to the massive demand and inflated prices of graphics cards over the past few years.
Crypto mining requires a lot of computing hardware and is prohibitively expensive for many people. However, you can join a mining pool to boost your chances of winning the block. People in mining pools merge their computing power and share the mined bitcoin. While the reward is much smaller than winning a block yourself, you have better odds of making money with mining pools.
Bitcoin mining becomes harder and less rewarding over time. Block rewards are halved for every 210,000 blocks generated. As of July 2022, the reward for completing transactions is 6.25 bitcoins per block, and the next halving is estimated to happen in April 2024.
What You Need To Start Mining Bitcoin
Bitcoin miners use computing power to validate transactions and potentially earn BTC. However, you can’t just use your laptop or regular PC to mine bitcoin – you need specialized mining rigs.
Cryptocurrency mining rigs are custom-built PCs, so they still have CPUs, motherboards, RAMs, and hard drives. You may also need extra PSUs because mining consumes a lot of energy.
The main difference between mining rigs and regular PCs is the graphics card. GPUs provide most of the mining power to validate transactions, so you need robust graphics cards to mine bitcoin properly. In fact, you might need several GPUs to make a viable crypto mining rig.
You must consider graphics card prices if you’re planning to make a custom crypto mining rig. In recent years, high demand for GPUs caused their prices to skyrocket, so it might be tough to get good GPUs affordably.
Fortunately, you can buy ASICs instead of building custom cryptocurrency mining rigs. ASICs are specialized hardware designed specifically for mining bitcoin. A high-end NVidia graphics card has a hash rate of 125.7 million hashes per second, while an industrial Antminer ASIC boasts 110 trillion. The mining power difference is so vast that ASICs have almost entirely replaced GPUs for mining.
However, that doesn’t mean GPUs have fallen out of favor in crypto mining. The high demand for ASICs means they’re often out of stock, and GPUs are still viable for mining other cryptocurrencies like Ethereum.
How To Mine Bitcoin
Solo bitcoin mining is expensive, but it has massive reward potential if you win a block. Here’s a step-by-step guide to setting up a bitcoin mining operation:
- Choose your bitcoin mining device. ASICs are the best choice, but a GPU-equipped computer is a viable replacement if you can’t get one.
- Create a bitcoin wallet to store your earnings. We recommend getting a hardware cryptocurrency wallet to guard your BTC against theft and attacks.
- Configure your mining software. This part requires a fair bit of technical know-how, especially if you’re planning to link multiple miners, so make sure you understand what you’re doing.
- Download a copy of the block you’re solving and start mining. From here, the rigs will do the heavy lifting. Check your rigs often to make sure they’re still mining.
Alternatives To Solo Bitcoin Mining
Unless you run a massive bitcoin mining operation with hundreds or even thousands of ASICs, your chances of winning a block are minimal. If you can’t viably mine bitcoin yourself, consider these other alternatives:
- Pay cloud miners: Cloud mining services rent their equipment to people who can’t mine themselves. All you need to do is pay to receive the coin you mined.
- Trade bitcoin: Instead of mining, consider trading bitcoin. If your analysis is sound, you’ll know when to buy and sell to turn a profit.
- Mine other cryptocurrencies: The bitcoin mining scene is crowded, so you may find better luck mining other digital currencies like Ethereum and Litecoin.
What Are Bitcoin Mining Pools?
If you’re still insistent on mining your own bitcoin, consider joining a mining pool. A bitcoin mining pool is a group of individual miners putting all their computing power together to solve a block and agreeing to share the winnings. You won’t get the whole reward, but you’ll have a better chance at winning bitcoin rewards.
Most bitcoin mining pools employ a proportional model, where participants are paid according to the mining power they provide. Generally, people with more processing power get a larger portion of the bitcoin pie.
Risks Of Bitcoin Mining
If you succeed, bitcoin mining can be a fast way to earn lots of money. However, it’s not always that simple or straightforward. Here are some risks and downsides you need to consider:
Starting a mining operation from scratch is expensive. The average ASIC rig costs between $2,000 and $3,000, while good crypto mining GPUs can cost up to $2,000. If you want to start a large crypto mine, you’ll probably spend tens of thousands of dollars on the equipment alone.
Electricity expenses are another potential money sink. The most efficient ASIC miners take 86,509 kWh to mine one bitcoin. Assuming electricity costs are $0.09/kWh, mining one bitcoin costs $7785 in energy bills.
Mining Hardware Deterioration
Bitcoin mining is an intensive process that taxes your hardware. The heat produced from the calculation process and the hardware’s 24/7 runtime make ASICs and GPUs more prone to deterioration. While frequent maintenance helps keep serious damage at bay, your hardware may eventually break – it could cost you another few thousand dollars to replace.
Cryptocurrencies are volatile because many factors influence their value, so you can’t just assume that mining will earn you money. For example, BTC hit an all-time high of $68,000 in November 2021 but plummeted to $35,000 in January 2022.
Dropping prices could mean that your efforts in building a mining operation may be wasted. However, you should keep in mind that prices may go up again in the future.
High Energy Usage
Mining crypto needs a lot of energy. Bitcoin mining and transactions are estimated to consume 80.1 TWh per year, consuming more energy than countries like Venezuela and Finland. While 56% of bitcoin mining in 2021 used renewable energy sources, the remaining 44% of miners still used fossil fuels like coal.
Bitcoins are made by validating blockchain transactions in a process called mining. While mining is a viable way to earn bitcoins, it needs a lot of time and money to be successful. However, you can join mining pools or pay for cloud mining to reduce setup costs and make earning bitcoin easier.
What do I need to mine bitcoin?
You need a crypto mining rig to start mining bitcoin. You can either construct one yourself or buy a purpose-built ASIC.
How do I join bitcoin mining pools?
To join a mining pool, you need to have a bitcoin miner and register for membership in those pools. While the process may differ between pools, the general steps are:
1- Choose a mining pool.
2- Input the pool’s address into your miner.
3- Connect your cryptocurrency wallet.
4- Connect your rigs to the pool.
How many bitcoins are there?
As of July 2022, there are around 19.1 million bitcoins in circulation. Satoshi Nakamoto capped the bitcoin supply at 21 million, so there are around 1.9 million bitcoins left to mine.
Can you buy bitcoin with conventional cash?
You can buy bitcoin with conventional cash, but the process may take more time than buying bitcoin online. Here are four ways to buy bitcoin with conventional currencies:
-Buy bitcoin from somebody you know.
-Organize in-person transactions on peer-to-peer bitcoin exchanges.
-Redeem bitcoin vouchers from select stores.
-Visit a bitcoin retail store like House of Nakamoto.