Cheapest methods to mine Bitcoin
Bitcoin is the world’s most recognized cryptocurrency, a digital asset based on blockchain technology. Cryptocurrencies follow cryptography, the peer-to-peer exchange of value digitally through decentralized protocols and global consensus mechanisms.
The number one crypto by market cap exists without government or bank intervention, where users can transact without relying on a centralized medium. To own a bitcoin, one has to mine or trade for fiat or other valuable items. So what is bitcoin mining? And which is the most affordable way to go about it? Let’s dive in to learn more:
What is bitcoin mining?
Bitcoin mining exploits Bitcoin’s Proof-of-Work (POW) consensus mechanism to get new blocks and participate in the transaction validation. The combined efforts of all miners keep the blockchain secure and help keep the transactions essentially irreversible.
Each miner must scrutinize each transaction on the Bitcoin blockchain and check if the transactor has the required Bitcoin to conduct the transaction. The process also involves checking if the transactions have fulfilled all the requirements.
Blockchain transactions are divided into blocks and hash– a string of characters. Each block has the hash of the previous and the anticipated new block. The last block’s hash helps the miners verify the recent transactions follow the chronological order of mining. Once the miner gets the predicted block’s hash right, they can add it to the chain. Proof-of-Work is the process of correctly guessing the hash of the next block.
When miners discover a new block, they receive a Bitcoin block reward and a reward for the fee users incur in their transactions. The current Bitcoin block reward is 6.25 BTC per block after the 2020 halving. However, most miners get less in rewards because they work together as part of a mining pool.
Mining bitcoin is cheaper than buying on the open market. Therefore, mining and selling your loot is profitable under the right conditions.
There are three affordable ways that one can mine bitcoin, including:
Cloud mining is the process of mining bitcoin through rented computing power from third-party sources. Instead of buying expensive mining chips, you can rent the computing power of an established cloud bitcoin mining plant based anywhere in the world.
In cloud mining, you become part of a pool with high computing power, giving you more leverage against solo miners. Owners of the mining plants benefit from the guaranteed profit on their investment, regardless of the swing in bitcoin’s prices, so long as someone exploits their services.
The significant advantage of cloud mining is the investor is not responsible for the hardware. Moreover, you can mine bitcoin without spending thousands of dollars to purchase the equipment.
It is easier for a crypto newbie to go into cloud mining because all they need to know is to sign up on a reliable platform and start mining.
One downside of cloud mining is that you must invest upfront without a profit guarantee. Cloud mining exposes you to many risks in case the markets fluctuate, and you get stuck in a contract, mining at a loss.
Secondly, cloud miner has no control over the hardware or software used in the plant; hence they cannot upgrade when need be.
Cloud mining firms are also susceptible to scammers and hackers. For example, Genesis Mining was hacked in July 2017, and bitcoin was siphoned from the company’s hot wallet to an external one.
Mining bitcoin as part of a larger and established pool of miners is the easiest, more affordable, and most reliable way to gain profits from mining. You join forces with other miners for higher computing power and share the rewards.
By signing up for a pool, you can share the rewards by a certain ratio. Therefore, you will receive small payments at intervals. However, each mining pool operates differently, and there are things you need to understand before signing up for a mining pool, including:
Size of the pool
A pool with many people is more likely to get rewarded than a few miners. However, more miners mean the reward will be smaller as it will be split between more people.
A large mining pool is safer for newbies because they will get many payouts and only put in a little as they wait for the next payment.
Minimum payout means the smallest amount of bitcoin the pool allows users to withdraw. A pool with a low minimum payment is the best option for beginner miners as it will help them build their faith in the system.
Every pool demands a certain percentage of a miner’s profits as organization fees. The fees are deducted automatically from the bitcoin a miner earns. The lower the pool fees, the greater the profit margin!
Average pool fees range from 1% to 3% of the profits. However, some pools charge 0% mining fees but face credibility queries.
Mining bitcoin requires you to have all the needed gear, as you will not use resources from other nodes. Mining alone is a good idea for anyone who wants to keep their Bitcoin block reward private. You get the full reward of the miner who solves the hash.
The downside of solo mining is the competition you will face. You will be competing against other solo miners and every pool in existence. Although you could have enough computing power to compete with other solo miners, going up against established pools is cumbersome. You must invest heavily and set up hundreds of application-specific circuit chips (ASICS).
Running many mining chips takes up a lot of electricity to run and cool. For instance, one DragonMint T1 miner runs on 1,600 Watts, equivalent to 26 60W laptops. Multiplying this with the number of machines you need will produce an energy bill close to a manufacturing company.
To successfully run a solo miner, relocate to rural areas with cold climatic conditions, affordable electricity, and expansive land pieces. Iceland, Switzerland, Russia, and rural Canada are the top bitcoin mining locations.
The most profitable bitcoin mining method
Crypto mining is an extensive process that requires adequate information and investment. Of the three, pool mining is the most promising method, as risks and benefits are shared among the pool members.
However, you must research and make an informed decision to maximize your investment and avoid losing money.
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