Technical Background more »
During mining, your computer runs a cryptographic hashing function (two rounds of SHA256) on what is called a block header . For each new hash, the mining software will use a different number as the random element of the block header, this number is called the nonce . Depending on the nonce and what else is in the block the hashing function will yield a hash which looks like this:
You can look at this hash as a really long number. (It's a hexadecimal number, meaning the letters A-F are the digits 10-15.) Now to make mining difficult, there is what's called a difficulty target . To create a valid block your miner has to find a hash that is below the difficulty target. So if for example the difficulty target is 1000000000000000000000000000000000000000000000000000000000000000, any number that starts with a zero would be below the target, e.g.:
If we lower the target to 0100000000000000000000000000000000000000000000000000000000000000, we now need two zeros in the beginning to be under it:
Because the target is such an unwieldy number with tons of digits, people generally use a simpler number to express the current target. This number is called the mining difficulty . The mining difficulty expresses how much harder the current block is to generate compared to the first block. So a difficulty of 70000 means to generate the current block you have to do 70000 times more work than Satoshi had to do generating the first block. Though be fair though, back then mining was a lot slower and less optimized.
The difficulty changes every 2016 blocks. The network tries to change it such that 2016 blocks at the current global network processing power take about 14 days. That's why, when the network power rises, the difficulty rises as well.
Bitcoin Mining Hardware
CPU's: In the beginning, mining with a CPU was the only way to mine bitcoins. Mining this way via the original Satoshi client is how the bitcoin network started. This method is no longer viable now that the network difficulty level is so high. You might mine for years and years without earning a single coin.
GPU's: Soon it was discovered that high end graphics cards were much more efficient at bitcoin mining and the landscape changed. CPU bitcoin mining gave way to the GPU (Graphical Processing Unit). The massively parallel nature of some GPUs allowed for a 50x to 100x increase in bitcoin mining power while using far less power per unit of work. While any modern GPU can be used to mine, the AMD line of GPU architecture turned out to be far superior to the nVidia architecture for mining bitcoins and the ATI Radeon HD 5870 turned out to be the most cost effective choice at the time.
FPGA's: As with the CPU to GPU transition, the bitcoin mining world progressed up the technology food chain to the Field Programmable Gate Array. With the successful launch of the Butterfly Labs FPGA ‘Single', the bitcoin mining hardware landscape gave way to specially manufactured hardware dedicated to mining bitcoins. While the FPGAs didn't enjoy a 50x - 100x increase in mining speed as was seen with the transition from CPUs to GPUs, they provided a benefit through power efficiency and ease of use. A typical 600 MH/s graphics card consumed upwards of 400w of power, whereas a typical FPGA mining device would provide a hashrate of 826 MH/s at 80w of power. That 5x improvement allowed the first large bitcoin mining farms to be constructed at an operational profit. The bitcoin mining industry was born.
ASIC's: The bitcoin mining world is now solidly in the Application Specific Integrated Circuit (ASIC) era. An ASIC is a chip designed specifically to do one thing and one thing only. Unlike FPGA's, an ASIC cannot be repurposed to perform other tasks. An ASIC designed to mine bitcoins can only mine bitcoins and will only ever mine bitcoins. The inflexibility of an ASIC is offset by the fact that it offers a 100x increase in hashing power while reducing power consumption compared to all the previous technologies. For example, a good bitcoin miner like the Monarch from Butterfly Labs provides 600 GH/s (1 Gigahash is 1000 Megahash. 1 GH/s = 1000 MH/s) while consuming 350w of power. Compared to the GPU era, this is an increase in hashrate and power savings of nearly 300x. (Calculate the earnings of any bitcoin mining hardware device using this bitcoin mining calculator ).
Unlike all the previous generations of hardware preceding ASIC, ASIC is the "end of the line" when it comes to disruptive technology. CPUs were replaced by GPUs which were in turn replaced by FPGAs which were replaced by ASICs. There is nothing to replace ASICs now or even in the immediate future. There will be stepwise refinement of the ASIC products and increases in efficiency, but nothing will offer the 50x - 100x increase in hashing power or 7x reduction in power usage that moves from previous technologies offered. This makes power consumption on an ASIC device the single most important factor of any ASIC product, as the expected useful lifetime of an ASIC mining device is longer than the entire history of bitcoin mining. It is conceivable that an ASIC device purchased today would still be mining in two years if the device is power efficient enough and the cost of electricity does not exceed it's output. Mining profitability is also dictated by the exchange rate, but under all circumstances the more power effecient the mining device, the more profitable it is.
Software
There are two basic ways to mine: On your own or as part of a pool. Almost all miners choose to mine on a pool because it takes the luck out of the process. Before you join a pool, make sure you have a bitcoin wallet so you have a place to store your bitcoins. Next you need to join a mining pool like Eclipse. Eligius or BTC Guild. With pool mining, the profit from any block a member generates is divided up among the members of the pool. This gives the pool members a more frequent, steady payout (this is called reducing your variance), but your payout(s) will be less unless you use a zero fee pool like Eclipse. Solo mining will give you large, infrequent payouts and pooled mining will give you small, frequent payouts, but both add up to the same amount if you're using a zero fee pool.
Once you have your client set up or you have registered with a pool, the next step is to set up the actual mining software. The most popular GPU/FPGA/ASIC miner at the moment is BFGminer or CGminer. For a full GUI experience, try EasyMiner .
If you want a quick taste of mining without installing any software, try Bitcoin Plus. a browser-based CPU Bitcoin miner. As a CPU miner it's not cost-efficient for serious mining, but it does illustrate the principle of pooled mining very well.
Thanks to:
Blitzboom and the guys from #bitcoin-dev for their help with writing the guide!
Bitcoin mining profitability calculator
Nothing guaranteed, of course this is only a rough estimate! You can also calculate rented mining by setting “Power consumption” to 0 and “Cost of mining hardware” to the rent per time frame. Default values are for a 50 GH/s Bitcoin Miner .
Estimate Strategy
Extrapolating bitcoin difficulty or price is pure voodoo. It is much easier to predict the relationship of the two parameters in form of the Mining Factor. The Mining Factor 100 is the value in USD of the bitcoins you can generate if you let a 100MHash/s miner run for 24 hours. If the Mining Factor 100 rises above $2 or so everybody buys mining equipment and thus increases difficulty. If it falls people will stop mining eventually. The estimate starts with the current Mining Factor and decreases it exponentially such that the decrease accounts for the factor decline per year. Please note that a profit/loss by holding the coins is not accounted for in this estimate.
Things to consider that might eat into your profit:
The values above are only a snapshot. The network and markets are moving quickly. Check out these diagrams to get a feeling for it.Looks like if your mining operation is not profitable now, it probably will not be in the future.
With rising bitcoin exchange rates it might be more profitable to buy bitcoins than to mine. There are spreadsheets available in this thread or this one (with some FPGA data) for a more custom calculation.Bitcoin exchanges: MtGox. Tradehill. CryptoXchange .
The calculation is based on average block generation time. The closer the average generation time is to the time frame the more the resulting revenue depends on luck.
You will have to pay mining pool fees from close to nothing up to 3% depending on the pool. Unless you want to do pool hopping you should go to a pool with hopping protection. I recommend Arsbitcoin and EclipseMC (with namecoin merged mining). P2Pool is a new completely decentralized alternative.
You will get somewhere from 1% to 3% of “stale shares”. Thread .
When the block count will hit
200000 some time around December 2012 the generation reward will go down to 25BTC. This might partly be compensated by falling difficulty, raising prices, higher transfer fees, etc.
A mining computer generates a lot of heat as a byproduct. This can impact your heating/airconditioning costs depending on outside temperatures. Other byproducts could be noise and an angry wife.
Do you have lots of experience with and like working with computers during lonesome nights? You have to spend quite some time to set up the system (easily several days!) and watch it.
You will not get a 100% uptime.
You will probably not be able to reach the highest values in the Mining Hardware Comparison. Some bragging / measuring error and extensive overclocking of the cards is involved here.
Scaling effects: three cards in one rig do worse than a single card because it gets harder to get out the heat. Results in the list above do not reflect the number of cards.
A disruptive technology like ASIC chips could show up and make GPU mining less profitable.
Politics and legal issues might affect the bitcoin market.
Possible additional benefits:
For suggestions, infos or links on the topic to add, please contact me directly (info [at] bitcoinx.com) or in this thread on the bitcoin forum.
Quick updates
02.02.2014
Datacenter connectivity issues have caused short drop in the hashrate. The problem has been resolved and all stratum servers are now reachable. This all happened when 900 Th/s was within a reach. We will get there again with your support and participation in mining ;-)
17.01.2014
We were having an extremely lucky yesterday's mining session. Unfortunately, around 1.30 AM UTC, we were experiencing stratum server issues that eventually spread across all our stratum servers. The problem has been resolved now and mining continues.
13.01.2014
The pool database backend has been successfully migrated to a new hardware. The website is now fully operational. The whole migration process has been accomplished without interrupting the actual mining.
13.01.2014
We are currently migrating pool database to a new machine. Mining will continue without interruption, only website will be down for 1-2 hours.
18.12.2013
Some recent payouts didn't go thru bitcoin network because of unsatisfied transaction fees. We're finding a soluton and all payouts will be processed soon
16.10.2013
In recent days we experienced some successful thefts of user's funds using compromised email accounts. We strongly encourage all users to change email passwords. There's no reason to think that pool security itself has been compromised.
08.07.2013
Getwork protocol support ended. Please be sure your miners support Stratum protocol. You can still use your old getwork miners with Stratum proxy installed on your mining rig.
21.05.2013
Bug in bitcoind caused many invalid blocks generated in recent hours. Thanks to cooperation with bitcoin developers, a bugfix has been deployed. Pool is now back in normal operation.
26.04.2013
Because the user database has been compromised in recent hack, please change password to your pool account!
25.04.2013
Pool is recovering to normal operation from previous attack. delayed payouts will be processed in the afternoon (UTC).
18.04.2013
Pool is recovering from DDoS attack.
14.04.2013
As announced in Getwork deprecation plan. the hashrate on Stratum is far above 90%, so workers which are still using the deprecated Getwork protocol are now charged by 10% fee. Please update your software and start using modern Stratum miners to reduce your fees back to 2%!
12.03.2013
Bitcoin network recently experienced global problems which caused some pool blocks to be invalid. Everything seems to be fixed now.
10.03.2013
Default mining URL for Stratum is stratum.bitcoin.cz:3333 . If you're still using api.bitcoin.cz, please fix your URL to prevent fallback to deprecated Getwork protocol.
08.03.2013
Stratum proxy version 1.5.2 has been released. This is bugfix release which add compatibility with some old miners (phoenix, Diablo).
03.03.2013
Stratum proxy version 1.5.0 has been released. All proxy users are encouraged to update .
13.02.2013
ASIC mining become a reality. Jeff Garzik (bitcoin core developer) is testing first shipped unit of Avalon ASIC miner on our pool.
30.01.2013
Native IPv6 address is now available. You can use ipv6.stratum.bitcoin.cz:3333 in your miner if your miners have IPv6 support! Please note that IPv6 works only for Stratum miners.
08.12.2012
If you're using old miners from early 2011 or you're mining on URL "mining.bitcoin.cz:8332", please update your miners and use "api.bitcoin.cz:8332" in your configuration instead. Mining on URL "mining.bitcoin.cz" is not working anymore.
27.11.2012
Only one day remains to halving block reward from 50 BTC to 25 BTC. Thanks to this change in Bitcoin world, mining income will be drastically reduced. As a countermeasure, pool is now paying block fees to miners. Everything you need to collect block fees is to use miner with Stratum support .
24.11.2012
Pool is now giving transaction fees to Stratum miners! Use miner with Stratum support (latest version of GUIminer, cgminer, bfgminer, poclbm) or use your favourite miner with Stratum proxy to improve your mining income!
19.11.2012
Guiminer with Stratum support has been released. Upgrade is highly recommended.
12.10.2012
All users are encouraged to install or update Stratum proxy to current stable version 1.1.1. Instructions are here .
12.10.2012
New version of cgminer has been released. Please update cgminer to version 2.8.3 . which fixes serious bugs introduced in previous versions.
10.10.2012
In effect from 01.11.2012, pool increases the lower limit for payouts ("send threshold") to 0.05 BTC (around $0.6) as a protection against high transaction fees for tiny payouts. If you have a balance of less than 0.05 BTC and want to withdraw them, please do so before November 1.
20.09.2012
New version of poclbm miner has been released. All poclbm users are encouraged to update their miner, latest version includes major optimization.
11.09.2012
I'm seeking for beta testers of new mining protocol called Stratum mining. If you want to join testing, please download the proxy and point your miners to it. Thank you!
08.07.2012
Do you have some bitcoins from the mining and do you want to sell them for cheap? Add your offer to localbitcoins.com and find a buyer in your neighborhood!
11.06.2012
Follow pool's page for recent updates and news!
05.02.2012
poclbm/GUI miner is affected by serious bug. If your miner is crashing on 'unexpected error' message, please follow miner forums for the newest versions.
26.01.2012
Pool is now supporting BIP 16 protocol extension, as described here. It is just internal change on the Bitcoin network, miners don't need to update anything.
08.11.2011
Implemented prioritization of long polling. Fast miners should expect lower stale ratio.
10.10.2011
Merged mining for Namecoins added. Please fill NMC address on your profile to start collecting Namecoins! Accounting isn't finished yet, but will come very soon.
03.10.2011
Bitcoin.cz is official sponsor of European Bitcoin conference 2011. See you on 25.-27. November in Prague!
26.03.2011
Second server added
Total hashrate at 60Ghash/s
19.01.2011
We're over 20 Ghash/s
20.12.2010
How To Mine Bitcoins
Twitter Pushes Android App Update To Fix The “Me” Tab Bug
Mining bitcoins – a process that helps manage bitcoin transactions as well as create new “wealth” – is the new Beanie Babies. Luckily for us, however, bitcoins seem to be going up in value and should maintain their value over time, unlike your mint condition Tiny the stuffed Chihuahua.
But how do you get bitcoins? You can begin by buying them outright, but the market is currently wild. At $188 per coin, the direction of the bitcoin is anyone’s guess right now and, unlike equities, these things don’t split. In short, you should probably mine. But what is bitcoin mining?
Think of it as work done by groups of people to find large prime numbers or trying keys to decrypt a file. You can read a lot more about it here but just understand that for every block mined you get 25 coins or, at current rates, $4,722.25. Currently a single bitcoin is valued at $188, an alarming result that is probably caused by money movements related to Cyprus and a general bubble-like excitement over the platform in general. In fact, many wager that the DDOS attacks on many bitcoin-related services are direct action by hackers to inject instability in order to reduce the price.
As it stands, mining solo is very nearly deprecated. The process of finding blocks is now so popular and the difficulty of finding a block so high that it could take over three years to generate any coins. While you could simply set a machine aside and have it run the algorithms endlessly, the energy cost and equipment deprecation will eventually cost more than the actual bitcoins are worth.
Pooled mining, however, is far more lucrative. Using a service like “Slush’s pool” (more on that later) you can split the work among a ground of people. Using this equation:
(25 BTC + block fees – 2% fee) * (shares found by user’s workers) / (total shares in current round)
While this is simplified, it is basically how the system works. You work for shares in a block and when complete you get a percentage of the block based on the number of workers alongside you, less fees. Using this method, I have been able to raise about $1.50 over the weekend by running a dormant PC. The astute among you will note that I probably used twice that amount of electricity.
Being a neophile, I’m surprised it took me so long to start mining. My buddy Tom explained how to set up a pooled mining account so I thought it would be interesting to share the instructions.
1. Get a wallet. You can either store your wallet locally or store it online. Coinbase.com is an online wallet that is surprisingly simple to set up. Wallets require you to use or download a fairly large blockchain file – about 6GB – so downloading and updating a local wallet may be a non-starter. Like all wealth storage mediums, keeping your bitcoins “local” is probably a better idea than trusting a web service, but that’s a matter of private preference. There is no preferred wallet type and there are obvious trade-offs to both. Privacy advocates would probably say a local wallet is best.
You can download a local wallet here but make sure you keep a copy of your data backed up.
Once you’ve created a wallet, you get an address like this: 1BEkUGADFbrEShQb9Xr4pKPtM8jAyiNQsJ. This, without the period, is a direct way to send bitcoins to your wallet. Make a note of your address. In Coinbase, the wallet address found under linked accounts.
2. Join a pool. To mine in a pool you have to work with a group of other miners on available blocks. The most popular is Slush’s Pool found here. You can also try guilds like BTC Guild as well as a number of other options. Each of the pools is characterized mostly by the fees they charge per block – 2% for Slush’s pool, for example – and the number of users. Pools with fewer users could also have a slower discovery time but pools with many users usually result in smaller payments.
How can you be sure the pool owner doesn’t steal all your bitcoins? You can’t. However, as one pool owner, Slush, notes:
In theory, as the Bitcoin pool operator, I could keep the 25 BTC from a block found by the pool for myself. I’m not going to do this, but I completely accept that people do not trust the pool operator. It is their freedom of choice, and Bitcoin is about freedom.
For simplicity’s sake, I’m using Slush’s Pool and have created three workers. First, create a pool login. Then add workers. The workers are sub-accounts with their own passwords and are usually identified by [yourlogin].[workername]. I have three workers running, currently – one on my iMac and two on my old PC.
You must create workers to mine. The instructions are very straightforward for most services so don’t become overwhelmed. Like any online club, you can dig deeply into the subculture surround bitcoin as you gain experience. I like to think of it as a financial MMORPG.
Also be sure to enter your wallet address into the pool information. This will ensure you get your bitcoins.
3. Get a miner. There are a number of mining options for multiple platforms although OSX users may find themselves in a bit of a pickle. Miners use spare GPU cycles to power the mining operation, much like services like SETI@Home uses spare cycles for finding intelligent life. Miners, on the other hand, use these cycles to help handle peer-to-peer processes associated with bitcoins. Thus by doing “work” you are maintaining the network as well.
GUIMiner is the simplest solution for Windows users as it allows you to create miners using almost all standard graphics cards. You can download it here. 50Miner is also a popular solution. Both require you to enter your worker info and pool and they’ll start mining.
Linux users can run miners like CGMiner. An excellent guide to installing a miner on Ubuntu is available here .
OS X users can use DiabloMiner. a two-year old command-line program that will mine using OpenCL. Sadly, it uses deprecated calls to Bitcoin and is quite a bit slower. As a result, you need to run your own proxy, Stratum. that allows Diablo to connect with services like Slush’s pool. Both of these programs usually run without issue on OS X although you may need to install OpenCL for OSX .
To mine I’ve created a script that I run in Terminal that simply runs the proxy in the background and then connects Diablo. Note the last two arguments are necessary for Mountain Lion.
/stratum-mining-proxy-master/mining_proxy.py &
/DiabloMiner-OSX.sh -u WORKERNAME -p WORKERPASSWORD -o localhost -r 8332 -w 64 -na
RPCMiner is far easier to run – you simply click an icon and enter some data – and both have very rudimentary, text-based interfaces. Running Diablo on my iMac has not had much effect on application performance under OS X although it does slow down my Windows 8 machine considerably.
4. Keep your mind on your money. Bitcoins are baffling in that they are wildly simple to use and mine. Speculators, then, would probably be able to throw hundreds of machines at the problem and gather bitcoins like raindrops, right? Wrong. As more bitcoins are found, they become more difficult to find. This profitability calculator will help you understand what you’re up against but understand that this isn’t a sure thing. I’ve run my systems for a weekend and seen a mere $1.50 – enough for a coke – but other users may have improved hardware and methods to succeed. In short, if it costs more to run your hardware than you gain in bitcoins, you’re probably doing something wrong.
Good luck in your journey and enjoy your first foray into this wild and wooly world.
BLOG – Inside a Bitcoin Mining Operation in Hong Kong
Bitcoin. everyone’s favourite decentralised, peer-to-peer digital cryptocurrency, is making headlines around the world.
Entrepreneur and journalist Xiaogang Cao posted pictures of a new HK-based mining operation being set up in an Kwai Chung industrial building…
Bitcoins are generated by ‘miners’ who devote computing power to solving mathematical puzzles. Whilst users could once mine bitcoins at home, setting up a mining operation nowadays involves a lot more infrastructure… As more bitcoins come into circulation, the puzzles involved become increasingly difficult. The rewards are halved at regular intervals until 21 million bitcoins have been created – at which point, production will cease.
Over the coming years, even when accounting for Moore’s law. mining will only require more resources to be worthwhile… Though some governments are hesitant about the world’s first cryptocurrency, entrepreneurs are hoping Hong Kong will jump on the bandwagon.
HK’s new bitcoin farm involves one meter high transparent glass tanks, copper piping, cooling machines and computer boards soaked in bubbling 3M cooling liquid . LED lights flash constantly, though the facility is cool, safe and quiet.
Construction began in August, 2013. A crane was used to install cooling systems onto the roof. The cooling technique is one of the world’s most advanced, maintaining temperatures of below 37 degrees.
In a race against time, bitcoin mining began in October. And with an eye on the future, there is extra capacity built into the site…
The company behind the operation is Asicminer, who own multiple mining facilities. Cao said the facility was ‘quieter than a library’
Earlier this month, it was reported that a HK-based Bitcoin trading platform disappeared, taking with it up to US$5million worth of investment. One study showed that 45 percent of Bitcoin exchanges end up closing
Hong Kong could become a hub for Bitcoin use and mining. Hong Wrong’s Tony Wong said that the city has an edge due to ‘sound property rights, cheap electricity, widely available technology and service technicians’.
Xiaogang Cao invites readers to donate to his crowdfunded charitable project (Chinese).
One bitcoin was worth around US$858 at the time of writing.
Beginners Guide to Mining Bitcoins
One of the biggest problems I ran into when I was looking to start mining Bitcoin for investment and profit was most of the sites were written for the advanced user. I am not a professional coder, I have no experience with Ubuntu, Linux and minimal experience with Mac. So, this is for the individual or group that wants to get started the easy way.
First thing you need to do is get a “Bitcoin Wallet”. Because Bitcoin is an internet based currency, you need a place to keep your Bitcoins. Got to http://www.bitcoin.org and download the Bitcoin client for your Operating System. Install it the client will begin to download the blockchain. Downloading the blockchain can take a long time and will be over 6GB of data. If you have data caps, I would recommend ordering a copy of the blockchain on DVD to keep from going over as it is growing exponentially. Click to order the bitcoin blockchain by mail. Once the client is up to date, click “New” to get your wallet address. It will be a long sequence of letters and numbers. One of most important things you can do is make sure you have a copy of the wallet.dat file on a thumb drive and print a copy out and keep it in a safe location. You can view a tutorial on how to create a secure wallet by clicking the link on the top of the page. The reason is that if you computer crashes and you do not have a copy of your wallet.dat file, you will lose all of your Bitcoins. They won’t go to someone else, they will disappear forever. It is like burning cash.
Now that you have a wallet and the client, you are probably roaring to go, but if you actually want to make Bitcoin (money), you probably need to join a pool. A pool is a group that combines their computing power to make more Bitcoins. The reason you shouldn’t go it alone is that Bitcoins are awarded in blocks, usually 50 at a time, and unless you get extremely lucky, you will not be getting any of those coins. In a pool, you are given smaller and easier algorithms to solve and all of your combined work will make you more likely to solve the bigger algorithm and earn Bitcoins that are spread out throughout the pool based on your contribution. Basically, you will make a more consistent amount of Bitcoins and will be more likely to receive a good return on your investment.
The pool that I’m involved in is called Slush’s Pool so I will be giving instructions on how to join there but feel free to look at other options. Follow the link to go to their site and click the “Sign up here” link at the top of their site and follow their step by step instructions. After you have your account set up, you will need to add a “Worker”. Basically, for every miner that you have running, you will need to have a worker ID so the pool can keep track of your contributions.
If you are mining with an ASIC, please go to our Mining with ASICs page. The following will only pertain to GPU miners.
Most of the mining programs out there are pretty complicated to setup and will frustrate your average user. Recently a great program has come out to get the most basic of users started. The program is called GUIMiner. Click the link and download the program (Be careful, some of the ads are set up to look like the file download). Install and run the program and add in your information from Slush’s Pool. Remember that the user name is actually the worker name. The worker name will be your user name, dot, worker ID (username.worker ID) and the password from that worker ID.
Mac users should look into using Astroid
Now that you are set up, you can start mining. If you feel like you want to make more Bitcoins, you might want to invest in mining hardware.
To see how much your current hardware will earn mining Bitcoins, head over to the Bitcoin Profitability Calculator .
If you found this information helpful, please donate to 1G1ehppEgjiFTUSHFz2xs9KLSQuWLPYF2o
Miner problem: big changes are coming for Bitcoin's working class
New chips from Butterfly Labs, a leading Bitcoin equipment manufacturer, promise speeds of 4.5 gigahashes per second to 1,500 gigahashes per second.
Jim O’Shea, a web programmer, gadget lover, and family man living in Pennsylvania, became a digital gold miner in June of 2011.
The resource he mines is not World of Warcraft currency, personal data, or fancy new domain names. It’s Bitcoin, the internet-native currency that many believe has the potential to become a revolutionary new universal currency independent of governments, banks, and PayPal.
O’Shea has 24 computers running constantly in a shed behind his house, making Bitcoins. "My setup is kind of. ghetto. I have bugs crawling around on my rigs and there’s dust and pollen and cigar smoke," he told The Verge recently by phone. "I'm out here now, I don’t know if you can hear them in the background. Can you hear the hum?"
The race to mine Bitcoins has drawn a rush of digital '49ers
Bitcoin has been described as cash for the internet, but gold is a more appropriate analogy. Anyone can "mine" Bitcoins on their own computers by running a program that’s designed to produce a 64-digit number in a resource-intensive way. This program randomly computes a cryptographic "hash" over and over until the result is below the number the network is looking for. The network rewards the first miner to get the right answer with 50 Bitcoins and then the process starts again. Only 21 million will be created in total, mimicking the scarcity of a precious metal. The race to mine them has attracted a rush of digital ‘49ers. There are many, likely thousands, like O’Shea.
"Other miners are more organized. They’ll rent this warehouse and wire it and build all these beautiful racks," he said. "I’ve known people that have actually moved their whole mining operation right next to the power plant so they can get the cheapest power."
O’Shea’s backyard operation brings in about $3,000 a month, he estimates, although the take is always changing because the price of Bitcoin is extremely volatile. He’s spent more than $60,000 on equipment, and his electricity costs run between $2,200 and $2,400 a month. He’s defrayed his cost significantly but has yet to break even.
"Some people have made retirement money, but I'm not one of them. I'm more into it just for the gadgetry," he said. "I’m in my backyard so I can come home, visit the kids, and then disappear into my cave."
New mines
People have been mining Bitcoin since the currency debuted in 2009. The network automatically adjusts the difficulty of mining so that 50 Bitcoins are created roughly every ten minutes. In the early days, it was easy: anyone could run the Bitcoin-generating program at home on a CPU and crank out the coins without much effort. One early miner accumulated so many that he offered 10,000 Bitcoins to anyone who would deliver him two pizzas. At the time, that would have been around $100, but at today’s prices, it’s over $100,000.
Some miners are students, who take over whatever computers they can find. Others are bankers or venture capitalists, drawn by the ostensible investment opportunity. Some join mining pools, which let individuals combine computing power and hedge their investments; others are "solo miners," like O’Shea. Still others have set up botnets to stealthily infect unsuspecting users over the internet and harness the collective computing power to mine .
There is money to be made
The allure of passively cranking out Bitcoins has given geeks around the world goldlust. One IT worker at the Australian Broadcasting Corporation made headlines after he installed the Bitcoin software on the company’s servers ; a college IT administrator confessed to Motherboard that he was secretly running the software on school computers. Another solo miner’s story went viral when he confessed on 4chan that he got minor but permanent brain damage from mining. He had set up a small operation in his room, and the hard-working computers, running 24 hours, had given him heat stroke while he was sleeping. There’s an urban legend that one Bitcoin miner’s high electricity usage brought the cops to his door, suspecting a marijuana farm .
There is money to be made. Last year, miners generated $16.7 million worth of Bitcoins, using the price at the time the coins were created. But miners’ margins are getting thin. The popularity of the profession surged when the price of Bitcoins spiked up to $33 each in 2011. That was good for Bitcoin, because the more miners there are, the lower the odds that any one person can override Bitcoin’s security measures with a so-called "51 percent attack ." But it meant that mining became less lucrative and more competitive.
One highly-active miner's setup from May 2011.
Miners started using GPUs, normally reserved for gaming, to mine Bitcoins at much faster rates. Anyone who wanted to stay in the game had to invest in new equipment. At today’s prices, only about $550 in Bitcoins is generated by all miners every eleven minutes. The total number of people mining Bitcoin is unknown, except that it is below 20,000. When you factor in equipment and electricity costs, many miners are underwater on their operations.
"I'd say that the majority of miners, especially large-scale ones that I know, including myself, are not paid off," said Jeff Brandt, who makes about $2,000 a month mining Bitcoin on the $40,000 worth of equipment he keeps in an 1,800-square-foot barn. "I would estimate that a majority of the Bitcoin network was built off of credit card debt."
Coming changes
Because there is no central Bank of Bitcoin, miners are an essential part of the system. The currency was designed to incentivize users to process the network’s transactions by running the Bitcoin program on their own machines. Those users are rewarded for their efforts with transaction fees. In the beginning phases of the currency, the network also spits out 50 brand new Bitcoins for every "block" of transactions, which is called the "block reward."
Some people mine because they want Bitcoin to succeed, but most do it for the promise of profit, plunging time, energy, and hundreds of thousands of US dollars into mining.
Miners have dutifully generated just under half of the total Bitcoins that will ever be mined. But the mining industry is about to be thrown into turmoil due to two major changes expected to hit, entirely coincidentally, around the same time. One is the introduction of application-specific integrated circuits, or "ASICs," designed specifically to mine Bitcoins up to 1,000 times faster than current technology. The other is a deadline hard-coded into the Bitcoin software. When the total number of Bitcoins reaches 10.5 million in about one week. the block reward will suddenly be cut in half — a protection built into the currency in order to prevent inflation.
The new chips, which retail from $150 to $29,899 for a 'mini-rig,' are built exclusively to mine Bitcoin
The new chips, which retail from $150 to $29,899 for a "mini-rig," are purpose-built to mine Bitcoin. That ups the stakes for miners, since they will no longer be able to resell their equipment to non-Bitcoiners if mining becomes unprofitable. In the past, miners could resell their gear to gamers or other buyers. But if one of the new ASICs isn't being used to mine Bitcoin, "it's a doorstop," said Josh Zerlan, COO of Butterfly Labs, which is producing the new chips.
At least three companies are selling these chips. which are scheduled to start shipping in December. Whoever receives the chips first will have as long as two weeks to rake in profits before the network adjusts to the higher performance and increases the difficulty of mining, so miners rushed to place pre-orders. Zerlan told The Verge that 20,000 chips are on the way in the first batch, with an additional 30,000 to follow.
No one is quite sure what will happen to miners’ income when the new chips come online and the block reward drops to 25 Bitcoins every ten minutes instead of 50. The Bitcoin mining forums have been full of nail-biting since February. "The end is nigh ," one user wrote.
Better, faster, stronger
In March of 2011, Yifu Guo decided to cash in on the Bitcoin gold rush. Guo, a 23-year-old student taking a break from his digital media program at NYU-Poly, made a calculated investment. If he spent a few thousand in computer equipment to generate Bitcoins, he could break even in 26 days — after that, he’d be making around two thousand dollars a month.
A Bitcoin mining rig with sixteen video cards. Source: Tumblr
"I was like, no way. That’s absurd," Guo recalled on a recent blizzardy afternoon in a coffee shop in downtown Brooklyn, where he sipped a hot chocolate spiked with espresso. "The return was amazing." He bought the equipment and became a small-time miner. But it wasn’t long before he saw a bigger opportunity: instead of mining the gold, he’d sell the pickaxes.
"A lot of people are going to stop mining."
Guo had connections to hardware makers in Taiwan thanks to a previous project to build a $100 Android tablet. He contracted with TSMC, the company that is reportedly replacing Samsung as Apple’s chip supplier, to produce custom-built chips comparable to the ones being peddled by Butterfly Labs. He took orders for 300 units, which he's calling Avalon. which he plans to ship in mid-January. The rush of orders crashed his site in two hours. His hosting company thought he was under attack.
Most miners are in it for profit, but many don’t know how tough it is to make money, Guo said. "A lot of them are uninformed," he said. "If you don’t have cheap power, don’t go into mining long-term."
When the new chips come online, he expects miners will have to go pro or go home. "A lot of people are going to stop mining," he said.
A mixed bag
CoinLab, a startup funded by Silicon Valley venture capitalist Tim Draper and others, hopes to give Bitcoin miners another way to make a buck. CoinLab was originally a Bitcoin mining startup that attempted to partner with video game makers in order to use players’ computers to mine Bitcoins.
That didn’t work out, so the company pivoted to a new model which matches Bitcoin miners with universities and other entities that need distributed computing power. CoinLab also runs a mining pool of more than 1,000 miners. As a result, CoinLab is very tied in with the amorphous mining community.
CEO Peter Vessenes remembers when Bitcoin mining was easy, before the economy had developed. "I got like 50 in an hour on my laptop or something," he told The Verge . "That was well over two years ago."
Vessenes expects that the new chips, coupled with the change in the block reward, will drive up the demand for Bitcoins and therefore the price, keeping more serious miners engaged. Further, he believes that mining technology will continue to improve, requiring miners to upgrade as often as annually. "No one is worried Bitcoin will go away in the next six months," he said.
"No one is worried Bitcoin will go away in the next six months."
Although the Bitcoin community has a lot of discussions about how to the refine the currency, there were no calls to oppose the coming change to the block reward. Miners seem content to accept the rules of the currency, no matter how detrimental to profits. "There was a very interesting thing that happened in January or February of this year," Vessenes recalled. "It was a little too technical for the press to cover, a change to the Bitcoin protocol that could have an escrow agent release funds. Gavin [Andresen, the lead Bitcoin developer] put it out to miners for a vote.
"There were really interesting politics at that time. People changed mining pools because they didn’t like how the mining operator had voted.
"But no miners even brought up voting for keeping [the block reward] at 50. It wasn't even mentioned," he said. "I think that’s intriguing. These are all people putting in significant time and money, and they’re not even organizing to change the issuance. It feels nice to say there’s only going to be 21 million of these coins."
Keeping the faith
Fon Duke is another Bitcoin miner who has spent $30,000 on equipment — but he lives in the California desert, and runs his rigs on solar power. He’s made back almost a third of his investment. When the new purpose-built chips went up for sale, he had to make a decision. "I was $15,000 in. I was half in on a mini-rig for $7,500 and then another $7,000 for singles and video cards. I had to basically, just like in the casino, I had to double down or cash out."
How to Simple setup USB Asic Miner Blue Fury Bitcoin miner 2.7GH/s
He pre-ordered the new chips in order to upgrade his operation. "Either I’m being very aggressive or I’m being very foolish," he said. "I wouldn't call myself a business. If anything, I’m just trying to recoup my funds. If it makes money I’ll be really ecstatic."
Bitcoin has come a long way in almost three years. Over the last month, there were more than 20,000 transactions per day done in Bitcoin, and the number of coins in circulation is valued at $114 million in today’s prices. Bitcoin is popular on the online black market, but it can also be used legitimately to buy food, electronics, computer services, and a lot more. Bitcoin got what is arguably its best endorsement yet: the popular blogging platform WordPress started accepting the ecurrency in order to bring in customers from countries blocked by credit cards and PayPal.
But as the movement struggles to go from a novelty to a serious economy. the viability of mining is increasingly critical. Eventually, the block reward will disappear altogether, all the Bitcoins will have been mined, and miners will be compensated with higher transaction fees.
"Either I’m being very aggressive or I’m being very foolish."
In theory, this monetary incentive should be enough to keep miners in the black. In practice, there are many more variables — the price of electricity, the distribution of computing power, the number of miners — that complicate the equation. Bitcoin’s price has been driven up multiple times by speculators buying and selling the currency, but it’s miners who are its biggest investors. "The amount of growth we've seen in the last year just in the Bitcoin market as a whole, then in the mining market, is staggering. I can compare it to the beginning of the dot-com era," said Josh Zerlan, COO at Butterfly Labs. "Hopefully it won't have a big dot-com crash."
Additional reporting by Evan Rodgers.
How to build a bitcoin mining rig guide
Posted by: admin
In this E-Book, I am going to share my project in creating a Bitcoin mining cluster, which I started in June 2011. I will try to include everything from beginning to the end with as much detail as possible. Most of this project was trial and error, so I will do my best to note each step of the way with all the pros and cons. I would beleive this to the most complete guide currently available for helping people understand the basics of Bitcoin mining, and actually being able to delve into it as well. Please keep in mind that my Bitcoin operation is completely handled under Linux operating systems, however I do have a few Windows based Bitcoin miners so I will provide notes, guides, and best practices for that OS as well. Also note that many of the references that I make in this E-Book are in regard to my person Bitcoin mining rigs.
If you do not know what Bitcoin is, I highly suggest you read up on the following sites:
Here are pictures of a few of my rigs:
10 steps to implement and deploy your Bitcoin Mining Rigs
Below are the 10 steps to getting your bitcoin mining rigs running. Hopefully, I will be able to answer all your questions later in this E-Book.
1. Setup bitcoin mining pool accounts
Assuming you are not solo mining, you will need to create account with 1 or more bitcoin mining pools. Discussed in section 12.
2. Find a location for your bitcoin miners
You will need to find a good place that you can keep your bitcoin mining rigs. Somewhere they will not be bothered. No kids, pets, weather, or other interferences.
3. Ensure location quality / resources (Internet, power, cooling)
You will need to ensure that wherever you keep you bitcoin mining rigs you have: An internet connection, enough power, and a suitable operating temperature with enough airflow. Discussed in section 6, 7, and 8.
4. Asses your budget
Determine how much money you have, and want to invest in bitcoin miners. Weigh the profit, loss, and risks. Discussed in section 2, and 3.
5. Decide on hardware and purchase hardware
You will need to select and purchase the best hardware according to your budget. All this is explained in section 4.
6. Build, configure, and test bitcoin rigs
You will need to be capable of building these machines from scratch. Without the knowledge of building computers, it is going to be difficult to be successful in running your own bitcoin mining rig. You must know the ins and outs of these beasts. Also discussed in section 4.
7. Obtain and implement software and scripts
There are many options to choose from. Will you be using Windows, or Linux? What kind of Bitcoin mining software will you choose? Will you decide to automate your bitcoin mining rigs? The questions will never end. Learn more in section 11.
8. Setup bitcoin proxy
Now that you have everything setup, you could centralize everything using a bitcoin proxy. This will always keep your login information the same, and allow you to manage mining pools and workers very easily. Discussed in section 13.
9. Deploy
Finally, deploy your bitcoin miners, and start generating bitcoins!
10. Overclock
When everything is running smoothly, get even more performance out of your GPUs by overclocking them. Discussed in section 9.
Here are the primary things we will cover in this E-Book:
I apologize for the order of these items, as you may need to jump around through sections to reference terms, and explanations. I did not think I would be elaborating this much.
What is Bitcoin mining?
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