Crypto 101: Intro to Mining Bitcoin & Altcoins

by Andy Cresswell -
Crypto 101: Intro to Mining Bitcoin & Altcoins

With the rise of Bitcoin over the past 18 months has come the rise in the interest of mining and how to earn Bitcoin at home, so we thought it was about time to ask, what is Bitcoin mining, how does it work, and can you make money doing it?

‘Bitcoin Mining’ is used to identify the distributed network verification process seen in Bitcoin, and other crypto-currencies, the technical term for this mechanism is a consensus algorithm. There are two significant known variations in the blockchain, Proof of Work (POW) and Proof of Stake (POS). However, only POW will be focused on for the duration of this article as it is ‘mining focused’.

The basis for the PoW algorithm relies on solving a cryptographic hash, a puzzle that gets exponentially harder with time and lesser rewards. To calculate an appropriate answer for this mathematical estimation, computational power is required through brute force of possible combinations of hashes. A Proof of Concept puzzle is challenging to solve initially but easy to verify once complete. This allows a peer to peer validation once the mystery is translated correctly.

Bitcoin Transaction Life-cycle

Each of these puzzles is in the form of what we know as ‘blocks’, so when a miner successfully calculates the hash, they are rewarded in the generation of the crypto-currency asset. But only after when each of the other competing nodes confirms that answer is a suitable solution to the puzzle, usually six confirmations and the reward is distributed to the miner.

The miner (you) is essentially the middleman in every transaction confirming. As a result, bitcoin transactions are valid and receive a reward for doing so.

We’re sure you’re eager to start mining cryptocurrency, but it’s essential to think of everything first. Your decisions now will alter the outcome over the long term.

Mining Bitcoin vs Altcoins

Back when the Bitcoin network was first launched, it was straightforward to mine Bitcoin with your CPU, but today, 

mining Bitcoin directly is too competitive because of mining farms like the one pictured below.

btc mining farm
Industrial Size Bitcoin Mining Farm

To make any severe earnings mining Bitcoin and break even, you will need to have access to lots of space, industrial spec heat extractors, and free/cheap electricity to build a farm of power-hungry ASIC miners.

ASIC bitcoin miners use more power and output more heat, but the earnings are higher per machine on a day to day basis.

Alternative Coins (Altcoins for short) have less competitive networks and allow you to net higher returns on investment for your hardware.

At the time of writing, It’s not uncommon for an AMD RX580 to be returning in the $2 to $5 per day range and for an Nvidia 1080ti to produce around the $9 per day content before factoring in electricity costs.

Earnings Over Time, Network Difficulty & Heat Output

Let’s talk Bitcoin network difficulty and how it affects mining profits on a day to day basis.

bitcoin difficulty chart

Here is an except that accurately describes what mining difficulty is from the Bitcoin Wiki Page;

“Difficulty is a measure of how difficult it is to find a hash below a given target. The Bitcoin network has a global block difficulty. Valid blocks must have a hash below this target. Mining pools also have a pool-specific share difficulty setting a lower limit for shares.”

Put, it means that if you earn $5 today from a single GPU, there is a very high probability that you will be earning less in 12 months.

This is because the adoption of cryptocurrencies is increasing rapidly, and more miners are coming online every day, thus expanding the network difficulty. So, while you may still earn the same relative fiat value, the amount of crypto-currency you receive will reduce.

Heat output is a big issue when it comes to mining.

Even a simple 4 or 6 GPU mining rig can pump out a fair bit of heat – enough to quickly heat a room through winter with no heating on. 

If you have plans to run several rigs, you are going to need to factor in heat extraction and a fresh supply of cool air as well as the electricity bill
 – If you live in a hotter country where it’s hot all year round, then heat is going to be even more of an issue.

While you will be earning money in crypto-land, you are still going to need to be able to cover any bills that come through in advance.

This should give you a better understanding of mining, what it is and how it helps to secure Bitcoin and Altcoin networks by signing and verifying the transactions. Hopefully, you can see the power of blockchain technology and how it removes the need for central banking entities.

Are you already mining or thinking of building a mining machine? Let us know in the comments.

TLDR Don’t mine Bitcoin, mine Altcoins! In the next part of our Crypto 101 series, we will build a four GPU Ethereum mining rig from start to finish showing you how to configure everything and start converting energy into cryptocurrency.

Avatar for Andy Cresswell
Andy Cresswell

PerformancePSU Editor

Andy is the Founder & Editor of PerformancePSU with over 25 years of experience building custom PCs, watercooling and overclocking. When his thirst for more speed is under control, he is a programmer and father of one.
Reader Comments
Leave a Reply

Your email address will not be published. Required fields are marked *