How to get started with Bitcoin mining. Bitcoin mining is a lot like a giant lottery where you compete with your how to set up butterfly labs bitcoin miner hardware with everyone on the network to earn bitcoins.
What is Proof of Work? What is Bitcoin Mining Difficulty? Mining makes sense if you plan to do it for fun, to learn or to support the security of Bitcoin and do not care if you make a profit. If you have access to large amounts of cheap electricity and the ability to manage a large installation and business, you can mine for a profit.
If you want to get bitcoins based on a fixed amount of mining power, but you don’t want to run the actual hardware yourself, you can purchase a mining contract. Faster Bitcoin mining hardware is able to attempt more tries per second to win this lottery while the Bitcoin network itself adjusts roughly every two weeks to keep the rate of finding a winning block hash to every ten minutes. In the big picture, Bitcoin mining secures transactions that are recorded in Bitcon’s public ledger, the block chain. By conducting a random lottery where electricity and specialized equipment are the price of admission, the cost to disrupt the Bitcoin network scales with the amount of hashing power that is being spent by all mining participants. 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. To create a valid block your miner has to find a hash that is below the difficulty target. Because the target is such an unwieldy number with tons of digits, people generally use a simpler number to express the current target. The mining difficulty expresses how much harder the current block is to generate compared to the first block. To be fair, back then mining hardware and algorithms were a lot slower and less optimized. To keep blocks coming roughly every 10 minutes, the difficulty is adjusted using a shared formula 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. In the beginning, mining with a CPU was the only way to mine bitcoins and was done using the original Satoshi client. In the quest to further secure the network and earn more bitcoins, miners innovated on many fronts and for years now, CPU mining has been relatively futile. You might mine for decades using your laptop without earning a single coin.
About a year and a half after the network started, it was discovered that high end graphics cards were much more efficient at bitcoin mining and the landscape changed. 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. 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. That 5x improvement allowed the first large bitcoin mining farms to be constructed at an operational profit. The bitcoin mining industry was born. An ASIC is a chip designed specifically to do one thing and one thing only. Unlike FPGAs, an ASIC cannot be repurposed to perform other tasks.