Getting Started with Bitcoin Mining

What Is Bitcoin Mining?

Bitcoin mining refers to the process of creating new bitcoin and serves as the foundation for validating transactions. Bitcoin has a hard cap on issuance, with the total supply ultimately limited to 21 million coins. Those who perform mining are known as “miners,” and they compete to obtain newly minted bitcoin.

Mining plays a crucial role in verifying bitcoin transactions and adding them to the blockchain. Specifically, miners confirm the legitimacy of transactions, group them into blocks, and attach these blocks to the chain, ensuring data integrity. This process maintains the reliability and transparency of the bitcoin network as a whole and helps prevent fraudulent activities like double-spending.

Beyond simply generating bitcoin, mining is also the core technology supporting the security of the decentralized network. The global competition among thousands of miners strengthens the network’s resistance to tampering, enabling secure transactions without a central authority.

How Bitcoin Mining Works

Bitcoin runs on blockchain technology and operates within a decentralized network. Each transaction is bundled into a block, and as these blocks are linked together, they form a tamper-resistant record of transactions.

The Proof of Work (PoW) mechanism involves miners approving transactions by solving specific mathematical problems. This process requires discovering a particular value called a “nonce,” demanding extensive trial and error and substantial computing power—thus specialized equipment is used.

The first miner to solve the problem earns the right to add a new block to the chain and receives bitcoin as a reward. This reward, called the “block reward,” includes newly minted bitcoin and transaction fees. In recent years, as the network has grown, mining difficulty is automatically adjusted so that a new block is generated approximately every 10 minutes.

Three Main Methods of Bitcoin Mining

There are three main approaches to bitcoin mining, each with unique characteristics. The best choice depends on your financial resources, technical know-how, and risk tolerance.

Solo Mining

Solo mining means assembling your own hardware and mining independently. The biggest advantage is that you keep all the rewards, but the chances of success are extremely low.

Recently, well-funded miners and large-scale mining farms have concentrated mining power, making it extremely difficult to mine major cryptocurrencies like bitcoin. For example, solo mining with a high-performance GPU-equipped PC could, in theory, yield a reward once every 500 years. Considering the initial and ongoing costs (electricity, cooling, etc.), solo mining for bitcoin is rarely economically practical.

However, with new or lesser-known cryptocurrencies, competition among miners is lower and success with modest hardware is more feasible. If pursuing solo mining, consider mining assets other than bitcoin as a strategic alternative.

Pool Mining

Pool mining involves multiple people contributing computational power in a mining pool, working as a team. This is the most realistic and popular method for individual miners.

By combining computational power, you greatly increase your odds of mining success compared to solo mining. Rewards are distributed fairly according to each member’s contribution, stabilizing income. For example, you may receive small rewards daily, making cash flow more predictable.

The trade-off is that even if your individual mining performance is high, rewards are shared among team members, so payouts are smaller than for solo mining. Pool operators also charge fees, further reducing net income. Still, for those prioritizing stability and predictability, pool mining is highly recommended.

Cloud Mining

Cloud mining involves investing in organizations or companies that conduct mining as a business and receiving mining rewards as dividends. This approach is more akin to investing in a mining company than mining directly.

The biggest benefit is that you don’t need to acquire computers or electricity, and you can start without technical expertise. No need for hardware purchase, installation, maintenance, or power management—just sign a contract to participate. Many services offer low entry costs, making it attractive to beginners.

However, you must carefully vet providers. In the past, some companies have run Ponzi schemes, using investors’ funds to pay dividends without actual mining. Always research the provider’s track record, transparency, and user reviews to confirm credibility.

How to Start Bitcoin Mining as an Individual: Required Equipment Overview

As noted above, individuals can technically mine bitcoin if they have the right hardware, such as for solo mining. However, to earn actual profits, you need suitable equipment and an optimal environment.

The most efficient way to mine bitcoin is with an ASIC (Application Specific Integrated Circuit)—hardware designed specifically for bitcoin mining. ASICs are purpose-built chips that cannot be used for other applications but deliver outstanding mining performance.

Mining can also be performed with CPUs (Central Processing Units), GPUs (Graphics Processing Units), and FPGAs, but for bitcoin, these are inefficient. While CPU mining worked in bitcoin’s early days, increased difficulty has made it virtually impossible. The best machine depends on the hash algorithm used for the targeted crypto asset.

Mining difficulty is automatically calculated based on the network’s total hash rate and rises as more miners join. Even using the same equipment, your mining success rate drops over time. To compete, you need high computational power and low-cost electricity. Mining consumes significant electricity, so high electricity costs can substantially eat into profits or even lead to losses.

Types of Mining Equipment

Mining hardware falls into three main categories, each suited for different scenarios.

ASIC

ASICs are specialized devices delivering top mining efficiency. Designed for bitcoin’s SHA-256 algorithm, they offer superior hash rates. Prices are high (from several thousand to tens of thousands of dollars), but ASICs are essential for serious miners.

ASICs are limited to specific algorithms and cannot mine other crypto assets. Rapid technological progress means regular hardware upgrades are needed as devices become obsolete within years.

GPU

GPU mining offers lower upfront costs than ASICs and can be used for a variety of cryptocurrencies beyond bitcoin. For assets like Ethereum that are well-suited to GPU mining, profitability can be strong.

GPUs are versatile—they can be used for mining, gaming PCs, AI, or machine learning. However, for bitcoin, they are much less efficient than ASICs and thus less profitable.

CPU

CPU mining was common at the start but is now nearly obsolete. In bitcoin’s early era, standard PC CPUs could mine effectively, but rising difficulty has made CPUs noncompetitive.

Some smaller cryptocurrencies may still support CPU mining, but for bitcoin, you cannot even cover electricity costs.

Choosing and Acquiring a Mining Rig

If you opt for GPU or ASIC mining, you’ll need to buy and set up the appropriate hardware at home. Choosing the right rig is a critical investment decision.

Once you’ve finished your calculations, purchase your mining rig. Consult review sites and tech forums to pick a miner that matches your budget and goals. Here are examples of popular mining devices:

1. Antminer S19 Pro

   • Power Consumption: 3.25 kW
   • Hash Rate: 110 TH/s
   • Price Range: About $10,000–$19,600
   • Features: Best-in-class, industry-standard

2. AvalonMiner 1246

   • Power Consumption: 3.43 kW
   • Hash Rate: 90 TH/s
   • Price Range: $4,000–$5,300
   • Features: Excellent cost performance

3. AvalonMiner A1166 Pro

   • Power Consumption: 3.4 kW
   • Hash Rate: 81 TH/s
   • Price Range: $2,200–$2,850
   • Features: Balanced for intermediate users

4. WhatsMiner M32-62T

   • Power Consumption: 3.348 kW
   • Hash Rate: 62 TH/s
   • Price Range: $1,075–$1,400
   • Features: Entry-level for beginners

5. WhatsMiner M30S++

   • Power Consumption: 3.472 kW
   • Hash Rate: 112 TH/s
   • Price Range: $9,900–$14,000
   • Features: High performance and stability

6. Ebang EBIT E11++

   • Power Consumption: 2 kW
   • Hash Rate: 44 TH/s
   • Price Range: $2,024
   • Features: Energy-efficient

7. Bitmain Antminer S5

   • Power Consumption: 0.56 kW
   • Hash Rate: 62 TH/s (Note: This figure may be inaccurate)
   • Price Range: About $500
   • Features: Older model, low-cost

Note: Prices above fluctuate with market conditions. Always check current pricing and availability before purchasing.

Setting Up a Wallet

To receive mining rewards, prepare a highly secure crypto wallet. There are several types to choose from.

Hardware wallets (air-gapped wallets) are physically separate from the internet and provide the highest level of security. They are recommended for long-term storage of substantial assets.

Software wallets are apps installed on computers or smartphones—convenient but more vulnerable to hacking. Use software wallets for mining payouts and periodically transfer funds to a hardware wallet for safety.

Once you validate and approve blocks, rewards are automatically sent to your wallet address. Since wallet addresses can be difficult to change, choose carefully.

Joining a Mining Pool

When mining major cryptocurrencies like bitcoin, joining a mining pool is highly recommended. With individual computing power, the odds of solo block discovery are extremely low.

Joining a mining pool combines the hashing power of many miners, increasing mining speed and reducing difficulty for each participant. This makes it easier and more reliable to earn rewards.

When selecting a pool, focus on:

• Reward distribution method: Proportional or pay-per-share
• Mining and withdrawal fees: Typically 1–3%, but varies by pool
• Block discovery frequency and pool track record: Larger pools tend to yield more stable income
• Withdrawal convenience: Minimum withdrawal amounts and frequency limits
• Pool stability and transparency: Track record, uptime, and published statistics

Proportional Mining

This system pays miners based on the amount of hash power they contribute. Rewards are only distributed when the pool mines a block.

This method is more profitable when bitcoin prices rise sharply, as increasing rewards can offset lower mining efficiency due to rising difficulty. However, until a block is found, rewards are zero, so income fluctuates greatly.

Pay-Per-Share (PPS) Mining

Rewards are split based on each miner’s contribution to the pool’s total hash rate. Miners get paid for submitted shares even if no block is mined, which stabilizes income.

This approach guarantees fixed payouts and suits miners who value stable returns, especially during periods of low bitcoin prices. Since pool operators take on more risk, fees are often higher.

Obtaining Mining Software

Finally, you’ll need mining software to control mining operations and manage communication with the pool.

Some pools provide proprietary software, but most use general-purpose mining apps. Most mining software is free and open source, so you don’t need to budget for it.

Popular mining software includes:

• CGMiner: Oldest and most widely used
• BFGMiner: Advanced customization, forked from CGMiner
• EasyMiner: Beginner-friendly with graphical interface
• Awesome Miner: Centralized management for multiple rigs

Choose software that fits your operational needs. Once setup is complete, you’re ready to mine.

How Individuals Can Start Pool Mining

As noted, solo mining is no longer practical due to intense competition. Here’s a step-by-step guide for individuals starting pool mining.

Set Up a Mining Computer

Mining PCs should ideally feature GPUs (Graphics Processing Units). NVIDIA and AMD dominate this space and are widely trusted.

GPUs are usually installed in “graphics cards.” Using multiple high-performance graphics cards can greatly boost mining efficiency.

While it’s technically possible to mine with a CPU-only PC, processing power is much lower than with GPUs. Since pool mining rewards are distributed by computing contribution, CPU-only mining is inefficient and may not cover electricity costs.

When building a mining PC, pay attention to:

• Cooling system: GPUs run hot and require proper cooling
• Power supply unit: Needs stable, high output (1000W+ recommended)
• Motherboard: Must support multiple GPUs

Install Dedicated Software

After assembling your PC, install mining software from pool operators or open source communities.

With the right software, you can join a mining pool and start mining. Setup requires information such as the pool’s server address, port number, wallet address, and worker name.

Beware of vulnerable or fake software containing malware. Download only from official sites or trusted repositories. Keep software updated for security and optimal performance.

Steps to Start Cloud Mining

As noted, cloud mining involves investing in a bitcoin mining company and receiving dividends. You don’t need your own hardware or electricity, and no technical expertise is required, making it ideal for beginners. Here are the key steps:

Step 1: Choose a Cloud Mining Provider

Provider reliability is critical. Check:

• Reputation and reliability: User reviews, years in business, industry ratings
• Transparency: Physical mining facility, real-time stats
• Contract terms: Duration, cancellation, hidden fees
• Support system: Languages and quality of support
• Payout track record: Test withdrawals, even small amounts

To avoid fraud, steer clear of providers offering unusually high returns or unclear business backgrounds.

Step 2: Select a Plan

Pick a plan that matches your budget and objectives. Consider:

• Contract duration: Short-term (months) or long-term (years)
• Hash rate: Amount of computing power purchased
• Fee structure: Upfront, maintenance, electricity fees
• Expected return: Past performance and future forecasts

Long contracts often have lower unit costs, but crypto market volatility is a risk. It’s wise to start with a short-term contract.

Step 3: Create an Account and Start the Contract

Register on the provider’s website. Usually required:

• Email address
• ID verification (for KYC)
• Payment method (credit card, bank transfer, crypto)
• Wallet address (for rewards)

Provide required info, choose payment, and start your contract. Make sure to fully understand terms and contact support for any questions before signing.

Step 4: Monitor Mining Status

After starting, monitor status via the provider’s platform. Most display:

• Current hash rate
• Total mined amount
• Estimated earnings
• Network difficulty

Earnings are credited periodically (daily/weekly). Log in regularly to ensure your contract is running as expected.

Step 5: Withdraw Earnings

Earnings accumulate in the provider’s wallet. Once you reach a set threshold, withdraw to your own wallet.

Check minimum withdrawal limits and fees in advance. For tax purposes, save all transaction records.

Key Points for Cloud Mining

Fraud risk is high if you choose an unreliable provider. Mining earnings may fluctuate significantly due to changes in bitcoin price and mining difficulty. Review contract terms, understand the risks, and invest carefully. Past cases include Ponzi schemes where investor funds were paid out as dividends without actual mining.

Mining Power Consumption and Cost

Bitcoin mining requires advanced computers running 24/7, resulting in substantial electricity costs. Electricity is one of the largest factors affecting mining profitability.

Recent research estimates annual bitcoin mining electricity usage exceeds 140 TWh—comparable to a mid-sized country. For context, this is about 15% of Japan’s annual electricity consumption.

Such huge power consumption is often criticized for environmental impact. Increasingly, mining facilities are turning to renewable energy to reduce their footprint—a major industry challenge.

For individuals, maximizing profitability means choosing regions/times with cheap electricity, using efficient hardware, and optimizing cooling to reduce waste.

Calculating Mining Profitability

Once you choose an asset to mine, first calculate profitability to confirm it’s worth your investment.

Mining profitability typically depends on:

• Current rewards: Number of tokens earned (block reward + transaction fees)
• Hash rate: Mining device computational power
• Difficulty: How hard it is to mine at a given time
• Electricity costs: Per kWh, varies by location
• Power consumption: Device wattage
• Pool fees: Usually 1–3% if mining via a pool
• Asset price: Market price of the mined crypto
• Initial investment: Equipment payback period

Weigh all these to calculate ROI and net profits.

Example Calculation

Suppose these conditions:

Assumptions:

• Miner: Bitmain Antminer S19 Pro
• Hash rate: 110 TH/s
• Power consumption: 3,250W
• Electricity cost: $0.10/kWh
• Bitcoin price: $30,000
• Pool fee: 2%
• Network difficulty: recent average

Calculation:

1. Daily power usage: 3,250W × 24h = 78,000Wh = 78kWh

2. Daily electricity cost: 78kWh × $0.10 = $7.80

3. Daily bitcoin earnings: 0.0007 BTC × $30,000 = $21.00

4. Pool fee (2%): $21.00 × 0.02 = $0.42

5. Daily net profit: $21.00 – $7.80 – $0.42 = $12.78

6. Monthly net profit: $12.78 × 30 = $383.40

7. Annual net profit: $383.40 × 12 = $4,600.80

8. Payback period: $15,000 ÷ $383.40/mo ≈ 39 months (~3.3 years)

Important notes:

This is a static model—actual results depend on:

• Bitcoin price volatility (major risk)
• Increasing difficulty (rises over time)
• Hardware degradation/failure
• Electricity price changes
• Block reward halving (every ~4 years)

When investing in mining, plan for worst-case scenarios and maintain a safety margin.

Bitcoin Earned from Mining Counts as “Income”

Bitcoin received from mining is also considered taxable income, not just trading profits from exchanges. This treatment is common in many jurisdictions.

Japan’s National Tax Agency states that income equals the market value at acquisition minus mining expenses (hardware, electricity, etc.).

Hardware, electricity, pool fees, and internet costs can be claimed as expenses—keep all receipts and statements. Proper expense reporting reduces taxable income and tax burden.

Tax Filing Requirements

If your income exceeds certain thresholds, you must file a tax return and pay taxes. Bitcoin mining income is usually classified as “miscellaneous income.”

Not all income requires filing. You must file if:

• Sole proprietors earn mining income as a side business: Any amount
• Salaried employees with annual income above ¥20 million earn mining income: Any amount
• Salaried employees with annual income below ¥20 million earn over ¥200,000 in mining income: Must file for miscellaneous income over ¥200,000

If these apply, file and pay taxes as required. Failure to file may result in penalties.

Key Tax Points

• Taxed at acquisition price: Mining income is based on the market price when received
• Taxed on sale: Selling mined bitcoin is also taxed (not double taxation; treated separately)
• Recordkeeping: Keep detailed records of mining rewards, expenses, and transactions

If you have tax concerns, consult a crypto-savvy tax professional.

Summary

Bitcoin mining requires advanced computing power and considerable electricity, making it expensive for individuals. With increased competition, solo mining is no longer practical for most people.

Individuals interested in bitcoin mining should consider these realistic options:

1. Pool Mining: Collaborate with other miners for stable income. Requires hardware and technical expertise, but offers transparency and personal control.

2. Cloud Mining: Invest with professional operators for dividends. Lower upfront investment and no technical skills needed, but provider selection and fraud risk are critical.

3. Mining Other Cryptocurrencies: Consider less competitive coins. Assets like Ethereum Classic or Monero support GPU mining and may offer better returns.

Before starting, thoroughly evaluate:

• Profitability: Realistic forecasts accounting for electricity, hardware costs, and rising difficulty
• Risk management: Crypto price volatility, hardware failure, regulatory changes
• Tax compliance: Proper income reporting and tax payment
• Environmental impact: Electricity usage and renewable energy adoption

With the right preparation and knowledge, individuals can participate in bitcoin mining. Beware of “easy profits”—success depends on careful research, planning, and choosing the approach best suited for you.

FAQ

What Is Bitcoin Mining? (Beginner-Friendly)

Bitcoin mining is the process of creating new bitcoin and validating transactions. Miners perform complex calculations to add new blocks to the blockchain, earning bitcoin rewards. This process is vital for network security and reliability.

What Equipment and Initial Costs Are Required to Start Bitcoin Mining?

To start bitcoin mining, you need a high-performance ASIC miner and initial costs of approximately ¥400,000–¥3,600,000. You’ll also need a power supply, cooling system, and network equipment.

Can You Make Real Profits with Bitcoin Mining? How Profitable Is It?

Yes, you can make a profit. After electricity and fees, actual earnings are around $17,935, with payback typically under a year. Profitability is highly dependent on device efficiency and electricity costs.

How Do You Choose the Right Mining Hardware (GPU, ASIC)?

ASICs are highly efficient for specific coins but require higher initial investment. GPUs offer flexibility for multiple coins but lower efficiency. Choose based on your target asset and budget.

What Are the Risks and Key Points in Bitcoin Mining?

Major risks include poor profitability from high electricity costs, reduced earnings due to bitcoin price volatility, declining rewards with increasing difficulty and halving events, and tax liabilities—mining income is subject to taxation.

What’s the Difference Between a Mining Pool and Solo Mining?

Mining pools let multiple miners share rewards for more stable income. Solo mining allows individuals to keep all rewards but has lower success probability and greater income variability.

Is It Realistic to Start Bitcoin Mining at Home?

It’s possible, but there are challenges. Individual mining is less profitable; pool mining is more efficient. High electricity costs and hardware investments require careful financial planning.