There are a few factors that affect the ability for one to mine bitcoins. It can seem like a rather confusing concept. It is. Here is the computer scientist version on how to “Selfish-Mine” Bitcoin.
This is my general explanation on how to mine Bitcoin.
It comes down to a few things: computer hardware required, electricity and mining pools.
To start off here are a few terms to know:
Bitcoin Algorithm: a math problem that when solved (mined) release a bitcoin block.
Bitcoin Block: What miners are trying to uncover. One block is worth 25 BTC, and one Bitcoin is worth about $230
Blockchain: public ledger that records each bitcoin transactions between bitcoin clients.
Hash Rate: the rate at which your computing power outputs to solve the math problem, uncover a bitcoin block.
Pool: a team of people working on the same math problem.
Number One: Need capital to invest in mining hardware.
The cost of computer hardware is your initial investment when you want to start mining bitcoin.
The hardware price to mine a bitcoin is proportional to how much computing power and therefore hash rate you want to achieve.
More computing power = more hash rate
more hash rate = more bitcoins mined/time
more bitcoins mined = more money split in the pool
3 ASIC BlockErupters miners at 336m/hashes each off of Amazon. Price is 7.95 USD a block erupter so 24$ investment for ~1 G hash.
1 G hash will make you about 0.25 cents a day( if you are in a pool).
This would be a rather small investment, it would take a while to mine a block, and you probably wouldn’t be making to much money.
If you want to make a larger investment in hardware you could either:
A. Buy a ton of these ASIC miners for example 172 ASICS miners at 336m/hash = around 57G/hs for around 2,500 USD
Which will make you about 15 dollars USD a day.
B. Buy one pretty expensive supercomputer miner like CoinTerra, Butterfly Labs, for a very expensive hardware investment and get 1 T/hs and make about 260 USD a day.
C. Buy a RedFury USB miner for 100 USD that gives 2.6GH per block erupter.
NUMBER 2: Need electricity to operate the stacks of hardware and keep them cool.
A big issue with bitcoin mining is Return on Investment. The major issue with the ROI of bitcoin mining is not only in the hardware itself, it is because you have to keep these computers running at all times and this leads to increases in energy bills. With margin profits small to begin with, often the increase in electricity cost often offsets any profit that one may get while mining bitcoins.
You could set the rig in a state here you can get the best rate of USD/kWh. This could make a small difference. So instead of setting up your rig in california at 15 cents per kWh you can set up your rig in another state where it more around 10 cents. Or you can set up a rig internationally somewhere like Indonesia where electricity only costs three cents per kilowatt hour. Another way to reduce costs is by installing PV or solar thermal systems that can provide some of the energy. However this does require an additional investment.
Maximize your Mining Team/Pool.
Publish your uncovered blocks to the bitcoin ledger.
I will go into details on about mining pools in a later post.
Mine Using a Raspberry Pi.
Understand that you will benefit financially in proportional to how much you want to invest in computing power.