Bitcoin is wildly confusing. And here’s the bad news: the fact you’re reading this now means you’re late to the game, and it’s going to be tough to turn a profit in Bitcoin mining. Nevertheless, if you want to try your hand at mining bitcoins, here we present the beginner's guide to generating bitcoins. Also see: How to make money from your hobby.
Following a dodgy patch in 2016, Bitcoin's value has recovered and actually surpassed the value of gold. At the time of writing one Bitcoin is equivalent to £1021.66, whereas an ounce of gold is equal to £981.89. This increase has been attributed to a surge in demand in China.
But now Bitcoin is once again said to be under threat, as BitTorrent founder Bram Cohen plans to launch his own crypto-currency within the next few months.
Bitcoin is overhyped, Cohen told Steal This Show, and his alternative will rely on the power of pre-existing digital storage rather than mining.
"I have this plan, a slightly crazy plan, for making something that doesn't have computers burning electricity as part of its mining," Cohen said. "The short of it is what you do instead of computers burning electricity to mine you have storage space that's mining."
If you're finding yourself baffled as to what we're talking about, please let us explain.
What is Bitcoin?
Bitcoin is a digital currency that operates independently of a central bank. Encryption is used to regulate both the generation of Bitcoin units and the transfer of the currency.
Bitcoin and terrorism - EU to clamp down on terrorism funding via Bitcoin
According to Reuters, the European Union will move to clamp down on this digital currency which has reportedly been used to anonymously fund terrorism - the Paris ISIS attackers reportedly had a Bitcoin wallet worth more than $3m.
EU interior and justice ministers will gather in Brussels later this week to discuss ways in which they can "strengthen controls of non-banking payment methods such as electronic/anonymous payments and virtual currencies and transfers of gold, precious metals, by pre-paid cards", according to draft conclusions of the meeting seen by Reuters.
What is Bitcoin worth?
In essence, the more bitcoins mined or ‘found’, the harder it is to ‘find’ more coins. While once it may have been possible to use a high-powered PC at home to mine Bitcoin on its own, the sheer popularity of mining Bitcoin means it’s viable only to join a pool. This is where your computer works alongside others to mine bitcoins. It’s much like [email protected], where clusters of computers work together to try and find extra-terrestrial life. See also: The rise of Bitcoin and why you can't mine them on your own.
Without getting bogged down with the technicalities, the groups of computers in a Bitcoin pool are crunching numbers to mine a block. For every block mined, you get 25 coins.
Update March 2017: Currently each coin is worth £1507, which is almost 10 times the value it was when we originally wrote this in 2015.
Indeed, some analysts thought in 2015 that Bitcoin was doomed. Here's what the graph looked like around two years ago:
Google's currency converter lets you check very quickly how much a Bitcoin is worth.
How to mine Bitcoin: Can you get rich with Bitcoin?
As we mentioned in the introduction, these days it's difficult to turn a profit mining Bitcoin. But it has been known, especially for early adopters of the virtual currency.
For example, the Guardian reports on how a Norwegian man’s $27 investment in Bitcoin turned into a $886,000 windfall four years later.
"Kristoffer Koch invested 150 kroner ($26.60) in 5,000 bitcoins in 2009, after discovering them during the course of writing a thesis on encryption. He promptly forgot about them until widespread media coverage of the anonymous, decentralised, peer-to-peer digital currency in April 2013 jogged his memory," reports the Guardian. At which point, they were worth a small fortune at $886,000.
How to mine bitcoins: Get started with Bitcoin mining and generate your own bitcoins
Let's say you try and mine a block of bitcoins with just one home PC. This is a bad idea: the electricity costs will be higher than the money you make from any mined bitcoins and you may have to wait months - or longer - before you get any return. By joining a pool, you should get smaller payments more regularly.
However, you could still end up out of pocket even if you join a pool such as Slush’s Bitcoin pool – one of the most popular ones. When a block is completed, you get a share based on the number of other ‘workers’ who helped mine the block. A fee – around 2 percent – will be deducted from this, and you could well earn only half the amount you’ve spent in electricity costs.
Of course, if you’re able to run the mining software on a computer for which you don’t pay the electricity bill, you might be quids in (but we don’t recommend running it on your work PC!). If you want to mine Bitcoin on a Mac, on the other hand, bear in mind the advice of our colleagues at Macworld: How to mine Bitcoin on Mac.
So, if you’re still interested, here’s a simple step-by step guide to getting started with Bitcoin mining:
Step 1. You’ll need a ‘wallet’ to start with. This is a bit like a PayPal account where your bitcoins can be stored. You can store this wallet online, or locally on your PC. You’ll need to download a large ‘blockchain file’ to use a wallet. For an online wallet, you might like to try coinbase.com. With a coinbase account, you can buy, use and accept Bitcoin currency.
Step 2. Join a pool, such as Slush’s Bitcoin pool. There’s always a danger that the pool owner might keep all 25 bitcoins when a block is mined, since the whole 25 coins are paid to one person: the pool owner.
You’ll need to choose a trustworthy pool owner. Slush’s pool was the first and has been operating since December 2010. By the site’s own words, it has a “a long history of stable and accurate payouts”.
Step 3. Install a Bitcoin ‘miner’ on your PC. There are two types: CPU and GPU. For beginners, Kiv's GUI miner is recommended. You can find out more about how to use Kiv's GUI miner here.
Step 4. Log into your Bitcoin pool account, and enter your wallet address. You will be able to get this by checking your wallet account which you created in step 1.
Step 5. Register your workers. Each worker is a sub-account within your Bitcoin pool account. You can have more than one worker running on each computer.
Step 6. Enter your worker credentials into your Bitcoin mining software, and then enter the main pool URL so your workers can start mining.
See also: How to mine altcoins