A guide to help you decide if you should start mining Bitcoin and what to do in order to get started.
Mining Bitcoin and other cryptocurrencies is not a simple task.
Competition in the mining industry is fierce and many variables need to be considered when selecting mining rigs and setting up your facility.
This guide is for anyone who is completely new to mining. If you’re looking to mine at home to make some money or just as a hobby, we’ll tell you everything you need to know so you can start mining Bitcoin as soon as possible.
Profit is the biggest motivation to get into mining. Simply put, if your cost to mine 1 BTC is lower than the current BTC price, then mining allows you to accumulate BTC at a discount. In other words, if the current Bitcoin price is $20,000 and you can mine 1 Bitcoin for a total cost of $15,000, then you have a 25% profit margin. This is effectively similar to purchasing Bitcoin at 25% below the market price.
And certainly there is money to be made in this industry. At the time of writing this article, the daily revenue earned by miners is over $18.8 million, totaling up to about $6.87 billion annually. That being said, the industry is incredibly competitive, and slicing out your piece of the revenue will be difficult.
But did you know there are other benefits to mining?
For one thing, mining enables people to acquire KYC-free crypto.
Why is that important? Well, purchasing cryptocurrencies through an exchange typically requires that you reveal your identity due to Know Your Customer regulations. This leaves you susceptible to tax liabilities, confiscation of your Bitcoin if it’s stored by a custodial service, and being blocked from using other regulated services. If you mine your BTC directly, it’s not tied to your identity.
Besides that, another reason to get into cryptocurrency mining is as a hobby if you are engineering-minded or simply want to better understand this important aspect of Bitcoin. As we will get into later, there are so many variables in any mining operation that make for a fun challenge.
There is also a more noble reason to mine, even on a small scale. By mining, you're contributing to Bitcoin’s decentralization — the core tenant that makes BTC revolutionary.
Whether you're mining to make money, starting a new hobby, or simply contributing to Bitcoin’s decentralization, mining is not easy. Regardless of your reason, this guide will walk you through the entire process.
Don't expect to make a business out of mining just by downloading some software. Those days are long gone.
However, that doesn't mean you can't make money. Rather, it means it will be very difficult to create a sustainable business unless you have a competitive edge, such as access to extremely cheap electricity or a way to cheaply acquire ASICs (the computing machines built specifically for mining).
You see, electricity price and hardware (ASIC) costs are the two most important variables in mining profitability. Procuring ASICs is a capital expenditure (CAPEX), which means that you pay the cost before you start mining and use your revenue to get a return on that investment over time. When you consider the daily profitability of mining, it’s important to factor in how much time it will take to pay off the CAPEX of setting up the operation. This is commonly referred to as “days to break-even.” For example, if you purchase an ASIC for $1000 and earn an average profit per day of $10, then your days to break-even would be 1000 divided by 10, so 100 days.
Meanwhile, your main operational expenditure (OPEX) is electricity to power the ASICs. The cheaper your electricity, the faster you can pay off the CAPEX and start making a real profit. Most miners today pay between $0.03 - $0.06 / kWh (killoWatt hour) for electricity, with some exceptions on either side of the spectrum. If you cannot find electricity in this price range, it will be difficult to mine profitably in the long-term.
Before we move on, there is a bit more nuance to explain about electricity prices. They can be presented in one of two ways:
If you host your ASICs in a 3rd party mining facility (more on this in the next section), it is common to pay more than $0.06/kWh all-in. This is because you as the miner don’t have to pay for the mining facility infrastructure and basic management, so those externalities are included in your all-in electricity price.
Setting your expectations for how much you can reasonably make from mining before investing time and money will drastically change your experience. Like we mentioned earlier, at home mining is mostly done as a hobby with some money to be made as a small bonus.
With that said, let's discuss what you will need to get started so that you can maximize the amount of money you can make from mining.
Before deciding which ASIC miner to purchase, you need to determine if you have the environment to properly run a mining operation. This comes down to 4 basic requirements:
The reality is, running miners at home is disruptive and requires a lot of setup work for most people. It's not as simple as plug and play. So if you want to get into mining at a small scale, you’ll have to keep these factors in mind.
An alternative option is to purchase your miners and find an industrial location to host them. There are numerous hosting facilities around the world where you can get better electricity prices than the typical residential area. We recommend that you look into this as an option if you want to scale beyond 1 or 2 ASICs. Compass mining is a good resource for finding a hosting provider in your region: https://compass.hashr8.com/. Alternatively, if you decide to buy Bitcoin instead of mining we recommend doing some research before you do so too.
The first decision you have to make once you’re committed to becoming a miner is which ASIC or ASICs you’ll mine with. We’ll break down all the factors you should take into consideration when making this decision.
As with most things, you can save a lot of money here by purchasing used ASICs instead of brand new ones. For example, the 2020 generation of miners typically sells for between $3000-$4000 each — a large investment if you are mining on a small scale, be it from home or with a hosting facility.
Luckily there is a thriving peer-to-peer market for used miners. However, they are not easily found on the web. Rather, they often take place in Telegram groups or other chat messaging platforms. You should also be aware that these secondary markets for miners can contain fraudsters, so it is strongly recommended to only purchase from verified sellers.
As for what types of machines you should look for specifically, that depends on your appetite for risk and your environmental factors.
When selecting the right miner, the most important factors are:
Ultimately, these factors come together to determine your cost of production. We have a calculator which shows you this cost to mine 1 BTC for every popular ASIC on the market with the current BTC price and difficulty. For example, here’s the cost to mine 1 Bitcoin with a very popular ASIC in 2020, the Whatsminer M20S.
You can see that with the price ($19k) and difficulty (18.67T) at the time of writing this article, your electricity price needs to be below $0.118/kWh in order to make a daily profit from mining. With an all-in electricity price of $0.06/kWh, you would have a margin of over $9.5k per BTC mined! This is equivalent to purchasing Bitcoin at a ~50% discount. However, be careful! You need to factor in the cost of purchasing the miner as well.
For example, with the daily profit of $4.8, it would take you 167 days to pay off the up-front cost of the Whatsminer M20S if you paid $800 for it. If your margin shrinks during that time, it will take even longer. And of course, if you are not making a profit after paying your electricity bills, then the remaining cost of the ASIC will be a loss.
Currently, miners manufactured by Bitmain and MicroBT far outpace any other competitor in terms of hash rate, efficiency, and reliability. The Antminer S9 from Bitmain has thus far been the most dependable ASIC, with many still operating today after the original release took place in 2016. However, the lead engineer who designed the S9 later worked at MicroBT and helped design the Whatsminer M20S, which is widely regarded as the next-in-line for the title of most dependable ASIC model long-term.
Other manufacturers exist such as Canaan, Innosilicon, and Ebang. However, they are considered lower quality than Bitmain and MicroBT, so manage your expectations if you see these devices being sold for cheaper prices on a secondary market.
Many other models exist and may be more suitable for your operations. See this chart for a comparison between miners on the market.
Mining pools are a critical part of the modern cryptocurrency mining business. The reason that they are called “pools” is that they pool (i.e. aggregate or combine) the hashrate of many miners together. This is done in order to increase the frequency that the miners find blocks and thus earn revenue, making it more stable.
Nowadays, joining a mining pool isrequired to earn consistent payouts. There are only about 144 blocks mined per day on the Bitcoin blockchain, while there are many thousands of miners. This means that any miners who don’t have HUGE operations will not earn revenue very frequently if they try to mine on their own. It wouldn’t be a stable business operation.
Mining pools enable miners to work together by combining their hashrate. This gives miners smaller but more consistent payouts.
Our pool, Slush Pool, is the 1st mining pool ever created, with more than 1.25M BTC mined since 2010. We are also the largest pool outside of China, with a strong track record of contributions to the mining space including the original stratum protocol in 2012 and the new Stratum V2 protocol that improves efficiency and security while also addressing Bitcoin’s mining centralization concerns.
It’s extremely easy to join a mining pool. You simply set up an account with the pool of your choosing and then copy the pool’s URL into your ASIC miner’s web interface. Don’t worry if it sounds complicated! Below is a video tutorial walking you through the ASIC configuration where you can see how to set your pool URL.
Finally, once you have your operation set up and your ASICs in-hand, one last thing you can do to improve your mining profitability is use a custom firmware to optimize ASIC performance. At Braiins, we develop a specific type of firmware that does autotuning, called Braiins OS+. The simple description for this is that it automatically tests different frequencies and voltages for your ASIC to find the settings that will mine most efficiently.
For example, you can optimize Antminer S9 efficiency with Braiins OS+ to achieve an uplift of approximately 20%. While the stock firmware for the S9 would have these stats:
The S9 with Braiins OS+ would instead have these stats, with all other variables like price and network difficulty held equal.
The efficiency increase from 85.9 W/TH to 77.3 W/TH which is provided by autotuning may not seem like much, but mining is a business with very small margins. That efficiency increase uplifts the profit per day from $0.23 to $0.44, nearly double!
Last but not least, we have a tool that can help you estimate your long-term profitability if you do start mining.
Keep in mind, this will always be a very rough estimate because it is so dependent on Bitcoin’s volatile price. Besides price, profitability also depends on your hardware cost, hash rate, power consumption, electricity cost, and the network difficulty.
This is why we built the Mining Profitability & Cash Flow Calculator. This is the most sophisticated yet user friendly app for making long-term projects. We’ll provide an example to show you how to use it.
The end result, as you can see, is that after 2 years you earn a cumulative profit of $1443 and the hardware is worth $647. This gives a final cash flow of $1443 + $647 - $1500 = $590 ROI for two years of mining. The magnitude of the ROI should give you a good idea of how difficult it is to make a living professionally as a miner. If you’re still eager to start mining even with this understanding of how difficult it is, then it will be a fun challenge!
With all of this information, your next step is to take action. For some of you that may mean simply buying BTC and forgetting about the dream to start mining. For the rest, we hope your mining endeavors are successful and we’ll see your hashrate on Slush Pool!
Bitcoin mining company: Slush Pool, Braiins OS+ & Stratum V2.
By miners, for miners.