As you already know Bitcoin is an internet-based digital currency. But as with any other currency it needs to has some kind of payment units. Somewhere in Africa the payment units may be still rhinos` horns or sea shells. In developed world you have all kinds of colored papers with presidents` portraits on them which they call banknotes.

So, the only way to get solvent somewhere (or middle of nowhere) in Africa is to hunt rhinos or dive for sea shells. In US and EU the states are printing colored papers. But what about coins and paper banknotes in Bitcoin? Who issues them?

Well, the answer is simple – users of Bitcoin are creating their own money in a process called mining. And for many Bitcoin users mining turned into profitable business, for others – just into a hobby. Let`s take a look how this mining thing works.

Mining defined

Mining in Bitcoin is a cryptography-related task of finding so-called new blocks. These blocks algorithmically verifiable cryptographic units which allow to identify single coins and their transactions between Bitcoin users.

In order to find a new block users need to use quite an amount of computing power to check different possible variants of such a block. The user who finds the block which corresponds to Bitcoin`s cryptographic algorithms is awarded with certain amount of coins. During this process the miners compete with each other. It is the first user to find a valid block who is given an award.

Stakes are getting higher in mining

At the time of writing a new block is mined every 10 minutes with the award for finding a block equalling 25 BTC. It worth noticing that the difficulty of finding blocks is increasing with time. Moreover, the reward for finding a block is decreasing as more coins are mined. The rewards are halved every 210 000 blocks are solved. After the number of coins will reach 21 million the mining will stop at all.

At the very beginning of Bitcoin functioning one of the core developers offered 10 000 bitcoins to anyone who would bring two pizzas to his house. Now he could easily get $190 000 for these money. I wonder, what kind of pizza is worth that money?

It all sounds like a joke but in fact at the very beginning of Bitcoin network the price of coins was extremely cheap. But as more people joined mining and invested their trust and their computing capacity as well as electricity costs into mining the price of bitcoins started rising. So, though the mining has become way more expensive than at the beginning of Bitcoin the coins themselves rose in price from 4 cents to 19 US dollars.

Increasing efforts related to mining are also stimulated by increasing difficulty level of calculations related to finding new blocks. Increasing difficulty levels means more powerful hardware is needed for calculating next blocks. Actually, difficulty level increases every 2016 blocks. Such a measure is necessary to insure that no single group of users or owners of the powerful data-centers can reach the 51% of the processing power of Bitcoin network which can compromise network’s security.

Controlled currency supply

If you think from a different perspective Bitcoin reminds more of gold than of any unsupported currency. And mining process is also designed in a manner to emulate real-world processes of getting a scarce resource. Just like during any gold rush the first-comers and pioneers get their lion share of rewards while for those coming later more efforts required to get their share of shining metal.

With Bitcoin the real gold is trust arriving as more people join it and invest in it and constant checking of all transactions for their validity. Those who mine are actually providing means for all the Bitcoin users to later check if this or that payment inside the network is a valid one.

Video cards vs CPUs

As we have already seen Bitcoin mining is extremely computing power intensive process. But if you think about your new-and-shiny CPU – well, it is not the case. In fact these are GPUs (graphic cards) which are way more efficient at Bitcoin mining. And to mine successfully and efficiently you’ll need some of the newest and most advanced of the video cards available on the market.

Many novice users wonder why it is namely the GPU which is best for mining bitcoins. The answer is quite simple – the process of finding new blocks is a computing-intensive cryptography task. This cryptography task involves a ming-boggling number of small operations each requiring a small amount of processing power. And that is where modern video cards clearly win over CPUs.

The reason for that is their architecture. GPUs are designed to make a whole bunch of small calculations in order to calculate how each pixel should look on the screen. That is why GPU is literally crammed with small computing units each capable of making small operations. And that makes it better suited for cryptography-related operations.

It is not that CPUs are weaker, they are just architecturally aimed at somewhat different tasks. CPU is the master and commander of the computer, a conductor in the orchestra of your computer coordinating the work of whole bunch of different devices. Also CPU is better than GPU suited for calculating complicated algorithms and math.

In any way, if you want to mine bitcoins efficiently, you`ll need to use GPU, not CPU. Of course, there are applications like cpuminer which still allow mining with CPU, but they are not really efficient for mining coins.

Mining types

Just as like there are different ways to search for gold or mine other scarce resource there are different ways of bitcoin mining. Currently there exist several of them:

Solo mining. A miner tries to find valid blocks using his own computer resources

Pooled mining. A coordinated group of users unite their computer processing capacities into pools to have more chance of finding blocks

Rig mining. A miner or group of miners buy or rent themselves a bitcoin mining rigs – specially designed computers aimed at high-speed bitcoin mining.

Let`s take a look in more detail at each of these mining types.

Solo mining

Solo-mining is quite simple – all you need to start it is to download one of the many mining applications, provide it with your Bitcoin wallet address and that’s it – the application starts looking for a block and generating users some awards.

That how it was at the very start of the Bitcoin. But with rising numbers of miners competing for a block, smaller amounts of bitcoins per valid block and increased level of difficulty of calculations needed solo-mining is possible only if you have a really powerful hardware.

There are some examples of people who are still earning their bitcoins by solo-mining. In order to do that they set-up something that may remind of a datacenter-in-the-cellar. Indeed, you will need:

·Many computers with multi-GPU setups

·Decent internet connection

·Reliable power supply

·Cooling system

All these things may cost quite a lot. Some known setups for solo-mining would cost from 30 000 to 60 000 US dollars.

Of course, things change if you are an admin at your university cluster ;) But if you have just one, even really cool and powerful computer – there is no point of going solo. You do not want for months to get your first awards arriving, right?

Pooled mining

At the very start of Bitcoin even someone very modest computer could generate hundreds of bitcoins even with CPU. But currently mining requires more than just powerful computer with ultra-powerful video card. In fact at the time of the writing of this article so-called solo mining (when a single user tries to mine a block) is not wide spread.

The reason is simple – even users with a GPU capable of calculating 1 Gigahash per second will wait for too long before they will mine one block. Even those users that have specially dedicated “mining farms” with multiple computers and video cards working in parallel with total capacity of over 100 Gigahashes per second may wait for up to 3 days in order to get their coin.

That is why a safe way for many users to get their bitcoins is to join so-called Bitcoin mining pools. Bitcoin mining pool is, actually a server which coordinates the work of some number of users with one or two computers which capable of mining but not powerful enough for solo mining.

In most cases bitcoin mining pools work in this way:

Pool gives its users some data to solve

mining pool member finds a valid block the award is provided to the pool coordinator

3.Pool coordinator provides every user with equal share of their common award while leaving himself some pool fee (several percents)

Of course, there are various pools with different setups and conditions of cooperation, but the core essence of the pool is the same – it is something like a cooperative aimed at mining together. The most popular pools and information on them are listed on the Bitcoin Wiki.

If you are not a professional in bitcoin mining than pooled mining is a type of mining for you to start with. Since different pools use various setups for organizing their work take some time to figure out their key technical and organizational aspects. Than choose the one you like best and start earning your bitcoins.

Rigs

Besides solo-mining and pool-mining there are arriving some other interesting variants of bitcoin mining. They are geared towards more professional-minded users. These are so-called Bitcoin rigs – computers or groups of computers which are made especially for Bitcoin mining.

Currently there exist a bunch of companies selling Bitcoin rigs. You can find them by visiting Bitcoin Wiki or just plain search at Google for Bitcoin mining rigs – you’ll get plenty of results. If you are relatively new to Bitcoin mining we would advise you to get some experience in this sphere before making investments in mining rigs, since in fact, these are financially heavy investments.

But buying is not the only option with rigs, though. Lately several groups and companies in Internet announced the availability of rental service for rings. In other words, you can rent computer capacities which will generate bitcoins for you. Well, and bucks or bitcoins for a rig provider :)

Where to start?

If you are reading this article the best thing for you to start from is to join one of existing bitcoin mining pools. Just choose one which corresponds to your technical skill level with and give it a try. And do not get disappointed when you earn not so much bitcoins and not so quickly as you would wish – as any promising market bitcoin mining sometimes is a pretty tough place.