In the heady early days of bitcoin, it was possible to make a substantial profit using an ordinary desktop computer. Very few early miners foresaw the wild surge in price that bitcoin would experience, and so many of the earliest, easiest-to-mine bitcoins disappeared into forgotten wallets, or went toward multimillion-dollar pizzas.
The bar for bitcoin mining has been substantially raised with the introduction of specialized hardware and even whole companies dedicated to coin creation. We're going to take a brief look at what bitcoin mining is, how it's done, and whether there's any room for the Average Joe to compete.
Proof of Work
There are a few ways of creating new cryptocurrencies, all linked together by the cryptographic hashes that both give cryptocurrency its name and its security.
Bitcoin, as the original mass cryptocurrency, relies on a proof-of-work system. A proof-of-work system relies on a block of data that is difficult, costly, or time consuming to solve but easy to check.1 bitcoin's particular system is known as Hashcash.
The Hashcash algorithm was invented in 1997, more than a decade before bitcoin came on the scene, by Adam Back. Its original use case was to combat denial-of-service attacks by anonymous remailers and mail gateway abusers. Essentially, an email sender first had to solve a Hashcash algorithm before an email could be sent. This throttled spam senders immensely and ensured that only emails with verified, worthwhile content were sent on systems utilizing Hashcash.2
Bitcoin creator Satoshi Nakamoto adapted Hashcash as a way to mine new bitcoins, building on work done by the reusable-proof-of-work team to generate that cryptocurrency.
In the earliest iterations of the bitcoin mining protocol, the act of mining linked bitcoins together via the counters that recorded successful mining attempts. This has since been addressed by the nonce system. Nonces begin with 0 but then contain randomized figures thereafter. This has the effect of randomizing the block counter and hiding the effort needed to mine each block, decoupling you and your computer's identity from the ultimately created bitcoin.
In the first few years after bitcoin's release, this kind of algorithm solving could be done with a variety of common computer components - namely central processing units (CPUs) and graphical processing units (GPUs). GPUs are still used in some mining rigs, albeit on a dramatic scale with many GPUs linked together.3
The more common piece of hardware you're likely to run into with bitcoin mining, however, is the ASIC, or application-specific integrated circuit.4
An ASIC is a type of processing unit designed to do one task extremely well. It doesn't have the flexibility of a more generalized circuit, but it can complete the task for which it was designed with the utmost speed and electrical efficiency.
As the difficulty of mining bitcoin has increased, so has the prevalence of ASIC miners. Their cost has also skyrocketed. Specialized bitcoin mining hardware can range from $500 - which just barely turns a profit when electrical costs are factored in - to many thousands of dollars.
These types of machines are obviously outside the reach of most would-be bitcoin miners.
An even more exclusive club contains companies whose sole purpose is to mine bitcoin, Ethereum, and other difficult cryptocurrencies. The facilities tend to be located in cold climates with an abundance of cheap electricity, like Iceland or Montana, and individual facilities can cost upwards of $30-$75 million.5
Mining at Home
So, the options for home bitcoin miners are severely limited by both price and competition. Even if a miner has the cash to buy a specialized ASIC unit, he or she must live somewhere where heat buildup and electrical costs won't be an issue. There is still at least one available portal for individual bitcoin miners, however, and that involves joining a fee-based pool. Like mining pools for smaller cryptocurrencies, bitcoin mining pools aggregate the hashing power of their members to solve blocks essentially as a group. The rewards for solving those blocks are then distributed according to the relative power each member contributed. Although many alternative coin pools are free or based on a reward fee, many of the larger bitcoin mining pools require an upfront subscription fee to gain access.6
A related concept is cloud mining, or mining via leasing hashing power on a more powerful machine. This has the potential to give Average Joe bitcoin miners a serious shot at solving blocks themselves without either investing in their own machinery or sharing their block rewards with a subscription pool. Like all mining, however, there is an element of chance. If the leased hashing power does not produce a reward during its lease period, the money spent renting the hashing power is lost. That is, you've spent a considerable sum - often hundreds of dollars a week - solving mathematical problems for no reward. In a pool, a reward of some kind is virtually guaranteed, due to the sheer power being used and the shared reward motive.
Some pools simply rent you time on their servers, while others require you to connect your specialized equipment to the pool itself. Always read and understand your pool license agreements before you commit.
Silver for Gold
If pure bitcoin mining is out of your technological or financial reach, there's still a way to obtain bitcoin without spending fiat cash. Many new alternative coins were designed specifically to be ASIC resistant. That means you can still do profitable mining with a regular GPU or CPU, although you'll most likely have to join a pool to get the best bang for your buck. The good news is the vast majority of these pools do not charge an entrance or a subscription fee, so you're only paying for and with the cryptocurrencies you've already generated.7
Once you've got a healthy stock of altcoins, like Monero, it's a simple matter of transferring them to an exchange and trading them directly for bitcoin. Bitcoin still makes up the vast majority of crypto-to-crypto trading pairs, so if your chosen coin is on an exchange, there's a remarkably high probability that you will be able to trade it directly for bitcoin.
And if your coin is not on an exchange? Several off-exchange sites exist for swapping coins, most unique to the coins themselves. You might be able to bypass a regular exchange by trading your mined coin for another that is represented on an exchange - possibly even bitcoin itself.
Like the old song goes, mining is a lot of work, whether you're shoveling tons of coal or creating bitcoins. Specialized hardware and lots of capital are now required to turn a profit in bitcoin mining, but there are several options available for newcomers to the space to get in before mass adoption puts bitcoin mining completely out of reach. Leasing hashing power, joining a subscription pool, or mining an alternative coin with a view toward ultimately trading for bitcoin are far cries from the good old days of leaving a dusty old laptop on to collect money while you sleep, but it's still the best option for participating directly in the bitcoin market.
1) "Proof of Work." Hash - Bitcoin Wiki. https://en.bitcoin.it/wiki/Proof_of_work
2) "Hashcash." Hash - Bitcoin Wiki. https://en.bitcoin.it/wiki/Hashcash
3) "Everything You Need to Know about Bitcoin Mining." https://www.bitcoinmining.com/
4) "What Is an Application-Specific Integrated Circuit (ASIC)? - Definition from Techopedia." Techopedia. https://www.techopedia.com/definition/2357/application-specific-integrated-circuit-asic.
5) "Montana Is Home to New 53 Acre, $75 Million Bitcoin Mining Facility." Bitcoin News. 3 Feb, 2018. https://news.bitcoin.com/montana-is-home-to-new-53-acre-75-million-bitcoin-mining-facility/.
6) Bitcoin.com Pool. https://pool.bitcoin.com/
7) "Mine for Bitcoin with ANY Computer - Hacker Noon, Phil0xcypher." 19 Oct, 2017. https://hackernoon.com/mine-for-bitcoin-with-any-computer-9a30337843e7