Now’s a great time to get into Bitcoin mining.
That is, if you can find a place to plug in.
A crackdown in China has taken out a vast number of machines in the global network used to perform the calculations that verify transactions and create new bitcoins. Now, profitability for miners has surged as the amount of energy needed to solve for a bitcoin block plummets.
That’s great if your equipment is already up and running. But the hunt for space in bitcoin-friendly data centers has become so frenzied that bounties are being offered for referrals leading to new homes for stranded miners.
Christian Kaczmarczyk, a principal at venture capital firm Third Prime, said some Chinese miners are willing to pay substantial premiums above the ideal operating rate of less than five cents per kilowatt-hour.
“People are paying an arm and a leg to find hosting right now,” Mr. Kaczmarczyk said. “These miners from China are willing to pay 6, 7, 8, 9 cents to get in the game. They’ll pay whatever.”
The creation of new hosting facilities has long failed to keep pace with mining companies that are feverishly adding equipment to their arsenals. But what had been a persistent mild ache is becoming an excruciating pain. Getting the needed materials such as electrical transformers and switches has been complicated by disruptions in the global supply chain. Strict regulations for tapping into power grids means build times that can drag on for years.
The flood of displaced miners looking to relocate to the U.S. after China’s crackdown is exacerbating the crunch.
“Machines are no longer the bottleneck,” said Meltem Demirors, chief strategy officer at CoinShares. “Hosting facilities are. You just can’t build a massive co-location data center in a few months.”
Chinese miners are in a mad dash because of what their being offline has wrought: Profits are surging.
The difficulty level of solving a bitcoin block is adjusted about every two weeks to keep the average processing time at 10 minutes.
Based on the amount of computing power flowing through the network, which has dropped following China’s crackdown, the latest adjustment brought the difficulty down to a level last seen when the digital currency traded around $9,000 in June 2020.
That means for the same amount of work put in at this time last year, the miner who wins a block reward will collect coins worth more than three times what they were valued at back then.
“The people with machines online now are in for a treat,” said Zack Voell, director of research and content at Compass Mining. “Chinese miners are not only scrambling to get back online, but they’re now missing out on this huge economic incentive to mine.”
And that huge incentive will only further aggravate the crunch for space. Older computers like the Antminer S9 ASIC that were nearing obsolescence as solving Bitcoin’s puzzle got harder and harder are now gaining a second life, according to Jason Les, the chief executive officer of mining company Riot Blockchain Inc.
“Market conditions are such that the older generation of mining hardware is still profitable,” Mr. Les said. “You’d normally expect those older models to come offline, but if you have low enough energy costs the S9 is profitable today.”
Chinese miners may eventually face the tough decision of waiting for the government to have a change of heart, or sell their machines at a time when the market is already inundated.
“There’s limited hosting space and it’s such a concern that about 30% of the Chinese miners are just throwing up their hands and capitulating,” said Mason Jappa, the chief executive officer of crypto mining hardware broker
“They’re selling rigs for 2020 prices.”
For those willing to navigate the complexities of getting machines out of China, the crackdown and lack of hosting capacity could create an ideal backdrop for distressed deal making.
“Ultimately a lot of this short-term mania will provide some very strategic opportunities for more efficient miners down the road,” said Third Prime’s Mr. Kaczmarczyk. “You’ll see some strategic buyouts and private equity like deals.”
How long the data center crunch will last is unclear at this point, but Compass Mining’s Mr. Voell thinks it could be six months or more before new facilities can be brought online to absorb the excess capacity.
“The shortage that existed before just got blown out of the water,” said Mr. Voell. “There’s absolutely no way all these ASICs will find space and be back online before the end of this year. The problem just got five-times worse.”
There’s been a lot of talk lately surrounding cryptocurrency and how you can acquire it. One option is to buy it on one of the numerous crypto exchanges. The other, more appealing option is to mine it. There are questions about how to mine cryptocurrency, the different ways of mining, and the legal ramifications of the mining process.
What Is Cryptocurrency Mining?
Cryptocurrency has become popular in the past few years because (among other reasons) it’s immune to government interference. But this also means that the currency can be used for illegal activities, such as money laundering and tax evasion, which is why governments are beginning to impose regulations on cryptocurrencies. (Some are trying to acquire cryptocurrencies while they still can.)
Most people have heard that it’s possible to obtain cryptocurrencies by mining them, which is long and complex but can pay off in the end. The first step towards cryptocurrency mining is to understand how the process works. The mining process is conducted by crypto miners who verify transactions and then add them to a public online ledger, providing transparency for anyone who has access to the network.
During this mining process, new coins are produced and introduced into circulation. The most effective miners receive these coins as compensation for their work. But not all cryptocurrencies on the market can be mined. Bitcoin (the first cryptocurrency) introduced the process of mining based on a proof-of-work (PoW) algorithm.
How Does Bitcoin Mining Work?
The work of a bitcoin miner is essentially to audit, preventing bitcoin users from double-spending (spend the same coin twice). After verifying the unique nature of the bitcoin and the legitimacy of the transaction, the miner inputs the information into an online ledger.
Once a miner has verified 1MB of transactions, they are eligible to earn coins. But not everyone who’s mining for digital currency and has verified the required number of transactions will be compensated in the end. After the verification process, the miner must be the first one to find the correct answer to a 64-digit hexadecimal number that’s equal to or less than the target ‘hash’ (a fixed-length number). The first winning miner that solves the equation can earn a newly born cryptocurrency coin.
How to Mine Cryptocurrency More Effectively
This whole process is conducted through computers and relies on guesswork, as there is no formula to enhance the chances of attaining the right number. The only strategy to improve your chances of obtaining bitcoins by mining is to join a mining pool—a group of miners connected by a network who share their processing power and divide the reward equally among everyone in the pool.
If you’re wondering how to start mining cryptocurrency, you’ll need adequate computer software and additional equipment.
How to Mine Cryptocurrencies
How do you mine cryptocurrency? There are four major methods used for crypto mining
before cashing in tokens of cryptocurrency.
These are devices or units that verify transactions, connected to a cryptocurrency network that receives at least one input and releases a specific output. They allow a cryptocurrency to be used as a decentralized, peer-to-peer (P2P) digital currency.
These add transactions on a list to form blocks. Cryptocurrency production is based on blockchain technology, consisting of blocks connected in a chain. A block is where new bitcoin transactions are recorded. When a block is completed (or full of data), it attaches to a new block in the blockchain.
Adding Hash Data
To get to the 64-digit hexadecimal number, you need to add data to your cryptocurrency mining software so it will be able to produce a fixed-length numerical value.
Verifying Hash Value: This is done by comparing the hash value to a previously calculated value. If the value of a block doesn’t match the hash value of another one, it means that the value is authentic.
What is the Easiest Cryptocurrency to Mine?
Bitcoin is currently the most difficult and expensive currency to mine. If you’re looking for alternative digital currencies to mine, you might consider Ravencoin, Ethereum, Monero, Dogecoin, AEON, or other altcoins, which are significantly easier to mine than bitcoins.
How to Mine Bitcoin
Bitcoin mining is no longer recommended because the process has become increasingly difficult and energy-consuming. This is due to the limited number of coins that can be produced to provide inflation resistance for the currency. If you still decide to mine for it, you’ll need costly equipment. And even if you join a mining pool, there are no guarantees that you’ll be able to acquire any bitcoins.
How to Mine Ethereum
Ethereum is a blockchain-based cryptocurrency and Bitcoin’s biggest rival, following second place in terms of market value—although it’s subjected to constant fluctuations. You can acquire Ethereum by buying or mining it. The Ethereum mining process requires a custom mining rig built with one or more powerful graphics cards. You’ll need to install the necessary software and drivers for the graphics card and download the Ethereum blockchain. The last step is to join a mining pool.
How to Farm Cryptocurrency
If you want to farm cryptocurrency, you’ll first need to build a farm, which consists of multiple powerful rigs that are constantly mining. You’ll need a lot of storage for these rigs because they consume huge amounts of energy. Building a mining farm is a complex and expensive process, and there are no guarantees that you’ll be successful in your mining venture.
How to Mine Cryptocurrency on iPhone
It’s possible to mine for cryptocurrency from your iPhone by simply installing an app. Apple, however, has stated that you shouldn’t use your phone to mine for cryptocurrency, as it quickly drains the phone’s battery and generates excessive heat, which might cause the device to malfunction.
How to Mine Cryptocurrency on Android
You can install an app on your Android device that will automatically connect you to a mining pool; the mining process then can begin. Your phone app then will do its work in the background while you use your phone for other purposes. The mining process, however, will affect the overall performance of your Android.