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Financial Aspects: Revenue

All About Bitcoin Mining: Road To Riches Or Fool's Gold?
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Bitcoin Exchanges

Some Bitcoin miners simply keep the Bitcoins they mine, typically in a Bitcoin wallet on a PC (hopefully, they don’t forget to make backups of their wallets). Other miners may need to pay off their investment in mining hardware and want to cash out.

The way to do that is to sell Bitcoins (or fractional Bitcoins) at one of the Bitcoin exchanges, which work similar to stock exchanges. One of the oldest and most popular exchanges is MtGox.com, based in Japan. Once you have created an account there, you can transfer Bitcoins from your wallet to your MtGox account.

Click on "Funding Options" on the left, whereupon a menu appears that defaults to "Add Funds". In the drop-down box titled "Please Choose a Funding Method", select "Bitcoins". Immediately, a freshly-generated address appears. Copy this address and paste it into the "Send to" address of your Bitcoin wallet, type in the amount of Bitcoins to send and click on "Send". It can take one or even two hours until all six required confirmations have been received and the Bitcoins show up in your MtGox account. Then you can click on "Trade" and sell your Bitcoins at the prevailing market price.

Historical and Expected Difficulty Rise

The relentless rise in mining difficulty is the dirty little secret of Bitcoin mining. It's a mechanism that most new miners underestimate. In order to prevent inflation, Satoshi’s distributed Bitcoin system tries to keep the rate of new block generation constant, regardless of how popular Bitcoin mining becomes (namely, at the average rate of one new block each and every 10 minutes). If more than 2,016 blocks are generated during a two-week period, the mining difficulty is increased. If less than 2,016 blocks are generated per fortnight, the mining difficulty is decreased, though this happened only a few times since 2009. Since all blocks are part of the public block chain, the number of blocks that have been generated in the past few days or weeks is completely transparent.

As the chart shows, global hash rate and mining difficulty has risen by a factor of five over the past eleven months. Even more alarming, we can also see that the rate of increase has been accelerating in the past two months. In those 60 days, the difficulty rose by a factor of almost three. Expect this trend to continue at a similar, or even increasing pace. By fall, the global hash rate, and thus the mining difficulty, is expected to rise by a factor of approximately ten, due to the advent of ASIC miners.

In other words, if you currently mine with one FPGA-based BFL Single at 830 MH/s, you contribute slightly less than 0.001% to the global hash rate. Once difficulty has risen by a factor of ten compared to now, your Single will contribute but 0.0001% of the global hash rate. Needless to say, your Bitcoin revenue will plummet by a factor of ten right along with it.

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Top Comments
  • 12 Hide
    phenomiix6 , June 9, 2013 11:37 PM
  • 12 Hide
    dannyboy3210 , June 9, 2013 10:39 PM
    A very interesting read. I had been reading about Bitcoins (mainly because I just couldn't figure out what they were exactly), but this clears a lot of things up.
    Also, at the bottom of page 5, in the Comparison of FPGA and ASIC Chips table it says "Power Fraw".
Other Comments
  • 8 Hide
    Darkman69 , June 9, 2013 9:49 PM
    Finally a proper write up on Mining Bitcoin with the good the bad and the reality.
  • -9 Hide
    esrever , June 9, 2013 9:54 PM
    How does mining new coins make sense if there will ever only be 21 million? I am so confused by that point.
    Another thing is, with an economic system like this, a billionaire can easily manipulate market prices and make extremely large amount of money and still be completely fine due to this being in a grey area of the law. You can't pump and dump stocks legally but it seems pretty easy for something like this considering you can dump the bit coins off as currency in any country.
  • -5 Hide
    s3anister , June 9, 2013 10:00 PM
    Quote:
    How does mining new coins make sense if there will ever only be 21 million? I am so confused by that point.


    To quote the Bitcoin wiki page: "The last block that will generate coins will be block #6,929,999 which should be generated at or near the year 2140."

    So to directly answer your question, the whole reason for mining bitcoins is because you'll most definitely be dead before the last block chain is even completed.
  • -6 Hide
    smeezekitty , June 9, 2013 10:14 PM
    Shitcoins definitely = fools gold!
    Huge waste computing power IMO
  • 1 Hide
    vmem , June 9, 2013 10:27 PM
    Quote:
    Shitcoins definitely = fools gold!
    Huge waste computing power IMO


    someone needs to rewrite the algorithm and somehow hook up block generation to folding@home or some similar constructive use of the computational power.
  • -1 Hide
    smeezekitty , June 9, 2013 10:28 PM
    Quote:
    Quote:
    Shitcoins definitely = fools gold!
    Huge waste computing power IMO


    someone needs to rewrite the algorithm and somehow hook up block generation to folding@home or some similar constructive use of the computational power.

    That would be a great idea. Verifying a relatively small hash to screen out the cheaters then perform something useful like F@H.

  • 12 Hide
    dannyboy3210 , June 9, 2013 10:39 PM
    A very interesting read. I had been reading about Bitcoins (mainly because I just couldn't figure out what they were exactly), but this clears a lot of things up.
    Also, at the bottom of page 5, in the Comparison of FPGA and ASIC Chips table it says "Power Fraw".
  • -8 Hide
    slomo4sho , June 9, 2013 11:02 PM
    Fiat currencies... I guess for some people the dollar wasn't worthless enough.
    It is amazing how you can lose your "wallet" and your funds permanently disappear from the pool.
  • -9 Hide
    toarranre , June 9, 2013 11:02 PM
    Never heard of this and I'm quite confused by it. Use graphics cards to find units of a currency that from what I can tell must be extremely succeptable to artificial inflation or all out collapse.
  • 12 Hide
    phenomiix6 , June 9, 2013 11:37 PM
  • 9 Hide
    csf60 , June 10, 2013 12:53 AM
    In 2010 I started bitmining and reached 3 bitcoins in 2 months with a 5850. Each bitcoin was worth 3$ at that point so I just gave up and lost my wallet. If I only knew 3 years later they would change for 150$ each... :face palm:
  • 3 Hide
    choz , June 10, 2013 12:58 AM
    Thanks for your calculations. I now have more things to laugh about here in Australia when I read about bitcoin "miners" setting up multi-gpu rigs when our power price is around the 25c per KWh mark and rising by 5% annually.
  • 0 Hide
    ET3D , June 10, 2013 1:16 AM
    I've only skimmed the article, but I didn't see a good discussion of mining pool, trading and all the DDoS, phishing and hacking that goes with it.
    The technical aspects and financial calculations are one thing, but going bitcoins is somewhat of a hornets' nest, and it's really worth discussing this stuff.
    I haven't mined seriously, but the first time I tried (for two weeks, generated half a bitcoin), I left the bitcoins in the pool and one of the pool's founders embezzled and took what was there and left. I've seen other pools hacked, and there are regular DDoS attacks on them, changes in the terms, all kinds of things you really need to follow carefully if you want to mine effectively. Just leaving your miner running and hoping that you'll get the expected coins eventually doesn't cut it.
    I currently mine a little LTC for fun (partly because after installing Catalyst 13.4 I can't mine BTC and can only mine LTC with an old cgminer version I have installed). I'm not sure that it's worth it financially, and I'll probably shut down mining in the not too far future.
  • 4 Hide
    Madn3ss795 , June 10, 2013 1:19 AM
    Quote:
    I bought a few Radeon HD 7790 graphics cards

    7790 already out in June 2011 ? :lol: 
  • 2 Hide
    immanuel_aj , June 10, 2013 2:28 AM
    Quote:

    Or better yet, enjoy this crazy sideshow from the bleachers.


    Yup, that's exactly what I'll be doing! There's always something in the news about it every month these days. :) 

  • 5 Hide
    uruquiora , June 10, 2013 3:05 AM
    this is why i think TH is one of the best IT news website around nowadays... thanks for a very interesting article and for sharing the good and the bad with newbies like me on that subject.
  • -1 Hide
    somebodyspecial , June 10, 2013 3:29 AM
    Maybe now we won't have to see this in benchmarks. It's over for gpus.
  • 0 Hide
    tlg , June 10, 2013 4:17 AM
    I am also wondering how he got the HD7790 in June 2011, except if this is a typo because later on in the same page he talks about November 2012.
  • 0 Hide
    dalmvern , June 10, 2013 6:05 AM
    Great article, I have been wondering what the fuss was all about. Now the only question I have is:
    What is all this processing power being used to do?
    As it was mentioned in an earlier comment, it would be great to use it for something like scientific research like F@H...but I have never seen anything explaining IF it is being used, and if it is, what it is being used to do.
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