As Bitcoin continues to gain popularity, I decided to put together a short how-to guide for anyone who would like to set up their own mining operation. Much of this information was gathered from various places around the web, in an ad-hoc fashion. Most of the miner activity I discovered exists in forums and random personal websites.
Two main factors influence your ability (or inability) to mine bitcoin profitably:
- Cost of electricity
- Price of bitcoin
Your mining hardware will draw some amount of power. For example, the miner I purchased draws about 1.3 Kilowatts of power. I set my miner up in my hometown, where I can get electricity at a relatively inexpensive price: $0.06 per kilowatt hour. That means this miner will cost approximately $57 per month to power. (1.3 kW * 24 hours * 30.5 days)
So, if I am measuring my profitability on a monthly basis, my miner must generate more bitcoin than the equivalent of $57 per month.
The other main factor, of course, is the price of bitcoin. Higher price of bitcoin means higher profits. Early indicators demonstrate my miner is generating about 0.0915 per month. If the price of BTC holds steady, that’s about $366 per month. Minus the $57 for power, that’s $309 in profit, give or take.
In principle, it really is this simple. You can look at your power bill to understand the cost of power in your area, and look at an exchange or a service like Coinbase to determine the price of bitcoin.
There are some other factors that may affect the day-to-day BTC yield that you should know about:
- Cost of mining hardware
- Difficulty rating
- Choice of pool
The cost of mining hardware tends to mirror the current price of bitcoin. I made my first attempt to buy a miner in early August of 2017, when the price of bitcoin was hovering around $2,500. The miner itself cost about $2,200. When I finally found a reputable merchant that would sell me a miner, it was mid-September and the price of bitcoin had risen to $3900. Accordingly, the price of the miner had risen to $3,700. I put together some scenarios that showed how long my payback period would be given the fluctuating price of bitcoin, and found the payback period was within my risk tolerance.
The bitcoin algorithm carefully manages the incentives miners have around the world. There will only be a fixed number of bitcoin, introduced only via mining. The algorithm manages the speed miners produce bitcoin with a difficulty rating. The lower the rating, the faster you can mine bitcoin. The higher the rating, the more slowly you can mine bitcoin. I looked at the trend of the past several months and determined again that the fluctuations were minor enough to justify the investment. Again, a risk assessment that may not fit everyone.
The easiest, fastest way to begin mining is to join a mining pool. This lets many miners around the world band together and coordinate the work of mining. Different pools have different rules for how they pay out the collective reward from the pool of miners. For example, the pool I joined computes a rolling average of the amount of computing power you contribute over time, and the amount of bitcoin they reward you with is the proportion of computing power you contributed to the pool. Other pools have different rules!
What you need to mine
When it comes to the hardware, you need a couple of things:
- Bitcoin miner
- Power supply
- 220v power line
- Network connection
- A location that allows for a continuous, loud device to run
Bitcoin miners are basically highly specialized computers. They contain silicon chips that have been designed to run the cryptographic hashing functions that support bitcoin in a power-efficient way. Gone are the days of using graphics cards to mine bitcoin – they’re far too inefficient. The miner I bought was the Antminer S9. It’s manufactured in China, and in high demand given the high price of bitcoin.
I’d recommend buying through Amazon. I recommend this because the volatile price of bitcoin makes the 3rd party merchants prone to scamming you. When you buy through Amazon, you’re covered by their A-to-Z guarantee, so you can get a refund. It’s fairly low-risk. This happened to me twice. I finally got the miner on my third attempt and everything’s grand now.
Here is a link to the miner I bought: https://www.amazon.com/gp/product/B01MCZVPFE/ref=oh_aui_detailpage_o02_s00?ie=UTF8&psc=1
Bitcoin miners are not sold with a power supply. You can’t simply plug it into the wall. It’s more akin to a motherboard — so the other thing you’ll need is a power supply. The S9 requires about 1300 watts of power. For me, this meant I had to pay an electrician to install an upgraded power line into the location I wanted to operate the miner. This cost about $100.
I also had to instruct the electrician to make the plug for the 220v line a normal three-prong plug. This is unconventional in the US and required me to explain my reasoning. Usually these plugs have a different form factor (think about the plug your washer or dryer uses) to prevent people from accidentally frying their everyday electronic devices. I decided instead it would be faster and simpler to label the plug with sharpie to prevent such a mistake.
Here’s a link to the power supply I bought: https://www.amazon.com/gp/product/B0733JRFVL/ref=oh_aui_detailpage_o03_s01?ie=UTF8&psc=1
And you’ll need a power cable too: https://www.amazon.com/gp/product/B0027JRMD0/ref=oh_aui_detailpage_o03_s00?ie=UTF8&psc=1
The S9 does not have a wifi chip, but it does have an ethernet cable. So, if you have a cat9 outlet in the location you plan to mine, then you’re golden. I didn’t, so I had to buy an ethernet-to-wifi adapter. No big deal.
Here’s a link to the adapter I bought: https://www.amazon.com/gp/product/B004UAKCS6/ref=oh_aui_detailpage_o02_s00?ie=UTF8&psc=1
I also bought a 220v surge protector to protect the investment: https://www.amazon.com/gp/product/B01HRJI8FA/ref=oh_aui_detailpage_o09_s00?ie=UTF8&psc=1
The last thing to remember is the sound the miner generates. Because it’s a highly specialized machine that basically runs cryptographic hashing 24/7, it gets hot. So the miners tend to have powerful fans to air-cool the internal hashing chips. These fans are LOUD. I mean, really loud. Before I saw the miner operate in-person, I watched lots of youtube videos that explained this process. I was still unprepared for the noise this machine generates. I measured it at 80 decibels. It was enough that having it in a basement would cause you to hear it two stories up in the house. That’s a show-stopper for the location I’d chosen, so I ended up constructing a small wooden box using some old shelves and lined the inside of the box with carpet scraps. It dropped the decibels considerably and made the setup workable. The important part is that you allow for the airflow.
There isn’t really a standard piece of advice, so unfortunately you will have to get creative. I’ve seen people stick the miner into a cooler, with large holes and insulated air-conditioning duct for the sides. I’ve seen layers and layers of cardboard boxes. When figuring out your setup, you’ll need to be mindful of the heat the machine generates (which will influence the design and materials you’ll use), and the volume of noise you’ll want to isolate.
Putting it all together
Simple enough: You plug the power supply into the miner, connect the network cable, and then flip the switch on your power strip. The miner will boot and you’ll hear the fans. After a minute or two, you’ll understand how loud the thing is!
The default settings will begin working right away and your miner will start mining bitcoin. But you want to make sure you are rewarded for the work your miner performs, so you’ll need to configure your miner.
First, you need to join a pool. I am currently on Slushpool: https://slushpool.com
Go to the Help Center in slush pool and read the docs to determine the URLs, username, and password you need to use. Write them down somewhere.
Then, you’ll need to use your router’s web interface (or Airport Utility if you’re on an Apple Airport) to determine the IP address of the miner on your network. Then, you’ll need to navigate your web browser to that IP address.
Here is where you’ll enter a URL, username, and password for the mining pool that you’ve joined.
That’s it! You can learn about the way to manage the rewards you receive from your mining pool and determine your bookkeeping strategy. For example, do you want to sell the bitcoin right away? Or do you want to hold the bitcoin and hopefully gain more value when it goes up? (Or risk losing it when the price falls?)
Hopefully this guide is helpful for those of you who are curious how it works and the rationale behind mining.