Headline: What does a Crypto-Miner do?
Date: 3/28/2022
Body: The usual bitcoin miner is unlikely to wear a helmet or carry a pick. He or she is much more likely to wear shorts and sandals and carry a laptop. Why shorts? This is important because on “the rig” it gets REALLY hot.
Think of the movie Star Wars, Episode I. In this film, we see Anakin for the first time, and he is flying a pod. (basically a blocky little passenger compartment connected by cable to two ridiculously, ludicrously over-sized engines.) In this example, the little cockpit is the laptop controlling the “rig”. This rig (the engines in our illustration) is essentially a tacked together supercomputer. On second thought I quite like this illustration because both generate a tremendous amount of heat and they occasionally explode. When we are speaking of bitcoin mining, this is the image I want you to have in mind.
OK, so what do they DO?
A bitcoin miner tends to this machine. The machine is tasked with verifying the transactions on the blockchain by solving ridiculously complex mathematical functions called hashes. In return for this verification, the miner is given some quantity of bitcoin. (The first miner to get the right answer is given the most reward, but several other miners can get lesser prizes for being 2nd , 3rd or 4th. ) As each block is solved, it is added to the blockchain, which is the publicly available ledger for the entire network. The algorithm organizing Bitcoin will alter the complexity of the hashes, and currently one new block of transactions is added, about every 10 minutes.
To even get started is some sort of journey. They need a cryptocurrency wallet, and this is no problem. Mining software can be downloaded at no cost. But, the hardware with the graphics processing units or the Application-specific integrated circuits can easily cost over $10,000. Once set up, the miner has to have some impressive investors lined up to pay the electricity costs because they can be extreme!! They must also have an incredibly stable and unlimited connection with their Internet provider. All of these things can be obtained in an economical manner only if the price of Bitcoin remains elevated.
Lest we forget, the mining rigs improve in speed every year. So, you have to upgrade your rig to stand a chance against the newest ones. This is a REAL arms race here. This represents real expenditures that must be made.
One new approach is to join a mining pool. True that you don’t have the enormous hardware costs anymore, but you have to split the reward money with a lot of people, and there are membership fees charged. These are still interesting enough that there will likely be an entry about them on their own.
So why should I consider NOT being a miner?
This is actually a simple question, then a philosophical one. It’s true that you can make some money, but that requires some major investment of time, energy and money and with the volatility of Bitcoin pricing, this can easily become prohibitive. More along the global concerns, the carbon footprint is HUGE!! Crypto-mining accounts for more than 91 Terawatt-hours of electricity annually. If you need some perspective (I did) each Terawatt-hour is equivalent to 1,000,000 kw/h and according to Digiconomist, a single Bitcoin transaction takes 1,544 kWh, which is equal to 53 days of power for an average US household. This is a LOT of power!) Much fossil fuel has been consumed and pollution created to make this happen. Do you want to be one of the people responsible for this, just for a chance of making a little money? Not judging, this is your call.
We are really slinging some Hash here.
We spoke of hashes above. These totals represent 64 digit hexadecimal numbers which must be computed to make a block accepted for the Bitcoin blockchain. (They are simply inconceivably complex.) But wrong answers don’t matter, only the right one does. So, the strategy is for your rig to throw out as many “guesses” as possible as quickly as possible. The speed of your rig is therefore known as the hash rate. A “good” rig can push out 100 hashes per second. In order to stand a chance in this realm of computing, you do essentially need a supercomputer, or at least the distributed version of a supercomputer.
The Verdict
Well, my landlord would be very upset if I set up a mining rig in his house. I suspect yours would too. Joking aside, to do this right requires an industrial-scale facility, with some massive cooling equipment to keep the computers from melting into expensive slag. If you can join a pool, or find a patron who will open a very large checkbook for you (regularly) I guess this could work for you. But, you’d better be good, because this will be your job and your life, and sleeping will become negotiable. This is not the life I would choose, maybe you would. Just be careful to do this with open eyes and understand your competition. Goodnight, and good luck!!
REFERENCES
https://www.pcmag.com/how-to/how-does-bitcoin-mining-work
https://www.thebalance.com/how-does-bitcoin-mining-work-5088328
https://money.usnews.com/investing/term/bitcoin-mining
https://www.coinbase.com/learn/crypto-basics/what-is-mining
Editor’s Note: Please note that the information contained herein is meant only for general education: This should not be construed as Tax Advice. Personal attributes could make a material difference in the advice given, so, before taking action, please consult your tax advisor or CPA.