Bitcoin Mining Primer

By Dimitri Elkin

There are 17 million bitcoins currently in circulation.

The total possible number of bitcoins is limited to 21 million by the laws of mathematics.

Approximately 2 thousands bitcoins are mined daily. In a few years,  once the number of bitcoins in circulation reaches the pre-set limit, the bitcoin mining process will be over. The exact time when the world runs out of bitcoins is hard to estimate: it will be sometime between five and fifteen years from now. The rate of bitcoin mining difficulty will increase over time, but the power of machines dedicated to mining will rise as well.  The rate of bitcoin depletion will also depend on how many machines are dedicated to mining. The more people buy more machines, the faster will the bitcoin mine become fully exchausted.

The Hardware

A bitcoin mining machine is essentially a powerful computer, with a special processer called Graphic Processing Unit (GPU), typically used in video games.  Here is an example of a recent GPU produced by AMD: Radeon RX Vega 10 (pictured).

The power of a GPU is measured by the number of calculations (hashes) the machine can perform each second.

The number of calculations depends both on the power of the machine itself, and the complexity of the calculation, which differs for each cryptocurrency.

At the time of this writing (September 2017), the number of calculations for one bitcoin stands at 2,700,000,000,000  hashes, or 2,700 terahashes.  Each terahash equal to one trillion calculations.

The Mining Process

Let’s say that the mining equipment you purchased carries the specification  of 40 MHs.  This means that every second the machine can perform 40 million hash operations.

There are 86,400 seconds in 24 hours, and therefore the machine will generate around 3.4  terahashes in one day.  At this rate, after approximately eight hundred days, the machine will produce one bitcoin, worth around $4,000 in today’s prices.

You don’t need to wait for two years to collect the gains.  The harvesting of cryptocurrency can happen in smaller increments.  For bitcoin, the smallest unit is called satoshi, and it equals one bitcoin divided by one hundred million.

The cost structure

If the GPU machine consumes power at 250 watt, then during this period of two years, working non-stop, the electricity bill will be $470 dollars, assuming electricity cost of 10 cents per KWh.

This simple calculation shows that the electricity cost currently accounts for only 10% of the bitcoin’s currency value of four thousand dollars.

The computer equipment with one or several GPU units can cost several thousand dollars, and it is by far the biggest expense for any start-up miner.  But spending money for a good machine is worth it: a more powerful computer is the chief source of competitive advantages for any crypto miner.

This is why so much money has been invested in mining farms. Today, the total number of machines dedicated to bitcoin mining stands at several hundred thousand.  The collective calculative capacity of the bitcoin mining community recently passed  four billion Giga hash per second.  This is more computing power than any most powerful super computer in the world can have.

The key reason why bitcoin miners keep investing in new hardware is, of course, money.  Collectively, bitcoin miners earn seven million dollars each day, and, unless the bitcoin price crashes below the variable electricity cost of approximately $400 per bitcoin, mining process will continue for a few more years.