Bitcoin Mining: How to Choose Mining Machines, Mining Farms and Mining Pools

Observing the development of Bitcoin in the global industry, the entire Bitcoin industry can be divided into upstream, midstream and downstream. The upstream is the production of Bitcoin. Most of the companies that focus on Bitcoin mining belong to the upstream companies of Bitcoin. For example, the design and production of mining machines; the construction of mining farms and power generation equipment, and the operation of mining pools are all upstream companies of Bitcoin. The midstream of Bitcoin is trading and storage. The downstream is the application of Bitcoin. There is also another saying that Bitcoin storage is placed in upstream companies because the storage problem needs to be solved when Bitcoin was born. So, this statement is also correct. The definition we use today is to place the production of Bitcoin in the upstream.

When Satoshi Nakamoto invented Bitcoin, he wanted everyone to participate, and he didn't want special mining machines to be produced. You must have heard the story of people mining with laptops at home or in the office in the early days. At that time, it was still CPU mining. Later, as the computing power increased, someone came up with the idea of ​​using GPUs for mining. Who was the first person to use GPUs for mining? Yes, it was the programmer who exchanged 10,000 Bitcoins for pizza. At that time, GPU mining led to the scene of graphics cards being sold out all over the world, and this situation was repeated in the process of Ethereum mining. In June 2017, as the price of Ethereum rose, the graphics card market once again ushered in a scene of supply exceeding demand. I searched for graphics cards on JD.com at the time, and it showed that except for a few high-end graphics cards, the rest of the graphics cards were sold out. It also caused the chip company AMD's stock price to rise by 7%.

The origin of mining machines

Back to the early days of the Bitcoin industry, as the computing power required for mining continued to rise, GPUs also reached the upper limit of computing power. In order to break through this limitation, someone invented specialized equipment for mining. Although these devices are all computers, they can't do anything except mining Bitcoin and running hash operations. We call them "mining machines." Bitcoin mining machines can only perform calculations on Bitcoin algorithms. Litecoin mining machines can only perform calculations on Litecoin algorithms, and they are not interchangeable. It's not that it's technically impossible, but the mining machine is essentially a computing competition, a process of constantly breaking through the computing limits. All conditions need to reach the extreme in order to win in the competition. If you take both into account, it will only reduce the efficiency of operation, and the computing power will not catch up with the specialized mining machines, thus being eliminated by the market.

How to choose a mining machine

Now, most companies that make mining machines started out by making chips. Mining machines are composed of chips, cooling fans, batteries and other components. Among them, the core component that determines whether this mining machine can mine more coins is the chip. There are two most well-known Bitcoin mining machine manufacturers in the world, Bitmain's Antminer and Zhang Nangeng's Avalon Miner. The latter is also the inventor of the world's first ASIC chip mining machine. ASIC refers to an integrated circuit designed and manufactured to meet the requirements of specific users and specific electronic systems. There are also some other mining machines that are well-known, such as the once popular KNC Minner. This old Swedish Bitcoin mining machine manufacturer KncMiner once received a total of approximately US$32 million in financing, but unfortunately declared bankruptcy in May 2016. In addition, there were once more famous domestic mining machines such as Dragon Miner and Lightning Miner. Because the chips of mining machines require very strong R&D technical strength, they need to race with the rising computing power in the world and keep pace with technology. In the early days of the industry, there were many cases where newly launched mining machines were eliminated by the market, and even eliminated during the production process, causing heavy losses to entrepreneurs and investors. Therefore, when choosing a mining machine, you also need to choose a strong brand and team.

Since the competition for mining machines is so fierce, how should we choose mining machines if we want to mine? In theory, it is best to choose the latest model. The latest mining machines have lower power consumption and higher computing power. The first thing to consider when choosing a mining machine is computing power, the second is power consumption, and the third is historical reputation, including machine stability and after-sales service. The computing power is the ability of a machine to perform calculations, that is, how many hash operations can the machine perform per second. The computing power of the current mainstream Bitcoin mining machine is 14T, which means 14*10¹³c hash collisions per second.

Power consumption is an indicator of the amount of electricity consumed by a mining machine when it is running. Power consumption has a huge impact on the cost of mining. A mining machine generally runs 24 hours a day to mine, so the power consumption may seem to be a small number, but in fact the cost difference over a year is still quite large.

Here is a little knowledge, that is, digital assets with the same algorithm can be mined with the same mining machine. For example, Bitcoin (BTC) mining machines can also mine Bitcoin Cash (BCC), and Ethereum (ETH) mining machines can also mine Ethereum Classic (ETC).

Seeing this, you may be wondering, if I want to mine Bitcoin by myself, is it feasible? This was feasible a few years ago. However, it is difficult to mine Bitcoin by individuals now. This mode of individual mining is called SOLO mode. Now mining is basically formed into large-scale mining, and it needs to cooperate with mining pools, so individual mining of Bitcoin is just an idea. The concept of mining pools will be discussed later.

How to participate in mining

Since you can't mine by yourself, you probably want to know how to mine after buying a mining machine. In fact, the process is simpler than you think. Buy a mining machine, start it and connect it to the network in three steps. The first step is to choose a mining pool, register an account in the mining pool, fill in the sub-account, and fill in the password; the second step is to fill in your Bitcoin receiving address. When you get Bitcoin, it will be automatically transferred to the address you filled in. The address can be your wallet address or your recharge address on a certain trading platform, which is convenient for you to sell in time and reduce the handling fee of one-step transfer. The third step is to plug the power supply and network cable to the mining machine, and then turn it on to start running. After the power is turned on, the mining machine automatically assigns an IP address, scans the latest connected device IP address and enters the background. Then set the mining pool account. After the setting is completed, it will start running in about half a minute, and the real-time status of the mining machine can be seen on the background page. The display of the mining machine is also relatively stupid, with basically two indicator lights, one for normal operation and the other for whether there is a fault. When the faulty light is on, you need to check whether there is a problem with the operation of the mining machine.

Here is a short story. One of my friends likes to go to Xianyu to find a mining machine. I asked him why he could find a mining machine on Xianyu. He told me that many people like to buy a few mining machines online after they get in touch with Bitcoin, and want to try mining at home. They think that even if the electricity for residents is a little more expensive, it doesn’t matter, even if the cost recovery takes a little longer, after all, they are participating in this experiment. As a result, when the mining machine was connected to the power supply, it was found that the noise was too loud. So after a day or two, they or their family members couldn’t stand it, and finally they were forced to sell the mining machine on Xianyu at a low price. Usually this kind of mining machine is very new and has hardly been used. It is very cost-effective to buy this kind of spot mining machine at a second-hand price. Every time my friend finds a leak, he will say that it is not the electricity bill that beats home mining, but the noise.

Mining

We have talked about mining machines and miners above, and you know the history of mining machines and how to choose mining machines. In this section, let's talk about mining farms and mining pools. Through this lesson, you will learn how to operate a mining farm, what to prepare for operating a mining pool, and how to cooperate with a mining pool.

The cost of the mine

The costs of a mining farm include: construction cost, equipment cost, maintenance cost, network cost, and other costs. Maintenance costs include electricity cost and labor cost. When these two costs are different, the cost difference is very large. This is why mining farms are built in places where electricity costs are relatively cheap and stable. Because once the mining machine is running, it works 24 hours a day, so it is also necessary to have a team that works in shifts 24 hours a day, 7 days a week.

Now, with the specialization of mining farms, how a mining farm is designed, including the quality of water cooling, air cooling, and circuit design, has a great impact on the maintenance, cost, and benefits of the mining farm in the later stage. The early mining farm operations were relatively extensive, that is, to build a rack, put the mining machine on it, and start operating. Later, it was found that this operation mode was not feasible, the mining machine had a serious damage rate, and the maintenance cost was too high. Later, ventilation and dust isolation solutions began to be developed, and then there was strict control of indoor temperature and humidity. Now the operation plan of the entire mining farm is still being upgraded and evolved. Because the mining machine is noisy when it is running, when a mining machine is running, the noise is about 73dB(a) at a distance of one meter. When thousands of mining machines are running, the impact on the surrounding area can be imagined, so some places have been designed and renovated, and silent mining farms have appeared.

There are risks in operating a mining farm, including policy risks, technical risks, and initial investment, which are not small amounts of money. The payback period of a Bitcoin mining machine is about 200 to 300 days, depending on the price of the currency and the change in computing power. Add to that the cost of later maintenance, and investing in a Bitcoin mining farm requires a very good ability to resist risks.

Definition of mining pool

After talking about mining farms, let's talk about mining pools. Compared with mining farms, you are probably more curious about mining pools. So what exactly is a mining pool? A mining pool is a collection of computing power. At first, there was no such role as a mining pool in the Bitcoin world. Miners perform calculations and package transaction information by themselves. As more and more people join the mining and computing power increases, the probability of a single miner being able to mine Bitcoin becomes smaller and smaller, but what is more important is that this kind of probability-based income becomes more and more unstable. An ordinary miner and an ordinary mining farm may only mine one block in a month. This is a great risk to the funds of miners. So some people thought, can I pool everyone's computing power together to mine together, the probability of mining a block will be greatly increased, and then I will give the block reward to everyone. So there is a mining pool. The mining machine is responsible for hashing, and the mining pool is responsible for packaging transaction information. In other words, the two actions of computing power competition and bookkeeping are performed by the mining machine and the mining pool respectively.

So, how does the mining pool convince miners to connect the computing power of their own mining machines? Here are two mainstream cooperation models of mining pools: PPS and PPLNS. The PPS model (Pay-Per-Share in English) gives you a basically fixed income every day based on your computing power in the mining pool. Note that this is a fixed income. Suppose your computing power is 1T, and the computing power of the entire mining pool is 100T, then you occupy 1% of the mining pool's computing power. Then, based on the current mining difficulty and the sum of the global total computing power, the mining pool estimates that the mining pool can mine about 4 blocks a day. Note that this is an estimate, not necessarily 4 blocks. The reward for each block can get 12.5 bitcoins. So, the mining pool can get 50 bitcoins a day. Then, the mining pool will pay you 50*1%, or 0.5 bitcoins per day. In this way, even if the mining pool only mines 1 block today, you will get 0.5 bitcoins, which is paid to you by the mining pool. But if the mining pool is lucky and mines 10 blocks, you still only get 0.5 bitcoins, and the mining pool is making more money. But in the long run, you and the mining pool are basically balanced.

The PPLNS model (Pay Per Last N Shares) means "payment based on the past N shares", which means that once all miners have mined a block, they will distribute the newly mined bitcoins in the block according to each person's shares, that is, the proportion of the computing power they have contributed. What is the difference between it and the PPS model mentioned above? In the PPS model, the bitcoin dividends are paid to the miners in advance by the mining pool, so as long as the miner's mining machine speed is stable, the number of bitcoins obtained every day will be very stable, which can be called a fixed investment fixed income model. The PPLNS model is a fixed investment dynamic income model. How much bitcoin you get in a fixed period of time is a matter of luck. If the mining pool can mine many blocks a day, more than it can theoretically mine, then the miners can get more bitcoins. If the mining pool mines fewer blocks than its theoretical value, then the miners will get very little income during this period. If the mining pool runs very poorly and no blocks are mined for a long time, then the miners may not get any income during this period.

Of the top 10 mining pools in the world, about 7 are Chinese mining pools. It is worth noting that the mining pools are established by Chinese people, which does not mean that the miners connected to the mining pools are all Chinese. Russia is also a new force in mining, and South Korea has also been very interested in mining recently. Russia's BitFury was a company that produced mining machines in the early days, and now it has transformed into a mining pool, ranking within the top 10. Another Russian mining pool, Russian Miner Coin, announced that it plans to raise $100 million to compete with Chinese mining pools. This mining pool is said to be owned by Dmitry Marinichev, the Internet adviser to Russian President Putin. In addition, North Korea, which has never had a Bitcoin node, has had a Bitcoin network node since May 2017. If you can see the distribution of Bitcoin nodes around the world on a Bitcoin browser, you will find that the distribution of Bitcoin full nodes is very scattered, as far as South Africa and as close as Japan, North America, South America, and Africa, all shine with the light of Bitcoin nodes.

Back to our topic, mining. If you want to become a miner who performs maintenance in a mine, it is actually quite simple. If you know basic mechanical maintenance and can read circuit boards, you are basically qualified. The life of a miner is relatively simple, because they are usually in a relatively remote place. Therefore, you need to be a geek who can endure loneliness and understand technology, which may be more suitable for this job.

Summarize

Mining farms are gradually becoming specialized, and the payback period is long, which requires a certain degree of risk resistance. Therefore, everyone’s computing power is concentrated, and mining pools are formed;

There are two main cooperation modes of mining pools: PPS and PPLNS. PPS is a fixed-investment fixed-return mode, where the mining pool pre-selects and pays fees to each miner; PPLNS is a fixed-investment dynamic-return mode, where each person's computing power is allocated to the shares and the luck is used to dynamically obtain income.

The upstream of other digital assets is similar to that of Bitcoin. Some have just had mining machines, and some have just had mining pools. They are all still in the development stage.

Author: _Bigfish