MINING POSSIBILITIES

The three ways to mine bitcoins are solo mining, mining contracts, and mining pools. 3.4.1 Solo mining

In solo mining, miners compute hashes individually and the reward on solving a block will be paid entirely to the owner of the hashing computer. The odds of earning new bitcoins are very low and the variance is substantial. A well-equipped solo miner would take an average of 3 months to earn any reward. Mining process is random and memory- less. So if the miner does not solve a block by the end of 3 months, then he or she is not any close to solving a block than he or she was at the beginning of the period. Moreover, the efficiency of a single hardware of certain hashing power reduces with the consistent increase in difficulty. Currently, the difficulty is high, and even with a mining equipment of, say, 1 GH/s, it would take more than 70 years on an average to solve a block. The average time taken to solve a block can be calculated approximately using

Time¼Difficulty 2 32 ð Þ Hashrate

For a hashrate of 1 GH/s and a current difficulty level of 16,818,461,371, the time taken to solve a block is

53 Bitcoin Mining Technology

Time¼16, 818, 461, 371 232= 109=60=60=24=365¼2290:55

A solo miner with an equipment of 1 GH/s hashrate would approximately take an aver- age of 2290 years to solve a block. The setup of a bitcoin miner is, however, easy and a user would be in need of hardware mining equipment and software.

3.4.2 Hardware

Miners have experimented with different kinds of hardware with the only motive to increase computation power.Table 3.1 shows the statistics of the mining performance of some of the hardware products used in a Bitcoin mining rig.

There are four main categories of hardware used by bitcoin miners: • Central processing unit (CPU) mining

The CPU, a part of computer, was the earliest device used for mining bitcoins. The cost of operating CPU exceeded the profits from mining new bitcoins. This has been the least powerful and slowest method of mining when compared to today’s standards. The computing power of CPUs is<10 MH/s.

• Graphics processing unit (GPU) mining

Graphics hardware was used to enhance the performance of a CPU. GPU is the 3-D graphics and visual effects rendering system of computer that can also make

Table 3.1 Hardware products

Product AdvertisedMH/s MH/J MH/s/$ Watts Price(USD) Communicationports

Bi Fury 5000 1176 24 4.25 209 USB BFL SC 50,000 166 50 300 984 USB Avalon2 300,000 – – – 3075 USB/ethernet BFL Monarch BPU 600 C 600,000 1714 273 350 2196 PCIe, USB Bitcoin Ultra Enigma 1 750,000 1000 320 860 3200 USB, ethernet AntMiner S2 1,000,000 900 442 1100 2259 Ethernet CoinTerra TerraMiner IV 1,600,000 – 500.2 2100 3199 Ethernet HashFast Sierra Evo 3 2,000,000 1492 294 2200 6800 USB KnC Neptune 3,000,000 1429 231 2100 12,995 Ethernet

HashCoins Zeus 3,500,000 1436 – 2400 10,999 USB

Extolabs EX1 3,600,000 1895 379 1900 9499 USB, ethernet

Minerscube 15 15,000,000 – 1666 2475 9225 Ethernet

complex calculations in high-end video games and is efficient at solving transaction blocks by SHA mathematics. GPUs are faster and more efficient than CPUs. Mining rigs are specifically built for the purpose of mining bitcoins. Rigs built using graphic cards cost about a few hundreds of dollars; however, they are not profitable anymore. High-end Intel- or AMD-based rigs have a computing power in the range of 200 MH/s to 2 GH/s. ATI and NVIDIA are some of the main vendors of GPU. • Field-programmable gate array (FPGA) mining

FPGA is an integrated circuit that can be customized per users’ needs after manufacturing. Bitcoin miners utilized these chips to support mining, as they can operate at high hashrates with low-power consumption. The range of computing speed is much higher than GPUs at around 100 MH/s to 25 GH/s. Mining using FPGAs was once dominant in the industry for its ease of implementation and is still prevalent on a much smaller scale.Sklavos and Koufopavlou (2005)had illustrated the implementation of the SHA2 hash function using FPGAs. However, it is necessary to combine a few chips together to match the performance standards of application- specific integrated circuit (ASICs).

• Application-specific integrated circuit (ASIC) mining

ASIC has been pivotal in the growth of semiconductor industry over the last few decades. With the increasing popularity of Bitcoin, the need for more computation speed led to the development of ASICs that are designed especially for bitcoin mining since 2013. The most efficient bitcoin mining equipment utilizes custom-designed ASICs. They are expensive because of the specialized and time-consuming fabrication. A single chip can compute at the rate of 5-500 GH/s. Bitcoin ASICs of 28 nm LP (low-power) specification, currently used, are highly efficient in comparison to other mining equip- ment. ASICs with computing power of 2 TH/s and much higher are being designed.

3.4.3 Software

Special software is necessary to connect the miners to the blockchain and mining pool. As an interface, it is responsible for delivering the work to the miners, receiving the com- pleted work from the miners, and transmitting this information back to the blockchain and mining pool. Mining software can operate on operating systems including Windows, Linux, and Mac OS X. It has also been designed to work on Raspberry Pi, with a few modifications for drivers depending on the mining setup. The software mainly supports the display and monitoring of the general statistics such as the equipment temperature, hashrate, fan speed, average speed of the miner, and overlock periods.

Some of the most commonly used mining software includes the following: • CGMiner

This is currently the most popular mining software as it is based on the original code Cpu Miner. The coding language is C and works on all platforms including

55 Bitcoin Mining Technology

Windows, Linux, and Mac OS X. Its framework is OpenCL (Open Computing Lan- guage); therefore, it can operate on different mining platforms like CPU, GPU, FPGA, and ASIC. Its features include overclocking, monitoring, fan speed control, remote interface capabilities, self-detection of new blocks with a minidatabase, and multi-GPU support and CPU mining support.

• BFGMiner

BFGMiner is a modular ASIC/FPGA miner. It is written in C language and has OpenCL framework. It is a derivative of CGMiner with a few improvements in its features like dynamic clocking, monitoring, vector support, integrated overclocking, fan control, and remote interface capabilities.

• EasyMiner

A GUI-based miner for Windows, Linux, and Android. It also includes support and binaries for RPi, OpenWrt routers, and others as well. EasyMiner acts as a con- venient wrapper for the built-in CGMiner and BFGMiner software.

• Bitminter

This software is like a mining pool that pays the user with the share of coins it creates and the income from transaction fees. Its framework is OpenCL and allows the user to mine on GPUs or ASICs/FPGAs. It is coded in Java. Bitminter assures a good mining speed and long polling in order to reduce stale work.

Other commonly used software are BTCMiner, Poclbm, and DiabloMiner. There are many software available that differ in the coding language and other features, to support the diverse needs of the miners. It is highly important for a miner to choose the appro- priate software.

3.4.4 Factors to consider

Some of the factors to consider while selecting the suitable hardware and software for mining include the following:

• Cost of mining equipment

The cost of the mining equipment depends on the hashrate and the lead time (amount of time that it would take to receive the product from the order time). The cost is usually measured per GH and the average consumer price ranges between $5 and $10 per GH. Difficulty increases consistently with increase in hashrate by 10- 20% in a fortnight. So the average useful life of the mining equipment is about 3-6 months approximately. Successful miners in the industry need to reinvest the profits earned consistently in updating the mining hardware and software several times. Before purchasing the equipment, it is possible to calculate the projected profitability and estimate how long it would take to pay back the investment. As the market price of bitcoin increases and advanced ASIC devices hit the market, many new miners are drawn into the system. The capital expenditure of the miners and operating expenses

increase over time, owing to the increased hashrate of the network and difficulty. However, the value of bitcoin would also grow proportionately.

• Electricity cost

Hardware with less power consumption is preferred as they are more efficient and emit relatively less heat. An average of 1-1.2 W/GH is the standard. For the entire Bitcoin network currently, at $100 per MWh, the electricity cost incurred would be $70,712,000 per year.

• Difficulty

Difficulty is the measure of how difficult it is to find a hash below a given target. It is an arbitrary value and has no unit. It is recalculated every 2016 blocks based on the assumption that the 2016 blocks would be solved in exactly 2 weeks if everyone had been mining at that difficulty level. Intuitively, increased difficulty indicates the decrease in the probability of generating a block at a given computation power. The current expected probability is a reduction of about 10-15% for every 2 weeks.

3.4.5 Mining contracts

Mining contracts are for those who would like to invest in bitcoin mining without the hassle of either managing the hardware or operating the software. These contracts pro- vide mining services, with specified performance for a certain period. Mining shares are also available, that is, shares of hardware of large-scale mining centers. Cloud mining actually means using shared processing power run from remote data centers. A user only needs a home computer for communication purposes, optional local bitcoin wallets, and the like.

There are three types of mining contract options: • Hosted mining

A user leases a mining machine that is hosted by the provider. It contributes some systematic risk to the network. For this type of mining, when a substantial amount of computing power is consolidated in large hosting providers, there is a possibility for the provider to control the network to a certain extent.

• Virtual hosted mining

In virtual hosted mining, a user can create a virtual private server to mine bitcoins and also install his or her own mining software.

• Leased hashing power

A user can lease an amount of hashing power without having a dedicated physical or virtual computer from a data center that is formed by a group of bitcoin miners. The data center then takes a share from any newly mined bitcoins.

Some of the leading mining contractors include E-Pickaxe, Antminer, KnC, Cloud Hashing, CoinTerra, NimbusMining, and CloudHashers. Joining a mining pool has advantages including no added electricity costs, equipment and concerned problems

57 Bitcoin Mining Technology

(i.e., ventilation and hardware failures), system building, and software configuration. The setup is practically instant. Some of the disadvantages are lower profits (as the operator bears the incurred costs), lack of control, and flexibility. With the consistent increase in the difficulty metric, the value of the hashrate that a user buys in a contract decreases over time. In certain cases, such contracts turn out to be profitable, but for the majority, it ends up as a costly lesson.