Bitcoin Mining: How to Set Up bitcoin miner

Bitcoin is a digital currency which don't have any physical existence. We can buy/sell it only in internet because its is decentralized. If there is no central government regulating it, then how do we know that the transactions are accurate? So the answer is – miners help us to complete the transactions.

What is Bitcoin Mining?

A process by which transactions are verified and added to the public ledger, known as the block chain, and also released new bitcoin. That's called Bitcoin mining.

Anyone who have access to the internet and suitable hardware can participate in mining. The mining process involves compiling recent transactions into blocks and trying to solve a computationally difficult puzzle. The participant who first solve the puzzle gets to place the next block on the block chain and claim the rewards. The rewards, which encouraged mining, are both the transaction fees associated with the transactions compiled in the block as well as newly released bitcoin.

How does Bitcoin mining work?

Lots of people send bitcoins over the internet all the time. It’s very difficult to track the transactions like who sent to whom, so the bitcoin network takes a list of all transactions for a particular period of time and list them in a block. Now it’s a miners job to confirm those transactions and write them into general ledger.

Bitcoin stores details of every single transaction that ever happened in the network in a huge version of a general ledger, called the blockchain.

Bitcoin mining requires a computer and a special program. Miners will use this program and a lot of computer resources to compete with other miners in solving complicated mathematical problems. About every ten minutes, they will try to solve a block that has the latest transaction data in it, using cryptographic hash functions.

What are Hash Functions?

A cryptographic hash function is a kind of algorithm that can be run on a piece of data, like an individual file or a password, producing a value called a checksum. It is an essentially one-way encryption without a key. It takes an input and returns a seemingly random, but fixed length hash value.

The main use of a cryptographic hash function is to verify the authenticity of a piece of data. Two files can be assured to be identical only if the checksums generated from each file, using the same cryptographic hash function, are identical.

Some commonly used cryptographic hash functions include MD5 and SHA-1, though many others also exist.

At this stage, you will understand how bitcoin works, and what mining means. But we need to get from theory to practice. How can you set up a bitcoin mining hardware and start generating some digital cash? The first thing you're going to need to do is decide on your hardware, and there are two main things to think about when choosing it:

Hash rate

This is the number of calculations that your hardware can perform every second as it tries to crack the mathematical problem. Hash rates are measured in megahashes, gigahashes, and terahashes per second (MH/sec, GH/sec, and TH/sec. The higher your hash rate (compared to the current average hash rate), the more likely you are to solve a transaction block.

Energy consumption

All this computing power consume electricity, and that costs money. You have to make sure that you don't end up spending all of your money on electricity to mine coins that won't be worth what you paid.

Use these two factors to work out how many hashes you're getting for every watt of electricity that you use. To do this, divide the hash count by the number of watts.

Bitcoin Mining Hardware

CPU

In the beginning, mining with a CPU was the only way to mine bitcoins and was done using the original Satoshi client. In the quest to further secure the network and earn more bitcoins, miners innovated on many fronts and for years now, CPU mining has been relatively futile.

GPU

About a year and a half after the network started, it was discovered that high end graphics cards were much more efficient at bitcoin mining and the landscape changed. CPU bitcoin mining gave way to the GPU (Graphical Processing Unit).

FPGA

A Field Programmable Gate Array(FPGA) is an integrated circuit designed to be configured after being built. This enables a mining hardware manufacturer to buy the chips in volume, and then customize them for bitcoin mining before putting them into their own equipment. Because they are customized for mining, they offer performance improvements over CPUs and GPUs. Single-chip FPGAs have been seen operating at around 750 Megahashes/sec, although that’s at the high end. It is of course possible to put more than one chip in a box.

While the FPGAs didn't work like a 50x - 100x increase in mining speed as was seen with the transition from CPUs to GPUs, they provided a benefit through power efficiency and ease of use. A typical 600 MH/s graphics card consumed upwards of 400w of power, whereas a typical FPGA mining device would provide a hashrate of 826 MH/s at 80w of power.

ASIC

Application Specific Integrated Circuits (ASICs) are specifically designed to do just one thing: mine bitcoins at mind-crushing speeds, with relatively low power consumption.

An ASIC designed to mine bitcoins can only mine bitcoins and will only ever mine bitcoins. The inflexibility of an ASIC is offset by the fact that it offers a 100x increase in hashing power while reducing power consumption compared to all the previous technologies.

Calculate mining profitability

Before making your miner hardware purchase, calculate the projected profitability of your miner, using this for calculate the Market & Hardware Parameters miningprofitability calculator from The Genesis Block or BTCMining Profit Calculator. You can input parameters such as equipment cost, hash rate, power consumption, and the current bitcoin price to see how long it will take to pay back your investment.

Once you have chosen your hardware, you’ll need to do several other things:

Get a Bitcoin wallet

You need to get a “Bitcoin Wallet“. Because Bitcoin is an internet based currency, you need a place to keep your Bitcoins. Once you have a wallet make sure to get your wallet address. It will be a long sequence of letters and numbers. Each wallet has a different way to get the public Bitcoin address but most wallets are pretty straight forward about it.

Download the software (mining program)

Mining programs are almost all open source and available for free. There are different mining programs available depending on the type of hardware you are running. Mining programs run in the command line, and may need a batch file in order to start correctly, especially if you are connecting to a pool. Typically when using GPUs and FPGAs, you will need a host computer running two things: the standard bitcoin client, and the mining software.

Standard bitcoin client

This software connects your computer to the network and enables it to interact with the bitcoin clients, forwarding transactions and keeping track of the block chain. It will take some time for it to download the entire bitcoin block chain so that it can begin. The bitcoin client effectively relays information between your miner and the bitcoin network.

Bitcoin mining software

The bitcoin mining software is what instructs the hardware to do the hard work, passing through transaction blocks for it to solve. There are a variety of these available, depending on your operating system. They are available for Windows, Mac OS X, and others.

• The two most popular mining programs are CGminer and BFGminer. EasyMiner runs with a graphical interface as opposed to a command line. 
• See your pool's help section for specific details on connecting to the pool with your mining program. 
• If you are mining solo, be sure to connect your mining program to your personal wallet, so that anything you earn gets deposited automatically. If you are mining as part of a pool, you will connect your wallet to your user account with the pool. Coins will be transferred as they are earned.

Keep an eye on temperatures

Mining programs push hardware to their limits, especially if the hardware was not designed for mining in the first place. Use a program such as SpeedFan to make sure that your temperatures don't go above safe limits. Graphics cards should usually never go above 80°C (176°F).