What is Bitcoin? Guide to Bitcoin and how to mine Bitcoin

Bitcoin is wildly confusing. And here’s the bad news: the fact you’re reading this now means you’re late to the game, and it’s going to be tough to turn a profit in Bitcoin mining. Nevertheless, if you want to try your hand at mining bitcoins, here we present the beginner’s guide to generating bitcoins. Also see: How to make money from your hobby.

What is Bitcoin?

Bitcoin is a digital currency that operates independently of a central bank. Encryption is used to regulate both the generation of Bitcoin units and the transfer of the currency.

Bitcoin and terrorism – EU to clamp down on terrorism funding via Bitcoin

According to Reuters, the European Union will move to clamp down on this digital currency which has reportedly been used to anonymously fund terrorism – the Paris ISIS attackers reportedly had a Bitcoin wallet worth more than $3m.

EU interior and justice ministers will gather in Brussels later this week to discuss ways in which they can “strengthen controls of non-banking payment methods such as electronic/anonymous payments and virtual currencies and transfers of gold, precious metals, by pre-paid cards”, according to draft conclusions of the meeting seen by Reuters.

What is Bitcoin worth?

In essence, the more bitcoins mined or ‘found’, the harder it is to ‘find’ more coins. While once it may have been possible to use a high-powered PC at home to mine Bitcoin on its own, the sheer popularity of mining Bitcoin means it’s viable only to join a pool. This is where your computer works alongside others to mine bitcoins. It’s much like SETI@home, where clusters of computers work together to try and find extra-terrestrial life. See also: The rise of Bitcoin and why you can’t mine them on your own.

Without getting bogged down with the technicalities, the groups of computers in a Bitcoin pool are crunching numbers to mine a block. For every block mined, you get 25 coins. Currently each coin is worth £150, so a block is worth £3,750. That may not be the case for long, though and some analysts think that Bitcoin is doomed already.

Bitcoin value in Sterling

Bitcoin value in Sterling

Google’s currency converter lets you check very quickly how much a Bitcoin is worth.

How to mine bitcoins: Get started with Bitcoin mining and generate your own bitcoins

Let’s say you try and mine a block of bitcoins with just one home PC. This is a bad idea: the electricity costs will be higher than the money you make from any mined bitcoins and you may have to wait months – or longer – before you get any return. By joining a pool, you should get smaller payments more regularly.

However, you could still end up out of pocket even if you join a pool such as Slush’s Bitcoin pool – one of the most popular ones. When a block is completed, you get a share based on the number of other ‘workers’ who helped mine the block. A fee – around 2 percent – will be deducted from this, and you could well earn only half the amount you’ve spent in electricity costs.

Of course, if you’re able to run the mining software on a computer for which you don’t pay the electricity bill, you might be quids in (but we don’t recommend running it on your work PC!).

So, if you’re still interested, here’s a simple step-by step guide to getting started with Bitcoin mining:

Step 1. You’ll need a ‘wallet’ to start with. This is a bit like a PayPal account where your bitcoins can be stored. You can store this wallet online, or locally on your PC. You’ll need to download a large ‘blockchain file’ to use a wallet. For an online wallet, you might like to try coinbase.com. With a coinbase account, you can buy, use and accept Bitcoin currency.

How to mine bitcoins - Coinbase

How to mine bitcoins - Coinbase

Step 2. Join a pool, such as Slush’s Bitcoin pool. There’s always a danger that the pool owner might keep all 25 bitcoins when a block is mined, since the whole 25 coins are paid to one person: the pool owner.

Slush's pool - How to mine bitcoins

Slush's pool - How to mine bitcoins

You’ll need to choose a trustworthy pool owner. Slush’s pool was the first and has been operating since December 2010. By the site’s own words, it has a “a long history of stable and accurate payouts”.

Step 3. Install a Bitcoin ‘miner’ on your PC. There are two types: CPU and GPU. For beginners, Kiv’s GUI miner is recommended. You can find out more about how to use Kiv’s GUI miner here. 

Step 4. Log into your Bitcoin pool account, and enter your wallet address. You will be able to get this by checking your wallet account which you created in step 1.

Step 5. Register your workers. Each worker is a sub-account within your Bitcoin pool account. You can have more than one worker running on each computer.

Step 6. Enter your worker credentials into your Bitcoin mining software, and then enter the main pool URL so your workers can start mining.

 See also: How to mine altcoins