How to Mine BitCoins

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bitcoin mining
bitcoin mining

Although BitCoin is a distributed, peer-to-peer currency, it has to have a set capacity for it to retain its value. For this reason, there will be a total of just under 21 million BitCoins available for circulation.

However, if 21 million BitCoins were to become available all at once and there wasn‟t enough demand for them, the BitCoins would be essentially worthless. For this reason, the rate of new BitCoins entering circulation must be tightly controlled so that BitCoins do not flood the market, instead being introduced gradually over the next 100 years or so. This is where BitCoin mining comes in.

BitCoin mining is the process of using a computer to generate blocks, which are used to process and verify the transactions which occur between the time the block was generated and the time the previous block was generated. Blocks contain data from the previous block so as to create a block chain, which contains information about every transaction within the chain.

Creating a block requires a lot of work, which translates to a lot of time and a lot of computer processing power. So, as an incentive, anybody who successfully creates a block is given a reward (currently 25BTC, worth roughly 250 USD at the time of writing) as well as any transaction fees included in the transactions hashed in the block.

There are a few catches, though. The network is designed to maintain a block production rate of a new block every 10 minutes (or 6 blocks an hour). As more people begin to mine with more powerful computers, the difficulty is adjusted so that it takes longer for a block to be produced (making it harder for each individual to be the producer of a block).

The other catch is that the reward for each block produced is halved every 210,000 blocks. Currently there are around 142,000 blocks in existence, so it will be a while before the reward amount falls. When it does reach 210,000 blocks, though, the reward will drop to 25BTC. When 420,000 blocks have been produced, the reward will fall to 12.5BTC, and so on and so forth.

Once the 21 million BitCoins have been produced there will no longer be a reward, although the producer of the block will still receive all transaction fees for that block (which, by this point, will be significant enough to be a reward in itself).

What do you need to mine BitCoins?

At its most basic, all you need for BitCoin mining is a computer with a BitCoin mining application and an Internet connection. Having said that, there‟s a difference between mining BitCoins and mining BitCoins well. The applications used for mining BitCoins make use of your graphics card, which can carry out many calculations at the same time (far more than possible with even the best CPUs). Put simply, more powerful graphics cards can carry out more calculations at once and carry them out faster.

BitCoin mining performance is measured in hashes per second (hash/s), or the number of times the graphics card can convert the data supplied to it into a fixed-length string of characters. When a hash is generated with the correct value a block is created, so the higher the hash/s value of the graphics card, the faster it is likely to create a new block.

Most mid-range desktop graphics cards today (such as the AMD 6750 for $120) are capable of producing around 170Mhash/s (Megahashes per second) – that‟s 170 000 000 hashes per second.

On the flip side, some people build servers made specifically for BitCoin mining. These may have 3 or 4 of the most powerful graphics cards currently available, which working together are able to produce over 2Ghash/s (Gigahashes per second) – that‟s more than 2 000 000 000 hashes every second.

Having said that, you can still successfully mine by using the graphics card in your computer, although upgrading it to a more powerful graphics card to improve performance can still be beneficial.

To mine using a Mac you really want to be running Snow Leopard or later – earlier versions of OS X can‟t make use of the graphics card and are too slow to be worth the hassle.

Mining for BitCoins is really easy, and just needs to be set up then left to mine. First you‟ll need to choose how you want to mine. It boils down to two options: mining by yourself, or mining as part of a pool (where you pool your computer‟s work with other members and split the rewards when a block is produced).

If you mine by yourself, you‟ll get to keep 100% of everything you earn. Just bear in mind that there‟s no way of knowing if and when you‟ll produce a block. Conversely, working for a pool means that you‟ll get a steadier income (as the pool is more likely to produce more blocks than you are by yourself), but you‟ll sacrifice some of your earnings to the person running the mining pool.

Solo Mining

Configuring the BitCoin Client

Before we can start mining, we need to set up the client to act as a server that communicates with the BitCoin network so that we can mine by ourselves. This involves editing a file called bitcoin.conf (or creating one if it doesn‟t already exist). This is stored in the Application Support folder, along with the other BitCoin files.

First, browse to the Application Support folder to see if there is already a bitcoin.conf file. If there is, open it with TextEdit. If it isn‟t, we‟ll open TextEdit anyway to create the file.

When we have TextEdit open, make sure that you‟re working in Plain Text mode (as formatting plays havoc with program files) by pressing cmd+shift+T. Then enter the following text:

rpcuser=username

rpcpassword=password

rpcport=8332

server=1

You can change the username and password if you wish; for solo mining it doesn‟t really matter at all either way. rpcport is the port which BitCoin uses for uploading and downloading new block information, and server=1 makes BitCoin enables server functions allowing us to mine without connecting to a pool. Save the file; if you‟re creating it from scratch, make sure to disable “If no extension is provided, use .txt”.

Now you can start BitCoin and it will automatically start up the server in the background. When this happens it will start to download all the previous blocks it can find, which can take a very long time. This can affect DiabloMiner, so you‟ll need to wait for it to finish.

Configuring DiabloMiner

When you start DiabloMiner for the first time, you‟ll be greeted with the set-up wizard. These are the settings you‟ll want to enter:

Server host name or IP address: localhost

Server port number: 8332

Miner username: username (or whatever username you chose)

Miner password: password (or whatever password you chose)

Start mining automatically on log-in? No (so you can change settings)

That‟s it! DiabloMiner will take care of the rest. However, if you see an error like:

ERROR: Can’t connect to Bitcoin: Bitcoin returned error message: Bitcoin is downloading blocks…

It‟s because the BitCoin client hasn‟t finished getting set up yet. Unfortunately there‟s no easy way to tell when it‟s ready, so you‟ll just have to wait and try again later.

Mining Pool (BTC Guild)

Creating a BTC Guild Account

The first step to mining in a pool is creating an account with the mining pool. This is usually done through the pool‟s website – in this case http://www.btcguild.com.

Creating an account is just like creating an account on any website. There‟s a link for creating an account on the left hand side of the page under the login box. Just choose a username and password and then click “Register”. You‟ll instantly be logged in with the username you just chose; there‟s no confirmation email to worry about.

Creating a Worker

The next step is to create a worker account – each computer used for BitCoin mining needs its own login (which allows you to set up multiple computers all mining under your one main username).

If you don‟t have any workers yet, red text will appear at the top of the screen telling you to set up a new worker. It‟s a link; click it and you will be taken to the Worker page which allows you to add a new worker.

Creating a new worker just involves providing a worker name (which is in the form of yourusername_workername where yourusername is your BTC Guild username) and a password for that particular worker (we‟ll refer to it as worker_password).

Configuring DiabloMiner

When you start DiabloMiner for the first time, you‟ll be greeted with the set-up wizard. These are the settings you‟ll want to enter:

Server host name or IP address: uscentral.btcguild.com

Server port number: 8332

Miner username: yourusername_workername

Miner password: worker_password

Start mining automatically on log-in? No (so you can change settings)

All done! You should see text to the effect of:

[6/23/13 2:31:08 AM] Started

[6/23/13 2:31:08 AM] Connecting to: http://uscentral.btcguild.com:8332/

[6/23/11 2:31:08 AM] Added ATI Radeon HD 6750M (#1) (5 CU, local work size of 256)

Waiting…

59005/62050 khash/s

When you see that last number you know that you have successfully connected and you have started mining. Congratulations!

You‟ll want to give it a while – a few days, maybe more – before you collect any payouts. At that point you can supply your receiving address to the pool website and they will transfer your earnings straight to your wallet. Simple!

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