In recent years, crypto assets have become more popular than ever, garnering mainstream attention worldwide. The number of cryptocurrencies available to purchase is on the rise, however, Bitcoin still sits on the throne as the king of cryptocurrency.
Bitcoin is created by a process called mining. Bitcoin miners are responsible for validating transactions and securing the Bitcoin network. Mining can be a great way to get Bitcoin without having to buy it. Unfortunately, making a profit off of Bitcoin mining in 2021 is a lot more difficult than it used to be. However, with the right knowledge and tools that you’ll gain from this beginner-friendly guide, you can make a handy passive income from mining Bitcoin in Australia.
A brief overview of Bitcoin
Since its founding in 2009, Bitcoin has been the cornerstone of the cryptocurrency industry. The creator of Bitcoin, Satoshi Nakamoto, is a prominent figure in the crypto space, but funnily enough, no one actually knows his/her/their real identity.
In 2010, the first Bitcoin transaction was made. Staggeringly a total of 10,000 BTC was traded in exchange for two pizzas by a man named Laszlo Hanyecz.
By 2011, competitors arrived on the crypto scene including Litecoin and Namecoin. The competition led to a price drop in 2013, from $1,300 to $400 AUD.
By end of 2017, Bitcoin had put in its all-time high, exceeding $25,000 AUD.
In 2021, Bitcoin’s price skyrocketed to an all-time high in May before. Since then, Bitcoin has cut in half and this was closely followed by the rest of the crypto market. This just reinforces that Bitcoin is still the most important digital currency.
What is Bitcoin mining?
The underlying technology that supports the Bitcoin currency is called blockchain technology. Blockchain technology is a peer-to-peer transaction network. Its function of which is to keep the transaction records of payments on a public ledger. This ledger requires all transactions made to undergo a confirmation process, proving that the transaction occurred. This confirmation process is where the miner steps in!
Crypto enthusiasts who are mining Bitcoin in Australia are conducting these network confirmations as a service to the crypto network, ensuring each transaction has been securely completed. As a reward, miners will be rewarded in Bitcoin that is generated periodically as payment in what’s referred to as blocks.
These blocks are new bitcoins, generated from the mining activity, and will be of equal value to the current market price of Bitcoin.
With regard to Bitcoin specifically, only a finite amount can ever be created. Bitcoin has a maximum supply of 21 Million, 18.5 million of which have been already mined. Hence why there are often similarities drawn between Bitcoin and Gold as both are scarce and precious assets.
What does a transaction confirmation involve?
A Bitcoin miners job in the confirmation process is to solve a ‘Hash’ code, which is created using a cryptographic protocol (hence why it’s called cryptocurrency).
A cryptographic hash is an algorithm applied to data, to securely mask data. In cryptocurrency, these are the transaction details. For Bitcoin, this hash function is known as SHA256.
The transaction hash is a fixed length of random digits, created by the Cryptographic Hash.
It looks something like this:
SHA256 (The quick brown fox jumps over the lazy dog) =
This transaction hash code not only contains information related to a current transaction but also the transaction prior to it. Therefore this additional information allows a miner to verify definitively that the transaction occurred in a particular sequence on the blockchain. Once this confirmation has been made, the receiving wallet accepts that the transaction has occurred.
The Hash power of a mining setup or mining rig will determine the capacity for conducting these confirmation tasks. More information about this will be covered below.
Cloud or local mining?
There are various ways to mine Bitcoin in Australia on your computer. In 2021, there are two common options for mining Bitcoin. These are:
- Personal mining
- Cloud mining
A thorough explanation of both these mining types has been provided below.
Surprisingly, It is possible to use a personal computer for mining, and is often done through a graphics card unit (GPU). This is also referred to as GPU mining. As demand has been on the rise in recent times, the selection of compatible computer hardware is broadening.
There are also mining-specific hardware standalone units available, such as Application-Specific Integrated Circuit (ASIC mining). ASIC chips are specifically designed for conducting crypto mining and have the advantage of producing a greater efficiency in Hashing power for the power used- compared to a regular computer.
The cost for an ASIC miner is variable, and it’s best to evaluate the output vs cost. These mining machines are evolving, and advancements in hardware and design typically result in improved efficiency.
Personal miners will often utilise their output by being a part of a Bitcoin mining pool. When a user mines on their own, there is a higher degree of difficulty obtaining a reward due to the competitive landscape of crypto mining. These mining collectives will let Australian miners work alongside others, having a better chance to be rewarded more often.
If you’re mining Bitcoin in Australia, It’s important to keep in mind that it’s crucial to select reputable and established mining pools and understand the payout and fee structure of pool membership.
For aspiring Bitcoin miners in Australia, cloud mining can seem attractive because the barrier for entry is low. However, cloud mining also has its downsides.
Hosted cloud mining is where a customer will enter a contract or purchase a piece of physical mining hardware located in a facility (also referred to as mining farms).
Leased Hash Power is the most common type of cloud mining. This allows a user to purchase computing power from a mining farm. The customer is then able to take a cut of the overall profits while assisting in the maintenance and running costs of the mining farm.
The most important aspect for these mining options is the ‘break-even point.’ This is when you make the same amount of money from cloud mining as you put into it. It is extremely difficult to make a profit as an individual cloud miner, as the amount of Bitcoin rewarded to a miner will drop over time.
Mining difficulty is a metric referring to the average time between the creation of blocks from mining activity. This figure can fluctuate – as it is assessed by the network, in the example of Bitcoin, every 10 minutes. This will inherently govern how likely you are to be rewarded for all your efforts, and in more recent times, it has become a lot more competitive.
There are seldom instances in Australia where cloud mining contracts can be profitable. And in most instances, more profit can be generated by buying Bitcoin and other cryptocurrencies compared to cloud mining.
Hardware built for cloud mining can be very expensive. As a cheaper alternative, several people opt for cloud mining services such as Genesis Mining and Hashflare. These services will give you access to cloud-based mining of coins such as BTC, DASH, ETH, LTC, ZEC, and XMR.
How profitable Is Bitcoin mining?
Mining can be profitable in 2021, however, there is no doubt it was more profitable in the past. Even though the performance yield of current technology is far better than it was, the competition and difficulty of earning a reward for mining efforts has increased. The reason it remains profitable is purely based on the costs of mining vs output relative to difficulty at any given time.
The ultimate decision will come down to each user, and how much they are wanting to invest. Typically the more expensive equipment, the better the earning potential will be.
There is still room for improvements with current technology, especially with ASIC equipment and software, as new developments and improvements will result in further efficiencies in the power consumption costs and hash power output.
Here are other reasons why mining is still profitable in 2021:
- More efficient hardware is available in the market as time passes, giving you an advantage over older hardware users.
- Lower barrier of entry into renewable electricity options (solar).
- Miners can take advantage of the fees when trading Crypto assets. Some fees may be high, and some are low. It varies on the exchange fee structure.
- More trustworthy pools are becoming available, and becoming a member will help the miner earn income in a more stable fashion.
Bitcoin mining difficulty in 2021
Mining difficulty is a metric of determining how difficult it is to mine a Bitcoin block. This difficulty scale is adjusted every two weeks or every 2016 blocks, meaning the average time between blocks remains at 10 minutes. In 2021, Bitcoin mining difficulty dropped significantly due to the China cryptocurrency crackdown. Past indicators have suggested that around 70% of the world’s Bitcoin mining took place in China prior to the government-led crackdown. Fewer people mining, means there are fewer blocks being solved every day. According to blockchain.com, Bitcoin mining difficulty reached a 1-and-a-half-year low as of July 2021.
Tips on mining Bitcoin and how to start
There are two primary ways to enter this space and mine Bitcoin in Australia:
Method 1: Mining Bitcoin through a cloud mining platform
- Select a mining service provider. Compare various platforms for cloud mining, consider the contracts and costs/fees associated and do your homework to find out if they are a reputable cloud mining provider.
- Choose a mining package/contract. After reviewing, check how long the contract will last. Aside from that, consider the mining hardware that the provider will use and compare that to what’s on offer by competitors.
- Next is to select a reputable mining pool. After purchasing the plan, many cloud mining services will need its users to pick one. Comparing different pools is necessary as well, considering the track record and real user reviews.
- Once you’ve started mining, it’s recommended to transfer all earnings to a safe BTC wallet in your control.
Method 2: Mining Bitcoin at home through personal software and hardware
- Before you start mining Bitcoin, you can utilise a mining calculator. This can be found online easily via Google and is necessary for Bitcoin mining. This will give you a good indication of whether mining is worth the time or not.
- Select the best mining hardware, for your budget. Comparing various hardware features, power consumption vs hash output is crucial before deciding what to use and the cost of mining devices for ASIC vs a GPU/CPU setup.
- Next is to select a mining pool. After purchasing the plan, many cloud mining services will need its users to pick one. Comparing different pools is necessary as well, considering the track record and real user reviews.
- Download mining software. There are many programs for crypto/Bitcoin mining. Some software can be more technical to use, while some may provide a more user-friendly graphical user interface. Mining pools may also provide or suggest a particular software to use.
- Once you start mining, it’s recommended to transfer all earnings to a safe BTC wallet in your control. It’s important to note, regular maintenance is also completed on your mining system, as per the recommendations.
Factors to consider in choosing the best hardware for mining
This is a representation of the number of calculations, which the hardware can do per second. It’s a crucial parameter, a higher hash rate will boost the chances of solving a calculation to result in sealing off the block and earning you a reward.
In measuring hash rate, it should be in mega hashes per second (MH/second) or gigahashes per second (GH/second) or, and terahashes per second (TH/second). For Bitcoin, the range is from 336 MH/s to 14,000,000 MH/s.
Another factor to consider for those who want to mine Bitcoin in Australia is energy consumption. There is a critical relationship between Hash Rate and power consumption when calculating profitability.
The formula is dividing the hash count by the total power watts.
For example, if your rate is at 4.500 MH/sec, and it needs 32 power watts, you’ll have 140.625 MH/sec on every watt.
There’s also an online calculator available to check on an estimation of your power bill using hardware. It’s important to refer to your own power costs, as these do vary around Australia and the world.
Choosing the best software for mining
In selecting the best software, it’s important to also check if your hardware equipment has any software requirements that need to be installed before use.
The software client will control the hardware in conducting the work. This will be primarily solving transaction blocks.
Here are some of the best current software options for a miner:
- Bitcoin Miner – This software has a user-friendly interface, and it runs on both macOS or Windows. It also features pool support, power saving mode, profit reports, and fast share submission.
- EasyMiner – This software supports different protocols for both pool and solo mining, along with performance graphs. It’s compatible with Linux and macOS only.
- RPC Miner – This software is integrated with MacOs systems and APIs.
- CGMiner – This software features a new block-self-detection, which comes with a mini database. It also includes CPU and multi-GPU support and fan speed control. The systems where it’s compatible include Linux, macOS, and Windows.
- BFGMiner – It’s alike to CGMiner, yet the design is for ASICs. It’s suitable for Linux, macOS, and Windows.
What Bitcoin miners should know about mining pools
In the modern landscape of mining, a large proportion of Bitcoin blocks are mined by pools rather than individual miners. This a good reason why you should consider if you’re going to do it alone or participate in a mining pool.
This approach is where mining enthusiasts share their computing power with a collective group of miners in order to seal off blocks and lock-in rewards. They do this because there are more chances of solving a calculation. However, members of the pool will get a divided reward, depending on their input. Which might be appealing as a stable income with a modest reward.
Knowing how to interpret difficulty and finding value when mining a Bitcoin block
A Bitcoin block will take approximately 10 minutes to mine. This metric is also referred to as the average confirmation time, and is the proxy for mining ‘difficulty.’
The mining difficulty is a dynamic parameter that informs miners of the necessary computing power required for block-mining. With specific regard to Bitcoin, there are changes in the difficulty score after every 2016 blocks on the Bitcoin blockchain.
Some of the factors to consider when understanding mining difficulty include:
- The hash rate of the hardware amongst competitors
- The present and future anticipated reward payout for sealing a block
- The historic and present mining difficulty in projecting future difficulty
- Current market price for a bitcoin, and transactions across the network
Guide to Bitcoin wallets
A Bitcoin wallet is a necessity for a miner. It gives you access to your own wallet private keys that will allow for complete digital ownership of your assets.
Risks of using digital wallets for storing cryptocurrencies
- Digital exchanges may run the risk of undergoing attacks or have underlying security issues that aren’t in a user’s control.
- Installing digital wallets can be risky, as someone may be able to login to your email or mobile phone and take control of that wallet.
- Digital wallets are prone to viruses. When a user encounters malicious software, they can scan a hard drive to locate the private keys, or hold your assets at ransom.
Advice for using a digital wallet: What to keep in mind
As a user, it’s important to be very cautious and leave nothing to chance. Make sure to use unique passwords, and store any sensitive your data that can’t be easily obtained. Be careful when opening emails, as some emails can look like it came from a legitimate source but are not.
A recommendation is to use a wallet that doesn’t need an internet connection, such as a Ledger. It’s best to utilise cold storage options for digital assets.
FAQs (Frequently Asked Questions)
Below we have provided answers to some of the most commonly asked questions in regards to how to mine Bitcoin in Australia.
Can I mine other cryptocurrencies aside from Bitcoin?
Yes, it’s possible. There are several ‘Proof of Work’ digital assets that you can consider. Some are more accessible and profitable when compared to Bitcoin.
What’s the amount of power necessary for mining BTC?
The electricity consumption is dependent on the hardware the miner chooses. This will also govern the amount of power that is needed to perform the tasks necessary to yield a reward. According to Canstar, the average electricity cost per kWh across Australia is more than 20 cents per kWh. It should be noted this can change depending on your location.
Can mining secure BTC?
The process of Bitcoin mining is foundational in creating a secure network, by stopping individuals from earning payments by attempting to make changes in the blockchain ledger. It also stops individuals from undoing already sealed transactions, if there were someone trying to reverse their transaction. The proof of work concept of blockchain demonstrates an effective way to stop individuals from defrauding others.
How can I begin mining BTC?
You will need specialised hardware to ensure your you are ming cost-effectively. Nowadays, it’s better by performance and effectiveness, unlike before, where people still use CPUs. You can also look to lease computer hashing power via cloud mining services.
Is Bitcoin mining legal to do in Australia?
Yes, it’s legal in Australia. What’s important is that you use your own electricity.
Is Bitcoin mining taxed by the ATO?
Yes, there are various jurisdictions for digital assets regarding income, sales, payrolls, and capital gain. Nonetheless, investors are liable for reporting taxes locally.
Read our Australian crypto tax guide for more info on tax on Bitcoin mining.