Bitcoin Mining Contracts: How Do They Work?

Bitcoin Mining Contract

I remember the early days of bitcoins, mining them was possible from any PC that could verify transactions and run a version of the blockchain. As the network grew and expanded, the difficulty of mining increased, and too did the requirements on the average PC.

This resulted in huge mining companies that run thousands of computers to reap the rewards that mining provides. This very much leaves the solo miner stranded without much hope.

This where mining contracts come into play, allowing the solo miner to maximize the power of their own hardware. 

What is a Mining Contract?

A mining contract is an agreement where the customer pays for the mining output available from your hardware. This type of mining contract is for those who want to reap the benefits of bitcoin mining with limited hardware.

Bitcoin or any mining for that matter is extremely energy-intensive. Bitcoin and Ethereum utilizing the proof of work algorithm, most mining contracts are based on this algorithm.

The idea is to pay upfront for the work done now, in the hopes of the value of the crypto being mined going up.

Mining Contract

The simplified idea is that you are paying somebody with specialized hardware to mine an agreed-upon value of crypto.

With the way the crypto markets have been shooting upwards, that isn’t the worst idea.  

What Are the Advantages of These Mining Contracts?

Well for one, the customer doesn’t need to worry about any of the equipment and hardware for mining themselves.

That now becomes somebody else problem. It’s like going to get a mechanic. Sure, you can probably replace the part in your car yourself with a little bit of effort, struggle and time, but the mechanic has specialized equipment to make it that much quicker and easier.

I’m sure most of us have tried doing something that seemed simple at first on our own, then later came to regret it and vow to next time hire a professional. Well, mining contracts are the equivalent of going to the mechanic to replace the part instead of trying to do it yourself. 

So what are the advantages of these mining contracts?

As with any contract based on value, you are subject to the fluctuations of that specific currency going up or down. It is possible that, If you choose to buy mining contracts, you could be paying a premium for something that will be worthless in 2 weeks.

Then again, the opposite can always happen, you could pay pennies for something that can be worth hundreds by the term end. 

If providing contracts to clients, the return on investment for your mining rigs needs to be taken into account. Successfully mining a bitcoin block in the past yielded 50 bitcoins.

Now that number is far less for much greater work input, sounds like life in general, I know… The point is, the cost of the bitcoin mining rigs needs to be paid off first before you start to see any profits, and by the time that happens, the value of the crypto you are mining may have shifted greatly.

How Can I Mine Crypto?

Miners get paid for their work as auditors. They verify the legitimacy of bitcoin transactions and keep the network secure.

Miners help prevent the double-spending problem. It is a scenario in which a bitcoin owner illicitly spends the same bitcoin twice.

It gets a little bit complex, but all you need to know is that miners are a necessary and important part of the network.

Miners are necessary to maintaining the crypto ecosystem, as it is the only way to introduce new bitcoin into the market.

You could say miners are “minting” new currency to be circulated, rather than the way we imagine fiat currencies like USD being printed and minted by federal reserves and central banks.

Block

If you want to mine crypto then you need to know a few things. 1 Block of bitcoin is 1 MB worth of transactions. Once 1MB of bitcoin transactions have been verified, the miners are eligible to be rewarded with a quantity of said cryptocurrency.

The important thing to mention about this is that not everyone who verifies a transaction will get rewarded for one. In order to get paid, a miner needs both, good equipment and a fair bit of luck. 

Hash

Mining a block of bitcoin you need to be the first miner to come up with a 64-digit hexadecimal number ( a hash) that is less than or equal to the target hash.

So it’s basically like throwing at a dartboard, you might get lucky, you might miss. 

Hash Rate

In order to mine Bitcoin successfully, you need a high “hash rate” which is a way to quantify how much computing power your hardware provides per scond.

This is measured in Megahases per second (MH/s), Gigahases per second (GH/s), and Terahashes per second (TH/s)

Hash Rates

Hardware

To give you the highest advantage possible for being the first miner to solve a problem, the best equipment is needed. In this case, the best equipment is that which provides the most hash rate per second.

The most important piece of hardware that can provide this computing power is the addition of GPU (graphics processing unit) to your mining rig. Nowadays, companies such as Nvidia and AMD are producing purpose-built GPUs not for gaming but for achieving the highest hash rate possible.

Mining is a big business and even the big companies take notice of it. Nvidia has always been at the forefront of mining since the early days of bitcoin mining. Gamers were best equipped with specialty GPUs capable of amazing gaming quality, but also very high hash rates. 

ASIC Miners

Another type of hardware that is used for mining is a dedicated rig known as an ASIC miner. ASIC stands for application-specific integrated circuit.

These rigs are usually pre-built and sold by companies as a way for beginner miners to get the right hardware without needing to buy GPUs separately and build the rig.

An ASIC miner is often designed to mine a specific type of cryptocurrency, like Bitcoin, Ethereum, Monero, etc.

GPUs

As mentioned, in the early wild west days of bitcoin, most mining was done by rigs comprised of gaming graphics cards. This is still a very viable way to produce a high hash rate.

Current GPU hash rate output dwarfs what early graphics cards were capable of. This is good as the work required to generate a block has gone up significantly too.

If you have some computer hardware laying around and are interested in learning what hash rate it is capable of then check out this site to learn where your hardware stacks up best. 

Examples of Mining Services

Hash-miner.co is an example of a large-scale hash rate provider. They offer monthly and yearly subscription plans to provide a certain hash rate per second.

You can then use this hash rate to mine cryptocurrency solo or using mining pools.

Hash Miner

Hash miners like this one can be super beneficial to taking advantage of the gold rush without having to invest in a ton of equipment.

On the flip side, they also offer specialized bitcoin and hash rate equipment if you were looking to make your own hash rate farm. It could be a big business to sell hash rates and operate a farm as the crypto market is ever expanding. 

If you choose the route of operating your own small bitcoin mining farm then you will need a dependable operating system to control your rigs.

Nice Hash

NiceHash.com offers a free and reliable operating system to manage your network of miners. Not only this, you can sell your hash rate right on their marketplace on their website.

The operating system will help you manage your rigs down from managing voltage, to overclocking each individual rig remotely. 

For the more seriously invested miners, a more involved managing system may be necessary such as one from Awesome Miner, which has added benefits such as auto switching your mining efforts to maximize profitability and is scalable up to 250 thousand machines! That’s a lot of hashes!

Awesome Miner

Conclusion

Regardless of what your intention is, Bitcoin mining is vital to the network and will always need to be performed. The question is whether you want to take advantage of the new gold rush or not.

Mining crypto is just one way to get in on this crazy currency explosion and you can choose to be the seller or the buyer and still make a profit!

Whether purchasing tera-hash rates and using them to mine the bitcoin network hoping to get lucky or providing computing power from your own rig to make a few extra bucks, bitcoin mining contracts have the potential for generating big bucks. 

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