Game Theory Group

The Blockchain Brief

An Interview With Two Bitcoin Miners

An attempt at simplifying blockchain concepts, companies, and coins.
Boris Revsin

We all know that Bitcoin has a maximum circulating supply of 21 million coins. Of those 21 million, approximately 16.7 million are already circulating

How did these coins come into existence? Miners!

At the core, miners provide one extremely important service to the success of most popular cryptocurrencies: they secure the blockchain by verifying the transactions between all of us. The software they run on their computers ensures that when I sends you a Bitcoin, the transaction is legitimate.  

Miners are incentivized to run this software (which, as we shall learn, is expensive in many different ways) by earning Bitcoins. They can earn them over time -- through simply running the Bitcoin mining software -- and, they earn them every time they verify a transaction for one of us.

Does this mean all miners are filthy rich? I sat down with two miners to learn the real story of Bitcoin mining in 2018.


The Mining Interviews with Mike G and Andrew V
January 4th, 2018


Why did you get into mining?

Mike G: I got into mining because I was fascinated with Bitcoin. Rather than buying the currency, I could spend less to buy a miner that would just generate the currency for me passively.

Andrew V: I got into mining completely by chance. I had been trading cryptocurrencies as part of two informal funds. A friend involved in the space simply asked, "Hey, do you want to split buying an AntMiner S9 and a GPU rig, and see what this whole mining thing is about?"

Let's jump right into it. Are you guys filthy rich from mining?

MG: 
I didn't get into mining until Q2 of 2017, so unfortunately, I am not filthy rich from mining. Our miners generate a nice amount of passive income, though.

AV: I just started mining in October of 2017, so I am also not filthy rich. Assuming the mining difficulty doesn't go crazy and alter the rewards, and USD/BTC is over $3,500 to $4,000 (Editor note: currently $15,000), it is lucrative over time. Right now, an S9 miner will produce a little under 1 BTC mining for one year. It is a long play.

Are you using your laptop to mine? If not, what are you using?

MG: 
We're not using laptops since the difficulty of mining the coins we are interested in is just too high. We're using ASICS from a Chinese company called BitMain.

AV: We are using BitMain AntMiner ASIC S9s.

Who's selling these machines? How much do they cost?

MG:
 In October/November, 2017 they were sold for $1,400. Now they've doubled up the price and each machine is around $2,800.

AV: An S9 retailed from BitMain for $1,415 back in October, 2017 + a $100 PSU, and shipping. However, BITMAIN charged $2,725 and $2,320 on the last two batches of S9s so the price is increasing.

What are you mining?

MG: 
We are mining Bitcoin and Bitcoin Cash.

AV: We are mining Bitcoin.

I hear mining is purportedly ruining the environment. How much electricity does this really use?

MG: 
They use a LOT of electricity. Each S9 miner would add at least $10/day to a normal residential electric bill. We are utilizing a solar panel array on top of our building to help offset some of the environmental effects.

AV: The S9s do use A LOT of electricity. Even a traditional data center isn't setup for the power density. From the environment perspective: you have a power plant. Natural gas, coal, nuclear, whatever... those plants generate all our electricity -- more than we actually use -- and that excess literally gets grounded into the ground. This means our power plants are not burning any more natural gas, coal, nuclear, etc.

We are simply using more of the capacity generated and sending less excess in to the ground... the exception being if you are in a geography maxed out electrically, which we are not.

Where is the best location to mine? Where are you mining?

MG:
 The best location to mine is somewhere with low electric costs.

AV: The best location to mine is where there is cheap electricity. Electricity is the main cost associated with operating an S9 and a mining operation. Common markets are in Pennsylvania (Shale power), Washington state (e.g. Spokane), Texas... and certain pockets where you have cheap electric due to hydro-electric or other unique electric infrastructure rates (/kWh) low.

Like in Mass. as a residential client you are paying $0.26/kWh for electric (plus delivery). In some of these markets, you are paying <$0.06/kWh. That is the difference between $260/mo vs. $60/mo for a single S9.

What is a mining pool? Which are you part of?

MG: 
Mining pools are groups of miners who pool their processing power together and share the rewards proportionally. I use SlushPool for Bitcoin and ViaBTC for Bitcoin cash. We switch between whatever we think will be most profitable in the next few weeks. Mining pools are necessary for small miners who don't own huge warehouses full of Hash-Power. A miner without a pool could be mining for years without finding a single Bitcoin block. That is too risky.

AV: A mining pool is a collective of individual S9s with different (or not different) owners, working/hashing together to solve the algorithm to be rewarded with a BTC (while also verifying all the Bitcoin transactions). I use SlushPool. BitMain/AntMiner runs a pool called AntPool, but their payout is not as attractive because of the ridiculous fee they charge.

Pools exist because of the randomness of the payout of the BTC. Since it is random, people band their S9s together (in mining pools) to spread the risk and share the collective reward proportionally.

Mining pools represent such a huge percentage of miners. Are they a threat to the entire Bitcoin blockchain?

MG: Mining pools can be huge threats if they control over 50% of the network. Luckily, that would be incredibly difficult to do for something like Bitcoin

AV: If one miner started to account for a vast majority, then yeah, you would be talking about potential problems.

- Boris

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Boris Revsin