Lili used to work at JP Morgan. She once ran a portfolio for ultrahigh net worth clients. She has a good grasp of traditional finance. In 2018, while working at wealth management firm UBS, she pitched the idea of using bitcoin as a hedge against equity markets. “They all laughed at me,” she said.
Meanwhile, she began to buy her own bitcoins. She did more research. And the more she studied the ethos of cryptocurrency, the more she became troubled by owning bitcoin that was KYC, or “know-your-customer,” meaning that onramps like Coinbase would know her identity and personal data.
This article is part of CoinDesk's Mining Week series.
How to get bitcoin that was truly private, or “non-KYC”? Lili tried using bitcoin ATMs, but those charged a 6% premium and were 20 minutes from her home on the East Coast. Then she had a wild idea. Why can’t I just mine my own? She discovered an online tutorial from a guy named Diverter called “Mining for the Streets,” which gave a practical, step-by-step guide on how to set up a rig and also a manifesto on why it makes sense.
“Don’t fall victim to the narrative pushers that would have you believe mining is ‘too hard,’ ’too expensive,’ or ’better left to the big players,’” Diverter writes. “Sounds an awful lot like the same thing bankers and governments tell the masses about fiat money and economics now, doesn't it?”
Suddenly Lili had a plan. “I just need a machine. It’s not that bad.” She found home mining groups on Telegram. Initially she didn’t know whom or what to trust, since most miners on the board were “Nyms” (as in anonymous, like her), but soon she found an ad for a popular (if older) bitcoin miner, called the S9, for only $300. Why not? If she was scammed, in the worst-case scenario she was only out a few hundred bucks.
It took some headaches and a few trips to Home Depot, but soon Lili had a steady stream of non-KYC bitcoin flowing into her wallet. This wasn’t making her rich. But each day she pocketed around $2 to $3, which soon paid back the cost of the miner. (She paid for electricity out of her normal wages.) “As soon as those rewards started coming in, and after I learned how to troubleshoot, I was hooked,” said Lili, who would later evangelize home mining in a Twitter thread. “This is the best way to stack.”
Lili, now the head of Biz Dev at FOUNDATIONdvcs (a provider of privacy-focused crypto storage products), is part of a home mining renaissance. “Home mining is more popular than it’s ever been,” said Zack Voell, a longtime researcher of mining (and one-time CoinDesk reporter), and now an editor at Braiins (firmware used by mining machines). According to Google Trends, the terms “bitcoin mining,” “how to mine bitcoin” and “home bitcoin mining” roared back to life in 2021. Subreddits like r/BitcoinMining are thriving. On Twitter, mining enthusiasts proudly post images of their DIY setups, such as this thread from Braiins showcasing homemade rigs in coolers, rigs plugged into HVAC units and rigs that use 3D-printing to cleverly reduce heat. “We’re seeing a huge resurgence and interest in home mining, particularly from US residents,” said Colin Harper, a researcher for the Luxor mining pool (and yet another former CoinDesk reporter).
In some ways this is jarring. The conventional wisdom has long been that mining is only for the institutions, and you don’t have a chance. Quick primer: Back in 2009, at the dawn of bitcoin’s inception, only Satoshi Nakamoto and a few other cypherpunks “mined” bitcoin on normal central processing unit (CPU) computers, and every 10 minutes someone won 50 bitcoins. It was easy. Then the network grew. Competition stiffened. People quickly realized that the faster your computer, the fatter your payout. Savvy miners upgraded to GPUs, or graphics processing units, the chips used to power video games. Then came the rise of ASICs (application-specific integrated circuits), muscular chips built for the sole purpose of mining bitcoin. GPUs would no longer cut it. Larger mining shops, such as Riot Blockchain (RIOT) and Marathon Digital (MARA), had the capital to purchase entire warehouses of these ASICs. The bigger miners could broker deals for cheaper power, leaving the little guy without a prayer. Game over.
Read more: How Does Bitcoin Mining Work?
Then a few things altered the state of play. When China banned crypto mining in the summer of 2021, the “difficulty” of mining was roughly cut in half, since miners had less competition. “It became a lot easier for the smaller guys,” said Harper. There are now more ways for home miners to get the right equipment. “Before, you can’t just go to Bitmain [the largest manufacturer of miners] and say, ‘I want one.’ … They’re just going to tell you to pound sand.” This changed when companies, such as Luxor and Compass, began selling miners to individuals, lowering the barrier to entry.
And now it’s easier to figure out how to do it. “There are more and more tutorials and YouTube channels focused on home mining,” said Magdalena Gronowska, aka @Crypto_Mags, who has a background in enterprise mining and is now the vice president of business development at Coinkite, a bitcoin wallet startup. Gronowska bought a Bitmain Antminer S9 in 2021, and then, to her delight, realized that she could use the heat emitted by the miner to dry out mushrooms. (Celebrated on Twitter here.) This is another change in the past year: Home miners are harnessing the power of heat.
“As soon as I stopped seeing an ASIC as something that makes bitcoin, and I saw it as a profitable heater, it just completely changed my outlook,” said a miner who goes by the alias of Coin Heated, who has a day job in IT. “I was like, ‘I have to do this. I’ve got to be a part of this.’” He first bought an S9 for $160, and figured that even if it didn’t yield much bitcoin, at least it would help heat his home. It’s a space heater with financial upside. The S9 paid for itself within four months, so he bought more miners, made more custom modifications (like sticking them in fish tanks) and eventually built a clever system that heats his 17,000-gallon swimming pool.
The new bitcoin mining math
Heating swimming pools with bitcoin is a nifty trick, but it still doesn’t answer this fundamental question: How are tiny players now able to compete with the big boys?
To understand the economics, let’s focus on the miner that Lili, Gronowska and Coin Heated all purchased, the S9. It was released in 2016. It looks a bit like a computer from the Gerald Ford administration, the size of a microwave with cords sprouting from its back. These were once the “darling of the mining industry,” said Harper, but now you can get one for around $300. The S9 pumps roughly 14 terahashes per second (TH/s) of power, which was blazing fast in 2016 but a turtle by today’s standards, meaning it has almost no chance of winning the coveted block. The daily odds of the S9 winning a block are around 1 in 100,000; it’s just a lottery ticket.
So how can home miners like Lili make any money from crypto mining? Enter the mining pools. It’s true that she only has a 1 in 100,000 chance of winning a block per day. But that’s not nothing. And when you add this itty-bitty amount of horsepower to a mining pool, such as Slush Pool or Luxor, the group’s total odds increase. All of these add up. “No matter how sh**ty it is, it’s still increasing the pool’s chance of winning the block,” said Harper. So when all of the home miners join forces, that combined power is enough to compete with the industrial players. The pools win rewards. The Slush Pool (made up of both home miners and larger players), for example, now accounts for about 5% of all the Bitcoin network’s power, and it wins roughly 5% of the blocks.
Read More: What are Bitcoin Mining Pools?
Lili’s humble S9 is adding a dollop of power to Slush Pool, so she gets a proportional share of the revenue. This is why she’ll earn $2 to $3 worth of bitcoin every day, even though – absent a miracle – she will never win a block herself. The daily revenue becomes predictable. “Pool setups are dominant for a reason,” said Will Foxley, content director at Compass mining, and co-host of CoinDesk TV’s "The Hash." “Almost nobody is mining solo.”
The exact payout structure varies by pool, but generally speaking, while you don’t know precisely how many blocks your pool will win each day (if any), you can get a solid estimate of your income. Your exact profits will fluctuate with the price of bitcoin, the overall “difficulty” of the network (the stiffer the competition, the less your pool wins) and the cost of energy.
While “almost nobody” is mining solo, incredibly, there are at least 2,000 miners who choose to do just that. They’re not part of a shared payout system. They let their machines rip, they pay their energy bill, they know that they will almost never win the reward, and they are totally OK with doing this as a hobby to help secure the network. “You’re getting nothing out of it,” said Con Kolivasas, an Australia-based software engineer who administers a pool of solo miners called Solo CK. “That’s the reality of solo mining. There’s the dream and there’s the reality. I make it clear to people at the outset. Your chance of solving the block is miniscule.”
Kolivasas said there are about 2,700 solo miners using the Solo.ck pool, which at first sounds like a paradox. If they’re solo mining, why are they in a pool?
The solo pool is a different beast. If your tiny S9 bucks the odds and wins a block (which actually happened recently), you don’t split it with the other miners – you keep nearly all of it yourself. Kolivasas said that solo miners use the pool to take advantage of his faster and “lower latency” network connection, ensuring that if you hit the jackpot and win the block, you can claim the reward in time. (This can be tougher to do when truly going solo.) And who’s doing this exactly? Kolivasas doesn’t know the solo miners in person (anonymity is king), but from years of chatter on the message boards, he gathers that most are middle-aged men, “generally guys that live alone.”
“Econoalchemist” is not a solo miner, and he’s not a middle-aged man who lives alone. He has a wife and two little kids, and he recently lived in suburban Denver. He wanted to buy $300 of bitcoin each month, but, like Lili, said, “I couldn’t bring myself to spend that at KYC exchanges anymore.” He treasured his privacy and anonymity.
Like Lili, he found Bitcoin ATMs impractical. He also came across Diverter’s “Mining for the Streets” manifesto. He realized that if he bought an ASIC miner, instead of spending $300 at Coinbase each month, he’d use that $300 for his electricity bill. That would magically convert fiat to bitcoin. Soon he was thrilled to be getting “bitcoin for way cheaper than spot price,” and not just any bitcoin, but that sweet and coveted non-KYC bitcoin.
Econoalchemist has a long beard. He wears sunglasses and a baseball cap, and he looks like he could be the lead singer of an indie-folk band in Bushwick. When he bought his first miner, it worked so well that he decided to scale up, purchase another 13 machines, and set up an intricate cooling system that he chronicled on Twitter (fetching 734 Likes). Once his system was ready to go, he called the utility company to ensure his home was wired to handle 200 amps, as most are only configured for 100. (This is a common headache for many home miners.)
“Are you sure my house is rated for 200 amps?” he asked the power company.
They assured him that yes, absolutely, indeed it was.
“Cool, I’m going to pull like 150 amps worth of electricity.”
He started eight of the crypto miners. That was too hot, so he switched off two and let six of them rip. That seemed to do the trick. So he left the rig humming and headed to work at his day job (for a company that makes railroad equipment). Then his wife called with a status update: The power lines had caught on fire. It turns out the electric company had been mistaken; the home was only wired for 100 amps.
"Screw it, we’re leaving," said Econoalchemist. By then he was so smitten with mining that he decided to move to the “Intermountain West” (his preferred anonymous term) where he had more space for rigs. The decision was aided by politics. At the time, he was fed up with his kids’ mask mandates at the Denver-area school, and his own stance on vaccine mandates (not a fan) got him fired from the railway job.
“My wife and I were like, and excuse my language here, but f**k this dystopia,” said Econoalchemist. After moving to his new home with more space, he bought a shipping container to house the rigs. Now he’s focused on it constantly, and he recently published his own jaw-droppingly thorough guide on setting up home mining. “There has been this explosion in home mining innovation,” he said. “This is all I do, every day, and I can’t keep up with it anymore.”
Read more: What Happens When All Bitcoin Are Mined?
The bitcoin mining rig arms race
Another aspect of recent innovation: Now you don’t even need to mine at home to be a home miner, or at least to be a “retail miner.” Scott Melker, aka “The Wolf of All Streets,” is a prominent crypto trader. He had long been curious about mining, but he was reluctant to personally deal with the maintenance or the noise. “It’s a bit daunting for anyone who’s not heavy into the tech,” said Melker.
So he outsourced all of that to Compass, which Foxley describes as the “Airbnb of bitcoin mining,” and now Compass handles the day-to-day operations of his miners located in far-flung warehouses. Some are in Canada, some are in Russia. Melker has never touched these rigs. But he pays the electrical fees, he earns revenue from the pool, and mining has become another chunk of his portfolio.
“For me, it’s a way of passively dollar-cost averaging,” said Melker, referring to the practice of investing a fixed amount of money in set increments, regardless of the price. (The philosophy is mainstream and hardly crypto-specific; in 401(k) plans, when a set percentage of your paycheck is used to buy stocks or a mutual fund, that’s dollar-cost averaging.)
Here’s how he sees the math: Say his S19 miner (the more powerful and energy-efficient successor to the S9) costs $10,000. He pays that upfront. Then every day, thanks to the sharing mechanism of the pool, that S19 spits out between $20 to $40 worth of bitcoin, minus the cost of electricity. So effectively, that $10,000 of fiat is then converted to a steady stream of bitcoin that’s acquired at different prices. “And as an added bonus,” said Melker, “this is equipment that you can depreciate on your taxes.”
Then there’s the intangible appeal. “I always wanted to feel like I’m part of securing the network,” said Melker. He’s been in the crypto space for years, but in some ways he felt removed from the guts of it. “I’m a firm believer that you have to experience it to talk about it. Now I’m qualified to do so. Now I can say I’m a miner.”
Econoalchemist likes that home mining makes the bitcoin network more decentralized, and he loves that he now has a voice in the bitcoin mining ecosystem. “I’m doing something even more to participate in the bitcoin network than running a node,” he said. “I enabled myself to be able to vote with my hash rate. If one pool was doing something I didn’t like,” he said, such as censoring transactions (he points to MARA as an example), “then I could take my hash rate elsewhere.”
And for many, home mining is also just plain fun, like an arts-and-crafts hobby. When the S9 blew her circuit-board and became too noisy, Gronowska ended up moving it to her parents’ basement. (Nice parents.) Now she geeks out with her dad about bitcoin. “It created this thing we can bond over,” she said.
Her dad used to be an electrician in Poland, and while he was never particularly interested in bitcoin as a speculative investment, now he enjoys tinkering with the S9’s optimum wattage and finding ways to cool the system. The money isn’t much, maybe a couple of bucks per day. But just as some families use sports, memes, or even fantasy football as a way to stay in touch, Gronowska and her dad excitedly chat about the day’s block rewards. Almost on cue, on our Zoom call, she checks her phone and reads from the screen: “Slush Pool says, ‘You’ve earned 0.000092 bitcoin, which is about $3.48.’ That’s a little higher than what I’ve been seeing.”
That said, it’s also true that Gronowska had to move the miner out of her own home. It was loud. It was so damn loud that she couldn’t run it while doing podcasts or conference calls, which is why she looped in Dad. Every miner I spoke with complained about the noise. “When you plug it in, it’s effectively like running a shop-vac,” said Coin Heated. “It’s unbelievably noisy for a home.” (He also notes that there are now creative ways to reduce the noise, such as using Braains firmware to tweak the fan speed.)
Kolivasas said they sound “like a chainsaw going all day long.” He no longer mines at home because electricity in Australia is too expensive, but when he did, his garage was so loud that the local council came and complained, accusing him of noise pollution.
And there are some less obvious concerns. Econoalchemist, Lili, Gronowska, Coin Heated and the growing army of DIY-ers are finding mining to be profitable … for now. But that all hinges on a few key variables.
Econoalchemist is confident that his system would still turn a profit even if the network’s hashrate doubled (meaning the “difficulty” increased) while the price of bitcoin remained constant. But if bitcoin crashes far below $20,000? The math changes. It might even break. This is why virtually all miners are bullish on the long-term price of bitcoin. “All miners are hedging their bets that the price of bitcoin goes up,” Kolivasas said.
It’s also true that just as those old CPUs and GPUs became obsolete, the same will happen with the current crop of cryptocurrency miners. “The reason the S19 is relatively profitable at the moment is because China off-lined mining,” said Kolivasas. “Otherwise the current hash rate would be double.” He said we’re now in a sweet spot on the “curve” of mining equipment, meaning that the S19 is relatively new and efficient and profitable, but that won’t last forever. New rigs will inevitably make the S19 obsolete, argues Kolivasas, as “it’s an arms race. It has always been an arms race.”
Power to the generalists
Even with the surge in popularity, home mining only accounts for a skinny slice of the industry’s overall pie. “Home mining has definitely popped off,” said Foxley, “but I’d be surprised if it made up over 2% of bitcoin mining.” Voell said the exact number is hard to pinpoint because there’s no agreed-upon definition of “home mining.” Does it only count if someone has one miner? Five? 20? Everyone interviewed agreed that home mining made up less than 10% of the network (most guessed less than 5%). “It’s still pretty niche,” said Gronowska.
There’s less consensus on what will happen in the future. Gronowska notes that the giant mining operations, such as Marathon, continue to pour money into the space. “Yes, home mining will grow,” she said, “but hash rate is growing everywhere at industrial scale.” She noted that while home miners are collectively buying thousands of new machines, the industrial players are buying millions. So while she expects the number of home miners to increase, she guesses their share of the network will shrink.
Voell agrees that industrial mining is growing, but suspects that if the space encounters a true bear market, the plucky home miners will be more likely to ride it out. “It’s much more difficult to squeeze a retail miner out of the market,” said Voell. The big shops are only mining bitcoin to make money, he said, whereas the home miners – who also care about profit, sure – enjoy getting KYC-free bitcoin, they’re in it partly for the ideology, and sometimes they’re heating 17,000 gallon swimming pools. “Even if they’re running at a small loss,” said Voell, “they’ll run an ASIC or two just to participate in the network.”
That is almost certainly true of Econoalchemist and Lili. She now feels invested in the network, both literally and figuratively. She paid her dues. When she first installed the S9 in her basement, it was “so freaking loud” that she couldn’t work or watch TV. So she used Diverter’s guide and figured out how to nestle the S9 in a cooler and snake the exhaust out a window. This required a botched experiment of sawing wood, but she eventually got the job done.
That was satisfying. Even fun. She likes that she didn’t need to be a mechanic or an engineer (her background is in finance); she just followed the DIY tools of the community and figured it out. She didn’t need millions of dollars of capital; she just needed a few hundred bucks and a willingness to learn.
“There was a lot of FUD going around saying that it’s not profitable for you to mine, and it’s very hard, and that you have to build this big thing,” said Lili.
Striking a more philosophical note, she wonders why all of us are forced into being specialists, and staying in the lanes of our professions, as opposed to trying out new skills. Why can’t we be generalists? Why can’t we do more than one thing? “I think everyone should try it out,” said Lili. “I think anyone can mine.”
UPDATE (March 21, 19:53 UTC): Corrects default hashrate for the S9 miner.
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