Anna KeyWed, Oct 20, 2021 3:10 PM
Minefield: The Basic Principles of Cryptocurrency Mining
Are you a newbie in cryptocurrency mining? Do you want to learn more about the principles of crypto mining? With this series of articles, we are hoping to help you dive into the world of profitable cryptocurrency mining.
Let's begin by learning a few simple basics.
Cryptocurrency Mining: Explained
Chances are you have heard about crypto mining, mining pools, bitcoin mining, etc. Have you ever wondered how they all work? The concept of mining is not complicated at all.
Simply put, mining is the process of making coin units by solving complex mathematical equations with the help of high-powered computers. These equations are so complex they cannot be solved by hand.
During the process of mining, the solving mechanism verifies, validates, and adds transactions together (a transaction is a process of sending cryptocurrency anywhere), forming a "new block", and then sending these blocks to a digital ledger (better known as "blockchain").
Blockchain technology is the main principle behind all cryptocurrencies. This is also when you will have to determine your hashing power - that is the amount of processing power that your computer uses to build the blockchain: the more blocks of verified transactions are being processed (in other words, "hashed"), the more Bitcoin - the reward for this verification process - is being mined.
Now, it is worth mentioning that you absolutely do not need to become a miner. You can buy cryptocurrencies with fiat currencies, purchase them on an exchange or earn them by getting paid for work in cryptocurrency if this option is available.
However, if you do decide to participate in the mining process, your main objective, as a miner, will be to gather and process transactions. You will most likely join a mining pool to work together with other miners, therefore your chances of profiting will be much higher.
The profit is distributed among all members of the mining pool according to their contribution to the total mining power.
Miners also have to make sure that there is no double-spending of cryptocurrencies, as to this day it remains one of the main risks involving digital currency.
Here is a list of the 10 best mining pools that are worth checking out right now:
- F2pool (China)
- Antpool (China)
- ViaBTC (China)
- Poolin (China)
- Binance Pool (Malta)
- BTC.com (China)
- Huobi.pool (China)
- Foundry USA (USA)
- Slush (Czech Republic)
- SBI Crypto (Japan)
Types of Cryptocurrency Mining
Depending on the equipment, cryptocurrency mining hardware can be divided into three main categories:
- GPU mining (video cards-based mining)
- CPU mining (processor-based mining)
- ASIC mining on special equipment intended to mine cryptocurrencies that work on certain algorithms
- Extra method: SSD and HDD mining
In the early days of Bitcoin, even regular computers could be used for mining. Nowadays, the situation has changed. So-called "amateur" miners perform video cards and processor-based mining. Their computers usually have a significantly smaller number of video cards or have only one mining rig (a frame with video cards is called a mining rig). Miners like that are not going to gain a lot of profit, however, it is still a great way of keeping the mining process running.
However, if you want to become a part of the "industrial" crypto mining, you will need special equipment that allows you to perform ASIC mining. ASIC mining is performed in special hardware processing centers, known as "mining farms". Often, this is a well-cooled room with a certain number of ASIC (application-specific integrated circuit) devices. This is the best option for professional miners.
The owners of ASIC miners are not limited to small earnings anymore. Many factors should be considered when forming a mining farm using ASICs, such as electricity costs; thus the location and the ability to create necessary conditions for mining computers to run smoothly are very important.
There are three main methods of mining at the moment:
Individual (solo) mining.
This is an independent mining method. Individual miners are not required to participate in any sort of mining pool. The coins you have mined, as well as all the transaction information and fees, become your own profit.
Of course, your equipment has to be powerful, as it is extremely important for solo mining to find the appropriate hash power since you can only rely on your own equipment. If you are looking to mine a relatively fresh cryptocurrency, then individual (solo) mining could be the right option for you.
The second option is collective mining in pools.
As mentioned above, it is one of the most popular options for crypto mining right now. You become a member of the mining pool, the coins you have mined are divided among all miners in the pool. The profit you get is equal to your contribution to the mining process.
Therefore, the more you mine and the more expensive equipment you have, the higher your profits will be.
The third option is known as cloud mining.
Cloud mining has become increasingly popular recently as it allows miners to rent the computing power from a service that uses ASICs and mines itself on an industrial scale. You also are not required to invest large sums of money since you do not need to start your own mining farms.
All you have to do is pay for someone else's power and crypto mining equipment while you are also getting your coins mined at the same time.
In April 2021 a new method of mining was introduced, the so-called SSD (solid-state drives) and HDD (hard disk drives) mining. A new cryptocurrency, Chia, created and launched by the BitTorrent creator Bram Cohen, is described as a "more decentralized, more efficient, and more secure" and overall better blockchain.
What makes it stand out from other cryptocurrencies is that it is mined with unused storage space from SSDs and HDDs and relies on a cryptographic technique known as proof-of-space-and-time (unlike Bitcoin, which relies entirely on a proof-of-work model). There is only one important rule: the larger the hard disk capacity is, the more coins you will be able to mine. As of today, this is definitely the cheapest method of mining. Besides, it does not require high-powered machines. Moreover, it is also low-risk, as it faces little interference from market fluctuations.
If this new method of mining takes off, it can potentially become one of the most profitable and easy-to-access methods of mining.
The software you use for mining depends on the current equipment you have. To find the right mining software for your computer, you will have to determine the efficiency of your computer - how much power can it consume? It is the combination of good-quality hardware and software that makes mining cryptocurrency an efficient and profitable process.
For starters, you can follow our guidelines:
If you have Windows, check out these mining software: Bitcoin Miner, CGMiner.
Linux users can go for CGMiner, BFGMiner, EasyMiner.
If you have OS X, it is recommended to use RPC Miner, MultiMiner.
However, there are many more various mining software you can choose from so you do not have to limit yourself.
Is Cryptocurrency Mining Profitable?
The biggest and most important question stands still: how profitable is crypto mining? Why are there so many cryptocurrency miners nowadays? Is mining cryptocurrency (in other words, mining bitcoin) really worth it?
There are a few factors that add to the cost-effectiveness of mining:
- electricity costs;
- hardware productivity;
- ongoing complexity for the actual cryptocurrency;
- the market rate of a coin/token in relation to other currencies.
For example, at first mining bitcoin used to be easily accessible at home; but today its cost of mining has increased dramatically, therefore it requires higher computing power.
Mining other cryptos may be easier and with a high probability, it requires less computing power. But the possible profits bitcoin miners might get are not likely to be as impressive.
The increase in the number of miners and the appearance of more powerful devices on the market leads to an increase in the complexity of mining, which negatively affects profitability.
The most obvious options for increasing the profitability of cryptocurrency mining are buying a more powerful ASIC miner and reducing electricity costs.
Let's look at how profitable Bitcoin mining has been throughout the years.
Naturally, before ASICs were introduced, it was much easier and more profitable to mine Bitcoin for a few reasons. First, all miners were using their personal computers. Mining was less stressful and required less mining power. Miners were familiar with their own systems and could easily change the settings on their computers. The competition was also low as not a lot of people knew about Bitcoin back then. The only thing that could vary was the electricity costs depending on miners' geographic location. However, even that was not a huge problem for early adopters.
When powerful computers (ASICs) were first introduced, the game changed drastically. From now on, solo miners were competing against mining rigs that, needless to say, had more computing power. Besides, individual miners had to pay higher electricity bills due to purchasing new, more powerful, equipment.
When Bitcoin was first launched, its mining difficulty was 1. In May 2021, the difficulty equaled 22 trillion. It will most likely keep rising in the future. Obviously, you are required to have extremely powerful equipment if you want to mine Bitcoin.
As a matter of fact, the Bitcoin network processes 5.5 quintillion hashes per second. Only high-powered industrial machines are able to perform such operations in a very short time.
Of course, you can say that mining Bitcoin is not going to be profitable at the moment. However, this does not mean that cryptocurrency mining will not make you profit anymore. If you want to determine how profitable crypto mining may be in your case, consider a few factors, which include:
- Cryptocurrency value: What is the value of your chosen cryptocurrency in U.S. dollars or other official currency?
- Electricity costs: What is your average electricity rate in your region? Do not forget that rates may vary drastically depending on the season, time of the day, and a few other factors.
- Efficiency: How much power does your computing system consume?
- Time: How much time are you going to dedicate to mining?
How to Start Cryptocurrency Mining
Here you can find a step-by-step guide on how to start cryptocurrency mining from home.
- If you are a first-time miner, we recommend you begin by checking the computational power of your computer;
- Set up a cooling system for your computer;
- Download and install mining software of your choice;
- Choose either a CPU or a GPU mining method;
- Create a Wallet;
- Check out whattomine.com for more information about different types of coins and the most profitable types of coin at the moment;
- Join a mining pool (mining pools) to enhance your mining difficulty by combining your resources and hashing power with other users. Refer to the list of the best mining pools to join right now mentioned above.
We recommend you keep up with the latest news on cryptocurrency mining, mining pools, crypto tokens in order to stay up to date with any potential changes that might affect your mining abilities and your profits. No matter which mining method you end up choosing - CPU, GPU, ASIC, cloud mining, or SSD and HDD - consider the mining rig's hash rate, power consumption, cost of equipment. Pay attention to the more promising cryptocurrencies that are more likely to strengthen their positions on the market in the future.
Is crypto mining illegal?
Cryptocurrency mining is legal in more countries than it is not. Some examples of places where it was illegal according to a 2018 report were Algeria, Egypt, Morocco, Bolivia, Ecuador, Nepal, and Pakistan.
Is mining cryptocurrency profitable?
Yes, if the price of crypto exceeds the price of cryptocurrency mining (bitcoin mining). However, when deciding the profitability of crypto mining, consider extra mining costs also include the cost of equipment, electricity bills, and services provided.
How do I start mining cryptocurrency?
If you want to start cryptocurrency mining (bitcoin mining), you need to:
- Get appropriate high-powered computer hardware for cryptocurrency mining (bitcoin mining);
- Set up a cooling system for your computer;
- Set up a Wallet;
- Download mining software;
- Join a mining pool.
Can you mine cryptocurrency at home?
Yes, you can use your personal computer for cryptocurrency mining (bitcoin mining). CPU mining is possible with cryptos like Monero, Cash, and Byte; however, the process is likely to be very slow and result in costly electricity bills. For miners, who want to get more serious, GPU mining is the best option for mining at home.