People are eagerly investing in cryptocurrencies and contributing to the global crypto community. But as crypto is poised to take over the world at some point in the future, it is important where it comes from.
Cryptocurrency isn’t like paper and coins created in a press or mint by the government, so how is it gotten?
Cryptocurrencies are created through mining (no, not with a pickaxe in a cave).
In this cryptocurrency mining guide, we’ll take you through the history and process of mining and have you well on your way to mining some sweet coins.
- What is crypto mining?
- How does cryptocurrency mining work?
- What’s a cryptocurrency mining pool?
- Cryptocurrency mining methods
- Best way to mine cryptocurrencies
- Factors that affect cryptocurrency mining
- Steps to mining any cryptocurrency
- Real-world scenario
- What is the best cryptocurrency to mine?
- Crypto mining: Is it really worth it?
- Frequently Asked Questions (FAQs)
What is crypto mining?
Cryptocurrency mining is one of the most important parts of the industry. This is because cryptocurrencies literally cannot exist and circulate within the industry without mining. But what is cryptocurrency mining?
Simply put, cryptocurrency mining is the process of completing certain transactions that the blockchain then verifies and adds to the ledger. What is the transaction, you ask? Well, cryptocurrency creators are clearly sadists because it is a mathematical equation (Boo!).
There is some hope, however, as you don’t have to solve these equations by yourself. Instead, you can use your computer to do it. In fact, the entire process of cryptocurrency mining takes place virtually. No pickaxe is required.
How does cryptocurrency mining work?
As we’ve mentioned previously, cryptocurrency is mined by computers.
Does that mean anyone with a regular PC or laptop can start mining? Not necessarily. Cryptocurrency mining is a very energy-intensive process and often requires highly specialized hardware to be carried out.
Fortunately, the market is so well expanded that firms specialize in selling crypto mining hardware, though these can be expensive.
Different cryptocurrencies have different mining requirements, but most operate on the same principle. The computer system has to solve a complex mathematical equation. After this is done, the blockchain verifies the transaction and rewards the person or people who solve the equation (the miners).
In cryptocurrency mining, there is also something called a difficulty level, which is the chance of the correct answer to the equation being given. These often have odds of 1 in trillions, and the slimmer the chance, the higher the difficulty rate is said to be.
The good news is that mining equipment has become very well advanced and while mining is not necessarily an easy task, it can be done.
The difficulty rate often increases when many miners are plugged into the same blockchain and carrying out the same task (referred to as the proof of work). The actual ‘mining’ involves the computer copied the header metadata through a hash function. After this, a hash (a combination of letters and numbers) is generated. Once the miner can generate the correct hash (the criteria for this differs in different blockchains), the block is deemed mined, and once the transaction is verified, the rewards are given out.
What’s a cryptocurrency mining pool?
Daily, miners are being swept out of the struggle. The reason is not far-fetched. It’s either somebody has been using outdated hardware to crack the hard nut or impatience is written all over them, or perhaps their level of expertise is not high enough.
Sitting at home alone to mine cryptocurrency may not be the best option for you. You are going to pay more for electricity. This is because the hardware consumes a lot of power. Without proper care, you may go the whole year without making a penny out of the market. So, it’s usually advised to join a mining pool.
A cryptocurrency mining pool is a group of miners coming together to mine tokens and share the profits. The miners share all expenses, such as electricity and data bills. It’s recommended to join a pool because you stand a chance to get a profit, no matter what. However, profits are shared based on your input to the mining success.
Beyond technical support, a mining pool can also offer immense support for all things cryptocurrency-related. Some of your fellow miners would have been in the industry for a long time and can advise on wallets, exchanges, best practices, and so on. A quick online search can have you well on your way to finding a reputable and helpful ground to mine tokens with.
Cryptocurrency mining methods
Cryptocurrency mining is a dynamic process, and this extends even to the fact that there is no single method of cryptocurrency mining.
While all methods follow the same principle of using a computer to solve a complex mathematical puzzle, there are several ways to do so.
1. Cloud mining
This is, by far, the most convenient way to mine cryptocurrency because it requires you to do very little in terms of the actual work.
You don’t even need to buy mining equipment. How this works is that you patronize a cloud mining service.
A cloud mining service is a business that owns large mining farms (hundreds and even thousands of mining rigs that work simultaneously). All you need to do is buy a subscription (monthly, annually, etc.) and connect your desired rig to your cryptocurrency wallet. From then on, all the tokens that the rig mines will be transferred into your crypto wallet.
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Some cloud mining services even offer free plans. How then do they make money? Besides the actual subscription fee, operating costs are deducted from the tokens that are mined before they get to you. You are also not likely to recoup your costs for a few months, after which you begin earning a profit. If you want hassle-free cryptocurrency mining, however, this is the best choice.
2. CPU mining
This is the most basic way to mine cryptocurrency and really only involves running some programs on a computer system, with the CPU performing the functions. The issue with this is that it uses a lot of electricity and most basic computers cannot handle the tasks without overheating.
Often, choosing a CPU miner depends on the capacities of the hardware. You would want to look at the number of cores and frequencies. Newer CPU models based on modern architectures are more capable and can perform the task more efficiently.
However, CPU mining can be a good option if you are new to mining and want to explore how things work with mining cryptos.
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3. GPU mining
GPU mining is another prevalent method of cryptocurrency mining and is used even by large mining companies. A GPU rig is a combination of a processor, a motherboard, cooling, rig frame, and graphic cards used for mining. GPU rigs are not very expensive to acquire and are considered very cost-effective.
Some mining software lets you use your built-in GPU setup to mine. You can also explore external and more powerful GPU setups to speed up your mining.
4. ASIC Mining
ASICs are designed for the sole purpose of mining cryptocurrency and are somewhat controversial within the industry. While they mine cryptocurrency, they do it a little too well and often outperform other methods such as GPUs and CPUs.
Best way to mine cryptocurrencies
Now, this really depends. If you are someone who wants to start, then CPU mining could be your first step. You might also want to look at the best PCs for mining cryptocurrencies to get started.
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If you want to get into advanced mining for maximum profit, you might want to look at advanced mining hardware such as ASIC or even advanced GPU to make sure that you earn some profit with all the hardware plugged in.
Factors that affect cryptocurrency mining
Now that you know the various ways by which you can mine cryptocurrency, the question remains of which method is the best for mining cryptocurrencies and what are the factors that affect it. Here are some of the factors that affect cryptocurrency mining.
Some methods of cryptocurrency mining are completely free, while some cost thousands of dollars. If you don’t want to invest a lot of money in crypto mining, you might want to opt for cloud mining or GPU mining. If you have money to spare, ASIC mining would be your best bet.
Mining rigs take up significant space, and not everyone wants to deal with them, in which case, cloud mining would be ideal. Also, if the only hardware you have access to is your computer, you might want to avoid CPU mining as it can damage your PC in the long run, and you might not get the best results, at least on a basic computer.
Some mining methods can take months before any significant progress is made, and if you are patient, you may go for them. If you want your tokens fast, ASIC mining would be the way to go.
Steps to mining any cryptocurrency
Here are some of the steps that you can follow to mine cryptocurrencies. These are not rigid instructions but just a way to help you navigate through the mining experience.
- Be sure your country supports mining. The harsh truth is that some countries are firmly against the decentralized crypto market. The central government of some countries considers cryptocurrency illegal. So, before you waste money and energy on software and hardware, be sure it is a legal business in your country before you dive in.
Here’s a list that talks more about the legal status of cryptocurrencies in different countries. If you do not find your country on the list, you can always google your country name with a relevant query, such as: does ‘country name’ support cryptocurrencies, or is cryptocurrency legal in ‘name of the country.’
- Consider your budget and expenses. Cryptocurrency mining is the art of converting electricity into money profitably. Before buying hardware, you’d want to look at associated costs. Consider cost, customer feedback, and overall reputation before you choose your budget.
- Get your mining hardware. You (obviously) cannot manually use mine cryptocurrency, so you should decide on the equipment you intend to use. Consider cost, customer feedback, and overall reputation before you make your choice.
- Create a cryptocurrency wallet. You will need a place to store all the coins that you will be mining. There are different types of cryptocurrency wallets. You can choose one as per your needs.
- Get on a trusted cryptocurrency exchange platform. The internet is full of unscrupulous elements feigning to be Cryptocurrency merchants. If you want to sell your tokens, ensure you find a trusted cryptocurrency exchange agency that will help you convert your coins into cash.
- Join the mining pool As a newbie to the world of cryptocurrency; you may have to join a virtual mining pool. This will help you get something from the market, as solo mining may not be a profitable idea for you. Nevertheless, it would be best if you took the utmost care not to fall victim. Scammers are everywhere on the internet to rip you off your hard-earned money. Most times, the mining giants you’re competing with have more sophisticated and high-performance computers.
Rob is an online merchant who accepts cryptos. Jane is a buyer who wants to buy stuff and pay in cryptos.
Both have cryptocurrency wallets online or on their computers. Wallets contain multiple crypto addresses — each address will have its own crypto balance.
For Rob to accept payment, he will need to create a new crypto address where Jane can send payment.
Jane would tell her cryptocurrency client that she’d like to transfer the purchase amount to Bob’s newly created address.
Jane’s cryptocurrency wallet contains private keys for all of her cryptocurrency addresses. Upon her request, her crypto client will attach the private key of the address she is transferring the coin from by signing it with the newly made transaction request.
Anyone on the Blockchain network can look at the public key and verify whether the transaction request actually came from the owner of the account.
What is the best cryptocurrency to mine?
Without any doubt, Bitcoin is the best altcoin you can ever think of in the crypto market. Bitcoin is the first digital currency to ever hit the crypto market in 2009, and others followed suit in subsequent years.
Most of the techniques and strategies developed by Satoshi Nakamoto are now adopted by other altcoins and are being used for their operations.
The network and security strength of Bitcoin is top-notch as it is encrypted and backed with blockchain. Blockchain uses many volunteers who work together to encrypt Bitcoin transactions to make sure that all personal information is hidden and that hackers have nothing to steal even if they get into the system.
The pseudo inventor of Bitcoin, Satoshi, built the platform to help users predict what happens to the market in the future.
The hardware, accessibility, and software of Bitcoin are other advantages that it has over other cryptocurrencies. Most importantly, no other cryptocurrency can boast of a large user base as that of Bitcoin.
As of April 2020, Bitcoin accounts for a whopping $117.81 Bn of market share. This wouldn’t have been so if not for Bitcoins’ security and the trust it has gained over time.
Crypto mining: Is it really worth it?
Now that you have been introduced to the world of cryptocurrency mining and the various ways that this can be done, you will have to consider whether it is worth it for you. Cryptocurrency mining is done for profit (obviously), and with anything done for profit, there is no clear answer as to whether it is worth it. This mostly depends on whether you are likely to make money from it, which depends on numerous factors.
First, how much time, money, and effort will mining take? In cloud mining, it can cost little to nothing and can take years to bear any fruit. In the case of other types of mining, it can take a lot of time and cost a fortune in energy costs, and people have even been driven to steal electricity in a bid to lower their mining costs. After the cryptocurrency is mined, the value of the tokens is not set in stone.
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If you mined Bitcoin, for example, while it was at its peak price of around $20,000 per token and received it after the price fell to around $10,000, you are getting half of what you bargained for. If you intend to practice mining long-term, then this won’t be an issue, but many miners are eager to recoup their costs as soon as possible.
Ultimately, it is up to you to weigh the costs, risks, and possible rewards of cryptocurrency mining to determine whether it is worth it to you.
Cryptocurrency mining is the activity that keeps the industry running and a viable profit-making venture for everyday people. From the way mining works to mine, we hope we have provided a helpful introduction to the topic. Let us know in the comments!
Whether you plan to outsource your mining needs, jump head-first, or have decided that mining isn’t for you (not that we blame you), we hope you’ll take our advice to heart.
Frequently Asked Questions (FAQs)