Mining is the process by which networks of specialized computers generate and release new Bitcoin and verify new transactions.
Mining is the process that Bitcoin and several other cryptocurrencies use to generate new coins and verify new transactions. It involves vast, decentralized networks of computers around the world that verify and secure blockchains, the virtual ledgers that document cryptocurrency transactions.
Mining is the term for work done to open a new block on certain blockchains. The first miner to solve the cryptographic puzzle called the hash receives a cryptocurrency reward.
With that in mind, one of the first steps to take if you’re interested in being a cryptocurrency miner is to learn which cryptocurrencies can be mined. Bitcoin (BTC), ether (ETH), Monero (MXR), and Litecoin (LTC) are examples of coins that can be mined.
In return for contributing their processing power, computers on the network are rewarded with new coins. It’s a virtuous circle: the miners maintain and secure the blockchain, the blockchain awards the coins, and the coins provide an incentive for the miners to maintain the blockchain.
Mining is the process by which new cryptocurrency tokens or coins are generated. It bears little resemblance to the work done by those who physically mine for precious metals like gold. However, the comparison does hold; digital currency miners use computers to solve cryptographic problems and receive a reward in the form of cryptocurrency.
Learn how to get started mining your favourite cryptocurrency and how to determine the costs you’ll incur to do so.
The Things You Need to Mine Cryptocurrency:
- Cryptocurrency Wallet
2. Mining Software
3. Mining Hardware
4. Application Specific Integrated Circuit (ASIC)
5. Home Computers
6. Join a Mining Pool
You’ll need a wallet for your cryptocurrency to store the keys for any tokens or coins your mining efforts yield. Wallets have a unique address allowing you to send and receive tokens securely. There are many types of online wallets, and there are even “cold storage” wallets that don’t operate online. Decide which one is best for your needs before you start mining.
2. Mining Software:
Most mining software is free to download and use and is also available for various operating systems. For popular cryptocurrencies like Bitcoin, you’ll find that multiple types of software can be used. While many of these options will be effective, slight differences could impact your mining operation.
3. Mining Hardware:
Mining hardware may be the most expensive component of a mining rig setup. You’ll need a powerful computer, perhaps even one specifically designed for mining.
4. Application Specific Integrated Circuit (ASIC):
An ASIC miner is a pre-built mining rig; these can be very expensive. For example, the Bitmain Decred Miner DR5 costs around $5,600.
The DR5 has a much lower hash rate than many other miners—it mines at about 35 terahashes per second (TH/s). You can purchase higher-performing miners, but the price goes up significantly. The Bitcoin Miner S10 Pro mines at 110TH/s and costs about $5,900.
From that point, miners are more than $10,000 with the Bitcoin Miner S19 XP Hyd. going for more than $19,800—but it has a hash rate of 255 TH/s.
5. Home Computers:
You can build a computer capable of mining cryptocurrency, but you’ll need specific hardware. Most graphics cards from Nvidia are capable of mining. However, some might not be fast enough to be worth buying for mining purposes.
The RTX 3090 Ti is one of the better graphics cards for mining. It costs about $1,700 and, depending on the mining algorithm, can hash up to 133 mega hashes per second (MH/s)—significantly less than one of the Bitcoin ASIC miners.
It is possible to build multi-GPU mining rigs, but it can still take years to recoup your expenses and begin making a profit. Keep in mind that you may still be unable to mine crypto profitably on your own with a multi-GPU rig.
You’ll also need to purchase the additional hardware to build the computer, such as a power supply, motherboard, processor, memory, and drives. This might run you several thousand dollars, depending on the setup you choose.
6. Join a Mining Pool:
Essentially, a mining pool is a group of miners who combine their computing power and work together to mine. They share the profits proportionally to the amount of work each address was able to contribute to the process. As you might expect, mining pools offer advantages and disadvantages.
On the one hand, the cost and effort associated with the initial setup are much lower than if you were buying an ASIC or building a multi-GPU mining rig. On the other hand, though, you’re likely to earn much less money from the process, as you’ll split any mining rewards with a group of people.
Weigh The Return On Investment
The process of mining remains an exciting and potentially profitable one. However, there are several pitfalls. For example, many miners have spent a lot of money setting up their rigs, only to find that they cannot recoup the costs with their mining efforts. Ensuring you are armed with as much of an understanding of the mining world as possible will help protect against this possibility.
There are websites created that can give you estimates of how much you’ll be able to generate using specific hardware. This tool can help you determine whether you’ll generate enough from your hardware to pay for it and continue earning and how long it will take.
Unless you have the means to invest tremendous amounts of capital, you’ll likely need to join a mining pool to see any results.
Why Is Mining Important?:
Beyond releasing new coins into circulation, mining is central to Bitcoin’s (and many other cryptocurrencies’) security.
It verifies and secures the blockchain, which allows cryptocurrencies to function as a peer-to-peer decentralized network without any need for oversight from a third party. And it creates the incentive for miners to contribute their computing power to the network.
Can You Get Rich by Crypto Mining?:
Mining crypto is very competitive due to cryptocurrency’s values. It was possible in the early days of crypto to mine several coins per year, but mining difficulty and competitiveness have increased so much that it is profitable only for those that can afford large-scale mining operations. However, making a few hundred dollars per month mining cryptocurrency is possible.
What Motivates Miners?:
The network holds a lottery. Every computer on the network races to be the first to guess a 64-digit hexadecimal number known as a “hash.” The faster a computer can spit out guesses, the more likely the miner is to earn the reward.
The winner updates the blockchain ledger with all the newly verified transactions thereby adding a newly verified “block” containing all of those transactions to the chain and is granted a predetermined amount of newly minted bitcoin. On average, this happens every ten minutes. As of late 2020, the reward was 6.25 bitcoin but it will be reduced by half in 2024 and every four years after. In fact, as the difficulty of mining increases, the reward will keep decreasing until there is no more bitcoin left to be mined.
There will only ever be 21 million bitcoin. The final block should theoretically be mined in 2140. From that point forward, miners will no longer rely on newly issued bitcoin as a reward but instead will rely on the fees they charge for making transactions.
Does Mining Work?:
You might have considered trying bitcoin mining yourself. A decade ago, anyone with a decent home computer could participate. But as the blockchain has grown, the computational power required to maintain it has increased. In October 2019, it required 12 trillion times more computing power to mine one bitcoin than it did when the first blocks were mined in January 2009. As a result, amateur Cryptocurrency mining is unlikely to be profitable for hobbyists these days.
Virtually all mining is now done by specialized companies or groups of people who band their resources together. But it’s still good to know how it works.
Specialized computers perform the calculations required to verify and record every new Cryptocurrency transaction and ensure that the blockchain is secure. Verifying the blockchain requires a vast amount of computing power, which is voluntarily contributed by miners.
Cryptocurrency mining is a lot like running a big data centre. Companies purchase the mining hardware and pay for the electricity required to keep it running and cool. For this to be profitable, the value of the earned coins has to be higher than the cost to mine those coins.
Not every cryptocurrency can be mined because not all use a competitive reward system.
The most profitable cryptocurrencies have become much more difficult to mine than in the past. Most have a mining difficulty that increases over time, and the number of miners with large-scale mining operations has taken over most of the hashing power of each cryptocurrency’s network. Hashing power is how many calculations per second a network can complete.
Some cryptocurrencies require expensive hardware to mine, and overwhelming demand for this equipment has caused the cost and effort associated with setting up a rig to skyrocket. Others may be more accessible in terms of the equipment that you need. The costs alone make it worth your while to take the time to plan how and what you’ll mine.
Many are making fortunes by crypto mining. And with the right knowledge base and resources, you should be able to achieve success.