Many cryptocurrency newbies view mining as a kind of easy money: you buy a pair of chips, run the software, and then get 6.25 BTC every 10 minutes. Of course, in reality, things are much more complicated. Mining today is just like any other way of making money-you have to do research, make an initial investment, and calculate your expenses and potential income.
In this article, we will discuss what mining is and what to keep in mind before starting. Since there are so many factors to consider, this article will not be a step-by-step guide-on the contrary, it will help you build an understanding of mining and provide insights on what to research and what actions to take.
Mining is the process of verifying transactions in the blockchain, and miners are rewarded for this. Let’s break it down.
Suppose you have sent some bitcoins to your friends. Before your transaction reaches its destination, it must go through the following steps:
- Miners should withdraw your transactions in the memory pool (memory pool)-where all unconfirmed transactions are collected.If the transaction fee is set high enough, miners will have the incentive to do so (see here more details). By picking about 1 to 3,000 transactions, miners form a block, which will be added to the blockchain later.
- Now, miners should find a suitable mathematical solution for this block, which is the core of mining. The mathematical problem that miners are trying to solve is called hashing-it means pushing all block data through a hash function, which converts the data into a string of letters and numbers. This is easy to do, but the problem is that this string must meet certain conditions, and the miner needs to hash the data multiple times to find the desired value. The first miner to find a solution has the right to add blocks to the blockchain. The miner with the most computing power wins, and hashing is very energy intensive.
- When miners find a suitable solution (i.e. block hash), they show it to the network as a proof of their work (this is why Bitcoin’s consensus algorithm is called proof of work). Miners collect transaction fees and mining rewards.
Bitcoin’s blockchain is very secure-to crack it, you need to control at least 51% of the current Bitcoin network’s total computing power, which will cost you billions of dollars. Finding the right hash is very power intensive, so you have to buy expensive hardware to get a chance. Years ago, separate Bitcoin mining became impossible, so to mine, you need to join a mining pool that pools the hashing power of participants.
Let’s zoom out for a second and see how awesome this mechanism is. As you know, the killer feature of blockchain is decentralization-it is run by a distributed network of nodes, not by a central authority (ie, miners). Satoshi Nakamoto wants to motivate them by issuing rewards. It covers high mining fees and encourages fairness (no one will accept the wrong block hash). In other words, the miners did a good job of protecting Bitcoin and were rewarded for it.
As early as 2009, the reward for mining a block was 50 BTC. Every 4 years, the Bitcoin network halves, halving the money. Today, the mining reward for a block is 6.25 BTC (approximately $300,000 at the time of writing). But again, it is very difficult to get rewards. When a mining pool gets rewards, the sum is distributed proportionally among its members.
Before starting your mining journey, let us see what you need to know.
As we have already mentioned, you can mine alone or in a pool. Its profitability depends on the coin: although you cannot mine Bitcoin alone today, there are other coins that allow you to do so. However, in any case, joining the pool is a good idea at the beginning.
Different coins use different hashing algorithms: Bitcoin uses SHA-256, Monero runs on RandomX, etc. In turn, different hashing algorithms require different hardware: For Bitcoin’s SHA-256, ASIC is the best, while Monero’s RandomX is ASIC-resistant, and you can only use GPU to mine it.
The first thing to do before you start mining is to decide how much you are prepared to invest in the beginning. With this money, you can see which hardware you can afford-and correspondingly, which tokens you can mine. To choose between the available options, check the relevant mining profitability chart and decide which token you trust the most (if its price rises, your mining will bring you more returns).
We will further calculate mining profitability below. Now, we will list the coins mentioned in the chart that are most suitable for mining. They include Monero (XMR), ZCash (ZEC), Ravencoin (RVN), Ethereum Classic (ETC), Litecoin (LTC), Bitcoin Gold (BTG) and Beam (BEAM). here, You can find the best coins for each type of mining equipment.
As for Ethereum (ETH), mining it is profitable, but by 2022, tokens will stop mining-it is moving to a proof-of-stake consensus algorithm.
The choice of software will depend on what coins you decide to mine, what hardware you use, and whether you mine alone or in a mining pool. There are many programs, such as CGMiner, BFGMiner and EasyMiner, which can run on Windows, Mac and Linux. However, they will not take up too much of your expenses, and the profitability of mining mainly depends on your hardware.
There are four main types of mining equipment-CPU, GPU, FPGA and ASIC.
CPU, or central processing unit, It is the hardware that your PC drives. In the early days of mining, CPUs were widely used for mining, but as the interest in encryption grew with its hash rate, CPUs became obsolete. Today, few coins can provide significant profits through the CPU.
As you remember, to mine a block, you need to perform hashing at a very high speed. This capacity is called hash power, and in a CPU, it is approximately 4 megahash per second (MH/s).exist GPU, or graphics processing unit, The hash power is as high as 800 MH/s-which increases the mining efficiency by 200 times. GPUs are chips in graphics cards and are widely used in games, but with the advent of mining, the demand for them has surged and their prices have risen accordingly. Today, the cost of a GPU ranges from hundreds of dollars to thousands of dollars.
It is common to put multiple GPUs in a mine to maximize returns.However, the farm is not only made up of graphic units, but also FGPA (Field Gate Programmable Array)This kind of hardware is considered more efficient than GPU: FGPA is not only faster, but also consumes up to 5 times less energy. This is important because electricity is one of the highest expenses for miners.
In order to mine Bitcoin and some other coins, ASIC (Application Specific Integrated Circuit) Mainly used today. These chips are the most efficient chips you can find—for example, a chip called Ebit E10 can reach 18,000,000 MH/s. Of course, this is reflected in the price-ASICs can cost thousands of dollars.
This is the most important thing: the better you calculate your expenses, the sooner you will start to make profits. In addition to hardware, the main mining fee is electricity bills-if electricity bills are expensive in your area, then mining may be easier to lose money than elsewhere.
See how high the cost of electricity is in your country compared to China and Venezuela (countries where energy prices are good for mining).Then, after estimating the hardware you can afford, use one of the following Mining income calculatorThere, you can enter your hardware hashing power, its power consumption and electricity bill, and the calculator will tell you how much money you can make in a day, a week, and a year. There are two things worth considering here: these are only estimates and do not guarantee your exact return; the calculator will not show you a payback period that is also worth calculating.
Another important thing is that your mining will only be profitable when the price of the chosen cryptocurrency rises (or at least does not fall). If you start mining depreciated coins, even low electricity bills and hardware costs will not help you make a profit. Therefore, please do in-depth research and mine the tokens you will invest in.
If you want to test the water before building a mine, there is such an option! Even without a large investment, some coins can provide a modest return, so you can set up hardware and software worth less than $1,000 to see what your electricity bills and returns are.
Remember, mining hardware is a very noisy thing and generates a lot of heat. Consider placing your mining equipment separately from your living space in a room with climate control enabled.
Mining is generally regarded as something that can be easily profitable. However, to do this, you must calculate everything thoroughly. To understand what tokens you can mine, estimate at the beginning how much you are prepared to invest: each token needs its own seed funding.
In order to make your mining profitable, please select the tokens for which you have a positive price prediction. Keep in mind that if this is a new coin, other miners may also realize its potential, and as its hash rate grows, you may need to switch to more competitive (and expensive) hardware.
Mining changes quickly. If you want to participate in it a lot, don’t think of it as passive income-mining requires a lot of time and work. Rig maintenance And other things (you can do without them, but your return will be lower), and it’s not a fixed predictable income. Participate in mining only when you are ready to take this risk.