Cryptocurrency mining can be a nice way of earning some passive income if you choose the right cryptocurrencies to mine. However, crypto mining is still misunderstood by many crypto investors and there are a lot of misconceptions that people have about how it works.
If you’re wondering how to mine crypto, we’ll provide you with an overview of everything you need to know to start mining. We’ll briefly explain how cryptocurrency mining works, the hardware you can use to mine crypto, the factors that can impact mining profitability, and more.
How does cryptocurrency mining work?
Mining is implemented by cryptocurrencies that use a Proof-of-Work consensus mechanism. The concept of mining was first introduced by Bitcoin, and has been adopted by many other cryptocurrencies that came after it—examples include Litecoin, Monero, Ethereum Classic, and Zcash.
Cryptocurrencies are based on the premise of a decentralized network of node operators. Mining is a way for this decentralized network to reach a consensus about the transactions that have occurred and the state of everyone’s balances while minimizing the chances of anyone breaking the rules by double-spending or altering the history of transactions.
In most cryptocurrencies, transactions and user balances are recorded on a special type of ledger called a blockchain. A blockchain consists of a series of “blocks” which contain records of transactions and are “chained” together through cryptography to ensure that the information contained in them cannot be changed retroactively after being added to the blockchain.
The miner that adds the next block to the blockchain receives a block reward in the form of the blockchain’s native cryptocurrency. If the miner is part of a mining pool, the reward is then split across all the participants in the same pool.
For example, Bitcoin miners receive BTC when they add a block to the Bitcoin blockchain. Cryptocurrency miners compete with each other to add the next block to the blockchain and earn the block reward.
However, not just anyone can add a block to the blockchain—this is where Proof-of-Work comes into play. In order to add the next block to the blockchain, a miner needs to find the correct “nonce”, which is a random string of characters included in each block. The nonce is determined by combining the block’s data and a hashing algorithm.
Finding the nonce is essentially a guessing game that requires a lot of computing power. The measure of this computing power is called the “hashrate”. The difficulty of finding the nonce is periodically adjusted by the protocol in order to keep blocks spaced as evenly as possible.
For example, the Bitcoin protocol is designed to target a 10-minute window between blocks. If blocks are being mined too quickly, the protocol increases the difficulty of finding the nonce. If blocks are being mined too slowly, the difficulty is decreased.
BestCasinosites.net has a handy blog post that explains more about how cryptocurrencies and data mining work, if you wish to find out more.
How to mine crypto?
Now, let’s go through everything you need to know to start mining cryptocurrencies. Here are the four main steps you’ll need to follow to start mining crypto:
Research crypto mining profitability
Choose the mining method you will be using
Choose between solo and pool mining
Install crypto mining software
1. Research crypto mining profitability
The most important question to ask yourself before starting to mine cryptocurrency is whether mining is actually worth it for you. If you’ll be losing money with mining, it’s probably not worth doing at all.
There are various factors that determine mining profitability. The most obvious factors are your mining equipment’s efficiency and the cost of electricity in the area where you will be mining. If you have outdated or inefficient mining equipment, it might be impossible to mine profitably unless your cost of electricity is extremely low. Meanwhile, if your cost of electricity is very high, even buying the most efficient mining equipment might not be enough for you to mine profitably.
In addition, you have to keep in mind that you will need to find a suitable location to run your mining hardware in. You’ll have to ensure that there is sufficient cooling and that the location’s electricity infrastructure can adequately support the load from mining hardware.
There’s various tools online that can help you determine if mining will be profitable for you. For example, WhatToMine provides detailed mining profitability info for a large variety of miners and mineable coins.
2. Choose the mining method you will be using
There’s different types of hardware that you can use to mine cryptocurrency. However, not all methods are useful for mining all cryptocurrencies. If you’re trying to mine Bitcoin, for example, your CPU or GPU won’t be of much use—you’ll need an ASIC miner in order to get any meaningful results.
Let’s quickly explain the different methods of mining cryptocurrency.
Mine crypto with consumer-grade computer hardware—CPU mining and GPU mining
If you want to mine cryptocurrency at home, the most convenient ways to do so are CPU mining and GPU mining.
CPU mining refers to mining with the central processing unit (CPU) in your personal computer or laptop. There’s a few cryptocurrencies that are designed to be mined efficiently with a CPU, most notably Monero. However, CPU mining is a less popular method of mining crypto.
GPU mining refers to mining with a graphics processing unit (GPU). If you’ve ever seen pictures of racks containing multiple graphics cards, you already know what GPU mining setups tend to look like. Before Ethereum transitioned to Proof-of-Stake, it was the most popular cryptocurrency for GPU mining.
If you’re looking to mine cryptocurrency with a GPU today, there’s still quite a few options, including Ethereum Classic, Ravencoin, Monero and others.
Mine crypto with an ASIC miner
The acronym “ASIC” stands for Application-Specific Integrated Circuit. Essentially, an ASIC is a chip that is specifically designed to be as efficient as possible when performing a specific task. There exist ASICs that are specialized for mining various cryptocurrencies, depending on the hashing algorithm they use.
Bitcoin is an example of a cryptocurrency that’s predominantly mined with ASIC miners. In fact, if you don’t have an ASIC, you can forget about mining Bitcoin profitably as ASICs are just far too efficient for CPUs and GPUs to compete with. The issue with ASIC miners is that they are quite expensive to obtain, and they can get outdated fairly quickly when new and more efficient miners are released.
ASIC mining is much less accessible than CPU or GPU mining to the average person, which is why some cryptocurrency projects like Monero have adopted measures that make ASIC mining difficult in an effort to improve decentralization.
Cloud mining vs. hosted mining
Cloud mining refers to services that allow you to buy contracts which entitle you to the rewards earned by mining hardware that’s owned by the operator of the service. In general, we recommend that users stay away from cloud mining services, as their business models tend to be unsustainable. You’d often be better off simply buying a cryptocurrency than trying to mine it through cloud mining services.
A more viable option than cloud mining is hosted mining. In hosted mining, you buy your own cryptocurrency mining hardware, but everything else is taken care of by the hosted mining provider so you don’t have to worry about things like maintenance and cooling. Of course, you have to keep in mind the service provider will charge you a fee.
3. Choose between solo mining vs. pool mining
There’s two main ways of participating in cryptocurrency mining. You can mine by yourself (solo) or join a mining pool.
If you’re mining an established cryptocurrency by yourself, you’re essentially playing a kind of lottery. The chance of receiving any reward at all will be much smaller, but the reward itself will be larger if you do get lucky.
This is because each block reward is rewarded in its entirety to the miner that added the associated block to the blockchain. So, if you successfully find a block when solo mining, you will receive the entire block reward and won’t be splitting it with anyone. However, the chances of this happening are very slim, especially if you’re trying to solo mine a major cryptocurrency like Bitcoin.
Meanwhile, joining a mining pool will result in more frequent payouts. Whenever a miner that’s part of your mining pool receives a block reward, the reward is then split with all participants in the pool according to their hashrate.
Practically speaking, you will have to join a mining pool in most cases if you want to mine profitably. However, mining pool operators will typically take a fee from your earnings.
4. Install the necessary crypto mining software
Once you’ve decided which cryptocurrency you will mine, the equipment you will be using and whether you will be mining solo or through a mining pool, it’s time to install the necessary crypto mining software.
Depending on the cryptocurrency you’re looking to mine, you will have to choose different mining software. If you’re trying to mine a very popular cryptocurrency like Bitcoin, there will be many different mining programs to choose from, while your options will likely be more limited if you’re looking to mine a smaller coin.
Another thing we’d like to mention are crypto mining apps, which advertise the ability to earn cryptocurrency with your mobile phone. As a general rule of thumb, crypto mining apps are not worth your time as it’s usually not possible to mine cryptocurrency profitably with a mobile phone.
The bottom line—Mining itself is not difficult, but you need to do your research first
Cryptocurrency mining doesn’t require you to invest a lot of time once your mining setup is up and running. However, it’s important to do your own research before you start mining since finding a profitable cryptocurrency and mining method isn’t so straightforward.
We also recommend that you consider using a mining pool instead of solo mining, as you will benefit from much more consistent payouts. This is especially true if you don’t have a lot of hashpower.
