Cryptocurrency Mining: How to Mine Bitcoins and other cryptos

Cryptocurrency Mining How To Mine Bitcoins And Other Cryptos

It seems like almost every week there are game-changing news updates in the cryptocurrency industry that sends asset prices soaring or crashing. These spikes and falls make it very easy to focus on the volatility of cryptocurrency prices and the people who are making or losing money from it. While investing in cryptocurrency is definitely one option for making money in cryptocurrency, there is another much more defined path that not as many people talk about, cryptocurrency mining.

This article will take a close look at cryptocurrency mining and how you can get started.

NOTE: For the sake of this article, we will use bitcoin as an alternative to cryptocurrencies as a whole and Bitcoin when referring to the specific coin.

cryptocurrency mining
Figure: Mining illustration

What is crypto mining?

During the California Gold Rush of the 1800s, many hard-working homesteaders who were determined to strike it rich loaded up their wagons and headed west. They got to California and set to work with their pickaxes digging for gold throughout the countryside. Cryptocurrency mining is the modern-day equivalent of this except, instead of pickaxes and the countryside, they use computers and the internet.

At its simplest, bitcoin mining is the process by which new bitcoins are entered into circulation. In this sense, it is actually relatively similar to how mining for gold adds fresh gold to the world’s supply. However, bitcoin mining is also a critical component of the maintenance and development of the blockchain ledger.

Bitcoin miners play an integral part in making sure that all bitcoin transactions are legitimate and that users are not double-spending their coins. Double spending is the process of creating copies of your coins so that you can spend them multiple times. This problem is akin to people counterfeiting dollar bills.

 All of these tasks are performed by miners using very sophisticated computers that solve extremely complex computational math problems.

What return can I expect from investing in crypto mining?

When you mine a cryptocurrency you can expect to be compensated for your work in cryptocurrency tokens. Since the prices of these tokens can be volatile in value you could potentially make a lot of money from your work as a miner. For example, if you started mining in 2009 when the payout of mining one block was 50 bitcoin then just one block would be worth about $1.9 million today (with the price of Bitcoin at approx $36,000).

 However, the mining industry has changed quite a bit since 2009.

To start, bitcoin miners are not actually guaranteed to receive anything for their work. In order to receive the fruits of their labor they must meet two requirements:

  1. Monitor at least 1 MB of transactions
  2. Be the first miner to answer a numeric problem (a concept called proof of work)

In the early days of bitcoin mining, being the first to solve this numeric problem was much easier. However, now that the number of bitcoin miners has grown exponentially, it proves to be much more difficult.

That said, there is still plenty of opportunity for determined miners!

Solving this numeric problem doesn’t necessarily mean that you will be trying to solve a math problem. Instead, you are trying to be the first miner to come up with a 64-digit hexadecimal number which is commonly referred to as a hash that is less than or equal to the target hash. Since the potential answers to this problem are in the trillions, this is essentially guesswork.

What is the bitcoin halving process?

It’s also worth noting that the rewards for mining cryptocurrency are also cut in half every four years. When bitcoin was first mined in 2009 mining one block would get you 50 bitcoin. Four years later in 2013, one block would net you 25 bitcoin. This process occurs mainly because the total number of bitcoin is capped at a certain number of coins.

The third halving of bitcoin occurred in early 2020 and the next is set to occur in 2024. Every time this process occurs, it makes it slightly more difficult for miners to earn rewards for their work.

Figure: Bitcoin Mining halving process

As of May 11, 2020, the quantity of bitcoin that you could expect to receive was 6.25. Since the price of bitcoin currently sits at around $36,000, if you were to mine an entire block then you could expect to earn about $225,000. This is still not a bad payout at all but your total earning potential will depend on the efficiency at which you are able to mine bitcoin.

To get a good idea of what you can expect to earn with the level of sophistication you are using, we’d recommend using this Calculator that can estimate your earnings.

Since the industry is now incredibly competitive, you will need to invest in extremely powerful equipment in order to be successful. This means that instead of using your regular desktop computer, you will need an application-specific integrated circuit (ASIC). These usually cost anywhere from $500 to the tens of thousands. Some miners will also buy individual graphics cards (GPUs) as a low-cost way to cobble together mining operations.

What are the risks?

The two biggest risks with getting started in bitcoin mining are the money and time commitment that you will need to spend. In order to see a satisfactory return on your investment, you will need to invest in high-quality hardware and software that can allow you to compete against other miners. This will cost a lot of money upfront. Once you have bought the equipment, you will need to spend lots of time actually mining bitcoin.

Again, this is fairly similar to mining for gold. Before a prospector could get started mining they would need to buy a wagon, pans, pickaxes, mules, mining equipment, dynamite, and any other equipment to get their operation underway. Even after they had done all this, there was still the risk that the place where they were mining was dry.

Both types of miners run the risk of spending lots of time and money to get started and ultimately receiving little reward.

If you are undeterred by this risk, then let’s take a look at how you can actually get started mining bitcoin.

Things you’ll need:

  • The proper hardware
  • A bitcoin wallet
  • A community
  • The proper software

Hardware

In the early days of mining cryptocurrency, an ordinary computer was all you needed to get started. However, since the difficulty of mining has increased over time, it now requires special hardware, commonly referred to as a mining rig. A mining rig is just a computer that is specially designed to mine bitcoin and it might look something like this:

crypto mining rig
Figure: Crypto Mining rig

The most common specialty computer that miners use is called ASIC (Application-Specific Integrated Circuit chips) which is designed to use less energy and mine bitcoin much faster. The three main things to focus on when buying your mining rig are:

  • Performance (hash rate)
  • Consumption of electric power
  • Price

There are different rigs that you can choose from and they will all vary in some aspect between these three factors. It’s all about finding the one that suits your needs the best. For example, if this is something that you are doing in your spare time then you might not want to consider an option on the cheaper side that still performs well. On the other hand, if you are building a mining farm and budget is no object, it might be a good idea to just pay for the best model.

Here are a few examples of mining hardware ASICs that you can use:

  • Antminer S19
  • Antminer S19 Pro
  • WhatsMinerM30S+
  • WhatsMinerM30S++
  • AvalonMiner1246

Bitcoin wallet

A bitcoin wallet is just an online wallet where you can get paid cryptocurrency tokens for your work. A few of the most common wallets are Exodus, Electrum, and Mycelium. You definitely want to get your wallet set up before you start working so that you have a method for receiving your payment.

A community

Imagine back to the gold mining days for a second. After the industry had matured a little bit, people had already set up big operations to dig at the most lucrative mines. These operations had teams of people digging, teams of mules and carts to transport the gold, explosives to blast away mountains, and much more. If one lone prospector were to show up with a pickaxe, they would never compete against such a large operation.

This is why we recommend joining a mining pool. Since the space is so crowded you will have a much better chance of competing if you team up with others. A single mining rig on its own will never be able to compete with gigantic mining farms that have cropped up.

These mining pools are just communities of miners and work by combining your mining power and then sharing the profits between everyone. On top of sharing the rewards, you usually have to pay a fee of up to 2% of the reward.

One of the most recommend pools to join is the Slush Pool, which was the first pool ever created and has mined over 1,000,000 bitcoin since 2010. However, there are plenty of pools that you can choose from and this graph below illustrates some of the biggest bitcoin mining pools in the world:

cryptocurrency mining pools market shares
Figure: Cryptocurrency Mining pools market shares

Software

Once you are all set up with your hardware, wallet, and have joined the proper mining group you can download the software that will actually allow you to mine bitcoin. The most recommended software is Nice Hash Miner. It is very easy to use, mines multiple cryptocurrencies, and automatically chooses an algorithm that is the most profitable in a particular moment.

Figure: NiceHash illustration

What are the best tools for crypto mining?

When it comes to the hardware, there are plenty of mining rigs that you can choose from when just getting started but the best tools are going to depend on your goals as a miner. Since each tool will have a different price, performance, and energy consumption it all depends. Due to this, we’d recommend comparing a few different tools.

When it comes to the software, Investopedia has ranked the following four software as some of the best for mining cryptocurrency:

  1. CGMiner
  2. BFGMiner
  3. MultiMiner
  4. Awesome Miner
Figure: Awesome miner

            Although it feels like the cryptocurrency space is already mature and difficult to compete in, it’s important to remember that we are still in its infancy. The first Bitcoin was mined in 2009 which means that the entire industry is only 12 years old at the time of this writing in June 2021. Getting into cryptocurrency now is like getting into the internet in 2005. There is still plenty of opportunity if you are determined enough.

            That being said, making money mining cryptocurrencies will not be a walk in the park and requires a significant time/money investment, hard work, and the proper know-how. We would recommend thinking long and hard about whether or not this is something that you want to do and being honest with yourself about whether or not you can compete in the industry.

            If, after all this, you are still set on mining cryptocurrency then we wish you the best of luck!

We hope that you’ve found this article valuable when it comes to understanding what cryptocurrency mining is and a few ways that you can use it to your advantage. If you are interested in learning more, please subscribe below to get alerted of new articles as we write them!

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