The Dummies Guide to Cryptocurrency Mining
Cryptocurrency Mining is a process by which new blocks of a Blockchain comes into formation usually using Proof of Work or Proof of Stake consensus. The mining validates the new blocks of a Blockchain, and then they are added to the digital ledger.
The guides to set up Crypto mining rig for different algorithms and coins have increased both in activity and topic. This, in turn, has made Crypto mining mainstream in the last few years. Each time a transaction is sent over to Blockchain a miner or group of miners is responsible for its authentication. This helps to secure the overall Blockchain preventing it from malicious attacks.
So, why is Crypto Mining Important for every Blockchain?
Having a large network of Crypto miner is very crucial for every Blockchain as it secures the entire ecosystem. Without crypto mining, Blockchain itself would fail as there would be no one to validate the transaction on the network. This will also significantly increase the risk of double spend 51% attacks on Blockchain.
Similarly, Cryptocurrency mining also verifies the blocks by solving complex algorithms. This can require either a heavy usage of electricity or keeping your wallet open for staking rewards. In case, there is no or few Crypto miner on the network the memory pool of Blockchain will significantly increase leading to scalability issues for any Cryptocurrency.
Is Cryptocurrency and Crypto mining valuable?
In short, Yes! Cryptocurrencies have redefined our thinking of money. Previously, we thought of money in plastic or paper form, but with the advent of decentralized and digital currencies, more options are available to the financial industry. Cryptocurrencies are secure investments and allow fast transaction with a fraction of cost. Besides no third party controls or owns it making it the best alternative to fiat currencies.
They are also highly feasible when it comes to divisibility and mobility of your money. Cryptocurrency mining is also highly valuable as it ensures that the digital financial system remains intact regarding the transfer of the funds by validating the transactions on the network.
Why should you consider Crypto mining?
Setting up a Crypto mining rig to make passive income is increasingly becoming the norm, and the Google trends show a spike in such searches. You might wonder why someone would spend a ton of electricity to mine Cryptocurrency. Or why an individual would buy VPS for staking their POS coins?
The answer is simple, as it rewards the participant. In other words, you are not just validating the transaction or securing the Blockchain but are also contributing to the economy of the project.
When a miner confirms a block, he is rewarded with the newly generated Cryptocurrencies as a reward for his work. This new batch of Cryptos can easily be traded against Bitcoin or Ethereum on any particular exchange where the currency is listed. But before you begin making passive income from your investments, it is fruitful to know the common types of Crypto mining.
How to Mine Cryptocurrency?
Cryptocurrency Mining using CPU
This was the first and foremost method of Crypto mining back in 2010. People used their spare CPU resources to mine Bitcoins or any other Cryptocurrency betting on its future price. Even though this type of mining has become obsolete, some Crypto projects have paid special consideration to revive CPU mining by changing the mining algorithms.
Cryptocurrency Mining using GPU
This is the standard type of Crypto mining as of now. Deploying a GPU rig is increasingly becoming popular among miners as it is more powerful and profitable than CPU mining. GPU mining involves using Graphic cards to generate hashes for block validation. A simple GPU can mine 100 times faster than a high-end CPU because of its integrated chips that solely get dedicated to Cryptocurrency mining.
Crypto Mining using ASIC Miner
The ASIC miner is specialized equipment only made for Crypto mining and forever will. Setting up an ASIC miner rig is expensive, and you need to bank on your savings to make it happen. But on the other hand, they are likely to generate millions of hashes every second and are quite cost effective if you have access to cheap electricity.
Crypto Mining using Staking
This is a new way of mining and is also becoming an increasing trend among many startups. Crypto mining using staking is relatively easy and does not cost a lot of capital to begin. All you need is to host a wallet and keep it online for 24/7 while staking the coins inside it. Although your profits can be lower than POW mining, it is a recommended method for many novices to start with.
How to get started with Cryptocurrency mining?
For this, there is not an exhaustive answer. Cryptocurrency mining entirely depends on the coin you will mine. As we read above, there are several types of Cryptocurrency mining. You can use staking, or your hardware resources to mint new coins into the market. Although below are some generalized details you will surely need before kicking off your Crypto mining rig
Selecting a coin
To start with Crypto mining you need to perform some extensive research about different coins and their technology. Every day various new Cryptocurrencies enters the market and then disintegrates after some time. Selecting a coin to mine is important before investing in Cryptocurrencies. Look for projects having a strong use case and team, as it will likely help you achieve higher profits in the future.
Know Cryptocurrency Blockchain consensus
After undergoing some extensive research, you will be able to pick a valuable coin for crypto mining. Let’s suppose you have decided to mine Litecoin for now and are going to invest in its mining hardware. But there is more to do before actually settling down with Crypto of your choice.
Blockchain uses different types of consensus to reach block validation. The consensus protocol is a mechanism in Blockchain that ensures all Cryptocurrency nodes are synchronized with each other and agrees on block validation and transaction confirmations.
Generally, there are two consensuses Proof of Work (POW) and Proof of Stake (POS) which you will probably encounter. Litecoin uses POW whereas Dash and Pivx use POS consensus. Besides, there are also hybrid coins that work simultaneously along with both the consensus and reward miners for their contribution.
Knowing the Blockchain consensus is very crucial before deploying your resources. Since this can help to avoid chances of failures and mitigate the associated risks.
Choosing the right hardware or VPS
If your desired Crypto coin uses a POW consensus than you are likely going to invest in ASIC miner to begin cryptocurrency mining. Here comes one of the most vital factors of profitability as Crypto mining machines get outdated quickly. In fact, keeping up with the ever-changing mining difficulty and hash rate is also a factor you should consider before buying your favorite ASIC miner.
In comparison, you don’t need to invest in Crypto mining machine if your desired Cryptocurrency to mine uses POS consensus. All you need is to purchase an average VPS that can cater to your Staking needs. In addition, you can also mine several POS coins simultaneously in a single VPS but profits from this type of Cryptocurrency mining are usually low.
Checking the profitability
Before investing a penny on your hobby mining, it is always good to check mining profitability of your coin. For both the POS and POW Cryptocurrencies, there are various mining calculators that can give you an estimate of your expected profits. These can include
Coinwarz mining calculator
This Cryptocurrency calculator harbors several types of coins to check its profitability. It has a range of Cryptos to choose from and is constantly updated to provide support for new coins. Besides, Coinwarz Crypto mining calculator is very easy to use as most the complex fields are auto-filled by powerful APIs.
Hence, all you need to do is enter your hash power and have a look into your likely future profits. Although, this website only supports POW coins for now, so it is a turnoff if your desired Crypto to mine uses POS consensus.
What to mine calculator
This is another spectacular Cryptocurrency mining calculator and is more advanced than the previous one. This is because the calculator can automatically work around your ASIC miner algorithm to provide you with the most profitable coins to mine.
Besides Whattomine calculator uses API from several popular exchanges to give you detailed insight relating to your daily revenue. Additionally, the calculator itself isn’t very hard to use but supports several types of Cryptocurrencies. Alternatively, you can also check out our Ethereum Mining Calculator in case you are planning to mine Ethereum.
Mining pools are important in case you can’t invest heavy capital to start solo mining. They are a collection of resources from several miners who contribute together to mine a block. POW and POS mining pools have increasingly become popular since solo mining is hard to handle. Also, it comes with increasing cost with minimal profitability and much difficulty.
Hence, before starting your Cryptocurrency mining adventure make sure to look for a suitable mining pool supporting your coin. However, if you are mining for an infant Blockchain project, then solo mining might also work out.
Downloading and configuring Mining Software
Once you have successfully got your mining rig or set up a GPU mining machine, it is time to download mining software and connect it with favorite pool. Several online mining pools are supporting various Cryptocurrency coins and charge a small fee for their service.
Combining your resources with a pool means you can contribute to a larger network of miners and increase your chances for verifying a block much faster. But before you download a mining software, it is essential to make sure it is compatible with your Mining Rig.
However, you can skip this part if your coin uses POS consensus as a method of mining. Although, if you wish to maximize your return than Pool Staking is another workable option.
Is it worth to mine Cryptocurrencies?
As a hobby or venture capitalist, it is feasible to tap into the opportunities Cryptocurrency provides. Cryptocurrency mining can generate anywhere from a small income to more than thousands of dollars each month. You will reach ROI within a year if the Crypto price remains stable throughout while you mint new coins. In addition, digital currencies are also very accessible, and anyone can exchange their different Crypto coins against Bitcoin or Ethereum.
In summary, Cryptocurrency mining techniques continue to change for a better financial ecosystem. We have seen a rapid transformation from CPU and GPU mining to high-end ASIC miner within a decade. In addition, these frequent changes and growing competition can heavily influence the profitability you expected from Crypto mining calculator.
Some prefer to start Crypto mining just for the profits while others join to become early adopters for a project. But whatever your decision is, there are always some technicalities you have to deal with before actually beginning your journey as a Crypto miner.
However, as a bottom line, it is a fact that Cryptocurrency mining remains an important factor to secure the Blockchain and validate transaction over the network.