Most people associate cryptocurrency mining with the Bitcoin blockchain. However, a variety of blockchain networks implement crypto in their transaction data validation and verification process.
Nodes or computing networks from all locations across the globe use cryptocurrency mining to verify a new transaction and generate new crypto coins. Cryptocurrency mining is, therefore, a valuable and, in the right settings, rewarding process that the crypto enthusiast should look into. This article is not financial advice but a guide on the best crypto mining considerations and practices.
Why do blockchain networks perform cryptocurrency mining?
When Satoshi Nakamoto launched the Bitcoin blockchain in 2009, he wanted to create a decentralized or intermediary-free banking and, eventually, a financial system. This network would support transparent, low-cost, fast, secure, and pseudonymous peer-to-peer transactions.
By their nature, banks are financial institutions whose core activity is the collection of deposits from account holders. They receive deposits and profit from them by issuing interest-earning loans to their members.
Over and above that, they charge service and account fees on deposit holding accounts in the form of overdraft, minimum balance, maintenance, non-sufficient funds, and late and safe deposit box fees. Unfortunately, banks operate via a centralized governance system and are therefore a Single Point of Failure (SPOF).
Banks help generate trust in transactions. However, over time, capitalism and greed have exacerbated unethical practices such as toxic loans, investment fraud, and arbitrary deductions on customer accounts.
Unchecked and unscrupulous investment banking practices led to the 2008 subprime mortgage crisis. The financial crisis passed all risk to investors, and the central banks rewarded bankers’ impunity with bailout packages worth billions, increasing monetary inflation to public dismay.
Consequently, the day the London Times headline read ” Chancellor on the brink of second bailout for banks” was also the day of the first cryptocurrency mining event. On January 03, 2009, the anonymous Satoshi Nakamoto mined the Bitcoin network’s Genesis Block.
Mining the original block bagged him a 50 BTC reward. By doing so, Satoshi proved that the Bitcoin network could cut off the influence of the financial system’s intermediaries and banks through a people-driven currency.
To perform this feat, the anonymous developer released a decentralized ledger system that allows anyone to update, verify, validate and store Bitcoin transaction history, making it incorruptible. As a result, Bitcoin was the first successful use case of blockchain technology.
Blockchain technology creates distributed databases that communicate, record, and transact data without reliance on a central authority. The technology builds these databases on a network of nodes that collaborate to validate and verify all transactions on the network.
How do they perform this feat? In Bitcoin’s case, they do so via the Proof of Work (PoW) consensus mechanism.
What is the Proof of Work (PoW) consensus mechanism?
A blockchain consensus mechanism helps a distributed network reach agreement on the status of network data. For example, the Proof of Work (PoW) consensus mechanism brings together a cryptocurrency mining network of computer hardware operators referred to as nodes.
These nodes expend computational power to create proofs of work by solving the PoW’s complex mathematical puzzles. Cryptocurrency miners, therefore, solve the PoW puzzle via their computing devices.
When they do so, they effectively perform the roles that bankers do by confirming the validity of the blockchain network’s most recent transaction data blocks.
What is cryptocurrency mining?
A cryptocurrency miner, therefore, successfully solves a mining puzzle and broadcasts new blocks of transactions to the rest of the mining nodes. The node network will confirm the block’s integrity and accept it to their copy of the blockchain distributed ledger. This extensive verification process illustrates consensus.
The miner earns a block reward of newly minted crypto, hence cryptocurrency mining. PoW is, therefore, a slow process that confirms a 1MB block of data every 10 minutes in the Bitcoin blockchain. Additionally, cryptocurrency mining creates a verifiable record of data that eliminates the double spend problem.
No single entity can alter the Bitcoin blockchain network distributed ledgers and reacquire their spent BTC. A malicious actor would have to take over at least 51% of the network’s hashing or mining to reorganize the blockchain data and double spend or reuse their cryptocurrency.
History of cryptocurrency mining
Now that you understand cryptocurrency mining, how can you join the Bitcoin mining node network and earn new BTC?
Cryptocurrency mining was easy peasy in 2009 when Satoshi mined the Genesis block. At the time, you could mine bitcoin using a low-power central processing unit (CPU) PC. A solo BTC miner would earn 50BTC for solving the network’s PoW puzzle.
By 2010, cryptocurrency miners had discovered that robust computer graphics processing units (GPUs) would give them an edge amidst growing mining competition. GPU miners had six times more cryptocurrency mining efficiency than CPU-only miners.
The reign of GPU crypto mining did not last. By 2011, field programmable gate arrays (FPGAs) took over Bitcoin mining, offering more efficiency till 2013, when application-specific integrated circuit (ASIC) mining rigs took them down.
ASIC mining rigs dominate the BTC mining sector today since they are compact, robust, and more power efficient than thousands of CPUs or GPUs working in tandem in mining. In addition, BTC cryptocurrency mining is ASIC-dependent because its PoW algorithm is energy intensive.
The Bitcoin SHA-256 hashing algorithm increases its difficulty when more computational power joins the mining network. More computational power increases competition in solving the equation and earning the subsequent new cryptocurrency.
Consequently, the Bitcoin blockchain proofs of work have grown complex over the last decade, making the cost of mining and rigs extremely expensive. That said, these costs ebb and flow as per the market conditions.
To illustrate this point, during the 2021 crypto boom, Nvidia GPUs such as the RTX 3080 retailed at an average of $1000 apiece. Basic ASIC crypto mining rigs were retailing at $3000. Data by Tom’s hardware now shows a significant drop in chips as the crypto winter causes a decrease in cryptocurrency mining profitability.
You could, for instance, purchase the most coveted GPU chips, the RTX 3080, at $650 on eBay as per the online technology publication. Likewise, the cost of the kings of ASIC mining rigs, Bitmain’s Antminer S19 and the S19 Pro, are also at a two-year low as the Celsius network, home to a slew of new 22,000 ASIC miners worth over $500 million, files for bankruptcy.
Therefore, it would be best if you got a heads up on all recent cryptocurrency mining sector events before investing in mining hardware. Algory provides an advanced crypto news scanner and the Algory monthly crypto news reviews that will help guide your crypto mining strategy.
Main forms of cryptocurrency mining hardware
CPU and mobile mining
CPU mining is the oldest mining hardware. CPU miners use their computer’s processing power to mine crypto. This hardware, however, does not provide sufficient computing power for bitcoin mining. It is slow, inefficient, and can only offer meager rewards.
Since computer and mobile CPUs are affordable and easy to access, they are excellent mining education devices for miners that wish to learn more about crypto mining. But, you could mine crypto such as Monero on your CPU since, by design, Monero’s consensus algorithm resists the use of Monero-specific ASICs.
Download a wallet, install the Monero GUI client and the MultiMiner mining software then mine your Monero on your laptop.
There are a variety of cryptocurrencies that you can mine using a graphics processing unit mining rig. The beauty of GPU mining hardware is that you can earn new cryptocurrency and leverage your graphics video card in gameplay during your free time.
That said, the ordinary graphics video card is not as efficient as a robust GPU card. Consequently, invest in an expensive GPU when embarking on your crypto mining journey. Unfortunately, GPU crypto mining will eat your profits since high-power GPUs also use massive energy.
You can, however, mine Monero, ZCash, Ravencoin, Grin, Ethereum Classic, Litecoin, and Ethereum 1.0 using GPU mining hardware. It will take a solo miner 64 days to mine one ETH using a fast GPU. To mine ETH, download a wallet, install the ETHminer software, and get started.
ASIC mining rigs are efficient hardware since they are purposely designed for crypto mining. However, most ASIC rigs target a specific hashing algorithm, so you cannot mine all types of cryptocurrencies on one rig.
To illustrate this point, the Antminer S19 Pro and AvalonMiner A1166 Pro mine SHA-256 hashing algorithm cryptos such as Bitcoin, Bitcoin BSV, and Bitcoin Cash. As per softwaretestinghelp data, an Antminer S19 Pro can generate a $12 profit daily and expends $0.1/kilowatt of energy. The AvalonMiner A1166 Pro, on the other hand, has a $0.01 per kilowatt power cost and provides a $2.77 profit per day.
Cryptocurrency mining – how to start
Choose a crypto mining method.
There are three main forms of crypto mining methods; solo, pool, and cloud mining. Solo miners act independently, mining on their CPUs, GPUs, or ASIC mining rigs in the comfort of their homes or mining establishment.
However, small-scale ASIC cryptocurrency mining operations are rarely profitable due to the competitive nature of the mining process and the growing difficulty of the SHA-256 hashing algorithm. On the other hand, pool mining brings together mining nodes’ computational power when mining one block of data. As a result, mining pools lower power consumption costs and enhance mining efficiency.
These pools distribute rewards as per each node’s hashing power contribution. Some of the most highly reviewed mining pools include the F2pool, BTC.com, and Poolin. All three pools are based in China due to its cheaper costs of electricity.
Cloud mining allows crypto miners to earn new tokens by paying a service charge on a rented mining rig. Cloud miners, therefore, do not have to purchase expensive ASIC rigs. Instead, they will earn a share of their rented rig’s profit. Caveat emptor; cloud mining is a high-risk process ridden with many fraudulent players, so it is best to avoid it if you are a newbie.
What you need to start mining
Now that you have a firm grasp on the types of cryptocurrency mining hardware and its forms, it is time to start mining. So, what do you need to start?
- First, you need crypto software and a hardware wallet. Use your software wallet when actively mining, then transfer your rewards to hardware or cold wallet for maximum protection.
- Next, ensure that you have access to a secure and strong internet connection.
- Then select and set up your mining operations by purchasing a GPU or ASIC mining rig, per your mining strategy and capital.
- Now, you can mine cryptocurrencies. You can go solo or join a pool. If you choose to go it alone, you will first have to enter the blockchain node network and download the entire blockchain transaction history. This process could take a few days when mining established cryptocurrencies such as ETH.
- Download mining software to connect your mining rig to the blockchain or the mining pool if you choose that as your cryptocurrency mining mode. The most popular BTC mining software is the CGminer and Ethminer for Ethereum network mining.
How to profit
To make a profit when mining, ensure that your only mine crypto coins that have a demand in exchanges. You can check Algory and learn of the crypto trends to watch to ensure that you only mine the most profitable of crypto coins.
Then, crypto mining rigs produce a lot of heat, so set up your hardware in a low-temperature, cool location. Then, in your equation, factor in expenses such as electricity, computing power, pool, and cooling fees.
If your electrical grid has power limits, ASIC mining may be off limits and could cause outages or fires. If you have a good source of cheap electricity, have an expert set up your mining system.
Next, use tools such as the best mining calculators before setting up your cryptocurrency mining process to ensure that your mining process is cost-effective. Mining calculators factor in hash rate, power usage, and pool fees when calculating profitability.
Suppose ASIC mining is not cost-effective, mining coins such as Monero. After all, sole ASIC mining is technical, and managing these high-power devices is not easy for a beginner miner.
Cryptocurrency mining is a rewarding process. That said, due to advances in blockchain and computing technology, it is an unpredictable sector that will evolve. Use the Algory crypto news aggregator to stay atop the industry’s news about mining and trends for success and safety.