Cryptocurrencies have enjoyed an impressive rise in prominence over the past decade. As demand for these assets rises, there’s been a sharp increase in the creation of hundreds of cryptocurrencies with several use cases. This has led to investors scrambling to own a piece of the cryptocurrency pie. But, how do you acquire a digital asset?
There are different ways to own a cryptocurrency. You can either buy it and store it in your wallet- the path taken by most cryptocurrency owners- or you can mine them through a process called mining.
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What is Mining?
Mining is the process of creating new cryptocurrencies. Miners facilitate mining. Bitcoin miners have two main roles. To confirm transactions and to mine new Bitcoin. Every time someone sends an amount of cryptocurrency to another, a miner confirms the transaction on a blockchain.
The transactions are verified by miners to ensure their validity. Miners collect transactions from the memory pool and organize them into blocks. As a reward for their hard work, the protocol issues miners newly minted cryptocurrency.
Who are Miners?
Miners collect and verify transactions and then organize them into a block. The miner is the node in the network that holds everything together. For example, in Bitcoin, we have miners in charge of verifying transactions and issuing new cryptocurrency.
Bitcoin is a bit like traditional money, only that it’s decentralized. With the U.S. Dollar, The US government is the central authority that issues new notes with little or no input from the citizens. With Bitcoin, miners distributed across the globes confirm every transaction and secure the network.
The miners invest in heavy-duty specialized computers to process Bitcoin transactions. They do this by solving complex computational problems where they chain together blocks of transactions. Once the miners confirm these transactions and place them into the chain, they’re immutable and irreversible. This action brings us to the security of the network.
Mining is an integral part of Bitcoin’s network that ensures fairness, stability, and security of the blockchain. For their efforts, the protocol rewards miners with new bitcoins every 10 minutes. The issuance of bitcoin is in the code, so it’s not a protocol you can game. The only way to mine the cryptocurrency is to confirm transactions and include them in the block.
How to Mine Cryptocurrency
To procure your cryptocurrency through mining, there are different ways you can go about it.
1. CPU Mining
This used to be a popular way to mine cryptocurrency early on. It works by utilizing your computer’s processors to mine digital assets. A powerful computer with mining programs is all you need to get started. It’s quite convenient but not sustainable or profitable, in the long run. CPU mining is also quite slow, which means smaller revenue despite the hard work. You also have to spend an insane amount of time cooling off and paying for electricity. Despite its poor ROI, it’s still one of the most explored methods for mining cryptocurrency.
2. ASIC Mining
This is the most used method by serious miners who want speed and performance. ASIC stands for Application-Specific Integrated Circuits. ASIC mining rigs are specialized miners designed for the sole purpose of mining cryptocurrency. Due to their performance and power, there’s a bit of controversy concerning their usage. Conservative members of the cryptocurrency community have called for a ban on these machines as it makes it difficult for other miners using slower methods to keep up.
3. GPU Mining
GPU mining is another popular method of mining cryptocurrencies. It involves the use of GPU rigs, which are known for their high performance and affordability. GPU miners are made up of a graphics card, processor, motherboard, rig frame, cooling. They often cost as much as $3000, so the barrier to entry is higher than for CPU or Cloud mining.
4. Cloud Mining
This process is similar to giving money to an investment manager. They do the work, and you collect the profits. Cloud Mining is0 hands-off. It involves renting mining machines and expertise from a large company that does the mining for you. The service provider does the maintenance and monitoring for a fee, while the investor gets the earnings at the end of an agreed period.
Cloud mining is a popular way for investors to participate in mining without purchasing a rig. The service provider offering these cloud services often have multiple mining equipment with the expertise to operate and maximize its output. Different providers have different plans whose costs vary. Cloud mining prices could start from $300, but it goes up from there for an agreed period.
Depending on the operations and market price of the asset being mined, you can expect to break even in 9 to 14 months, this is assuming the market price, and difficulty level remains constant, which is impossible. When choosing a service provider, look out for the contract length, assigned mining power, and the maintenance fees. Those are the factors that would determine your revenue.
How to Choose a Cryptocurrency Suitable for Mining
Many factors determine whether an asset is good to mine or not. But, top on the list for most people has to be profitability. If you’re going to invest your funds and time into mining, it has to be profitable, except you’re mining as a hobby. Here are some important criteria for determining the likely profitability of an asset.
1. The Asset’s Price
Since cryptocurrencies are often volatile, going through wild swings daily, you need to be sure that the cost of mining one currency is higher than its current market price. This rule is not cast in stone as there are cases where miners earn cryptocurrency and keep them so they can take advantage of a future rise in price. This might not lead to instant success, but, giving the wild movements of the crypto market, a bullish run is only a piece of news away.
Owing and mining cryptocurrencies also need to be legal in your country. Several countries have restrictions on mining, while others seem to be uncommitted to the subject. For countries where cryptocurrency mining is legal, you can expect cheap electricity to operate without the fear of a crackdown. For assets that are power-dependent, like Bitcoin, the cheaper the power bills, the higher the profit.
In terms of costs, we’re looking at the power bills (we’ve spoken about this) and the mining gear. Every mining operation involves a mining gear. It could be as small as a computer or a mining rig. When it comes to mining rigs, the costs could set you back from $3,000 and above.
Besides the hardware component, there’s often a software side to every cryptocurrency mining operation. However, if traditional mining is a bit too complicated, you can start by mining on exchange’s like StormGain. This is a very good way to get your feet wet, without taking on a huge amount of risk.
The Most Profitable Cryptocurrencies to Mine
1. GRIN (GRIN)
GRIN is relatively new. It’s an asset based on the MimbleWimble consensus algorithm, which promotes transaction privacy. GRIN has unlimited coins, which miners will appreciate. Mining difficulty varies by network hash, and the asset itself is based on the PoW mining technique.
GRIN, written in RUST, uses the Equihash algorithm. It also features ASIC resistance to the point where it’ll need to hard fork every six months to avoid ASICs. GPUs from AMD and NVIDIA can facilitate the mining process. Mining rewards are 60 GRIN per block.
GRIN is currently trading at $0.975, and it is available on 24 cryptocurrency exchanges, including OKEx, Bittrex, Poloniex, and HitBTC. So, withdrawal won’t be so much of a problem.
2. ZCASH (ZEC)
ZEC began operating in 2016. ZCASH is currently one of the top privacy-focused cryptocurrencies on the market. Athough, another highly impressive feature of the asset is that commissions on mining are negligible.
The Equihash algorithm is the algorithm that mines ZEC. This specific algorithm isn’t compatible with ASICs. So you don’t need ASICs to mine ZEC. This is great news if you’re worried about upfront mining costs. Instead, you’ll need to get a GPU or a CPU to mine the asset.
You could get a new CPU for much cheaper, but you’ll also need to worry about cooling. If you go the GPU way, then you’ll be spending a bit more on equipment.
ZEC is available on most of the top cryptocurrency exchanges, and it currently trades at $49.65. It uses the PoW mining technique, and mining rewards are 10 ZEC per block.
Ravencoin is one of the many cryptocurrencies that broke out of the original Bitcoin. Matthew Green and others created ZCASH in 2018, and it has already grown to a market cap of over $120 million.
Ravencoin is mined using the PoW mining technique, thanks to the X16R algorithm. The algorithm alternates between SHA512 and X15 mining algorithms, and the order is defined by the hash of the preceding block. As for the asset, you could simply purchase graphics cards from Nvidia and AMD to begin mining.
Ravencoin can seamlessly be exchanged on various platforms. The cryptocurrency focused on asset transfer with Bitcoin and Ether as its bases. It currently trades at $0.025, and block rewards are 5,000 RVN per block.
4. Monero (XMR)
Monero shares an important similarity to Bitcoin in that they both work quite well for settlements. However, Monero provides a greater degree of privacy, and that’s where its most significant benefit lies. It’s currently the 13th most valuable cryptocurrency with over $1.2 billion in market cap, and its value has risen steadily over the past few years.
As regards mining, Monero doesn’t require an ASIC to be mined. As expected, this reduces costs by a great deal. Currently, Monero miners get 4.99 XMR for verifying transactions on its blockchain, although transaction fees stand at 0.06573 XMR. Monero uses the PoW mining technique, but the asset has been tweaking its mining algorithm to ensure that miners can use both GPUs and CPUs to mine. It’s available on most exchanges, and its price is currently $62.31.
Frequently Asked Questions
Do you need ASICs to mine cryptocurrencies?
ASICs are great for mining cryptocurrencies with high amounts of difficulty. However, not all cryptocurrencies are mined wit ASIC units. Some coins are intentionally developed to be ASIC resistant.
Are ASICs better than GPUs for mining?
Generally speaking, cryptocurrencies that support ASIC miners are better to use than GPUs. This of course, unless you have an older ASIC unit. In this case the profitability goes down or stops mining altogether.
Can you cloud mine?
Mining cryptocurrencies in the cloud is an excellent method. You can use the power of specialized mining equipment in this scenario without having to own or maintain the hardware yourself. This method can help you save time and money while still reaping the benefits of mining.
Is crypto mining profitable for beginners?
In many cases, new miners must take on debt to begin mining operations. This is because they need enough equipment to actually turn a profit. If a new miner can’t generate enough profit to keep up with their loan payments, then mining is unprofitable.
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