The Ultimate Beginner’s Guide to Cryptocurrency Mining
Crypto is poised to take over institutions and industries—it’s only a matter of time before we see developed nations and Big Tech adopt the digital sensation. As this occurs, it’s essential we take a step back and learn about how cryptocurrencies function and how they’re born.
Although the “minting” process for cryptocurrencies is similar to fiat currencies, one clear distinction makes it more complex and, ultimately, a byproduct of the web3 movement.
And who would’ve guessed? That distinction is mining… and no, it’s not with a pickaxe in a cave—it’s with a web of computers running on algorithms.
In this cryptocurrency mining guide, we’ll take you through the history behind mining, the process, the types of mining, and how to get the ball rolling. We hope that by the end of this article, you’ll be well on your way to mining some sweet, sweet crypto coins.
- What is cryptocurrency mining?
- How does cryptocurrency mining work?
- What’s a cryptocurrency mining pool?
- Cryptocurrency mining methods
- What should I choose?
- Steps to mining any cryptocurrency
- What is the best cryptocurrency to mine?
- Frequently Asked Questions (FAQs)
What is cryptocurrency mining?
As stated previously, cryptocurrency mining is so essential to the industry that without it, cryptocurrencies would cease to exist and circulate. But what is it exactly?
Simply put, cryptocurrency mining is a competitive process that fulfills two tasks:
- Verifies and adds new transactions onto the blockchain
- Mints new cryptocurrencies into circulation
Let’s kick it off with the first point: Verifying and adding new transactions onto the blockchain.
The beauty of cryptocurrency mining, and consequently, transaction verification, is that it doesn’t require manual labour. Instead of hiring an accountant to check sales and add transactions onto the ledger, miners set up their computers to accomplish the same role, publicly, and in a combined effort.
And the only way this process is automated is through complex mathematical equations that only the most powerful computers can solve. In fact, the entire process of cryptocurrency mining takes place virtually—no pickaxe is required.
As transactions are verified, miners are rewarded with freshly minted coins. That’s right—this is where cryptocurrency mining’s second goal comes in: minting new cryptocurrencies into circulation.
How does cryptocurrency mining work?
So, cryptocurrencies are mined with computers, not people. Does that mean anyone with a regular PC or laptop can start mining? Not necessarily.
Cryptocurrency mining is an energy-intensive process, often requiring highly specialized hardware to function. Fortunately, the market is established and has expanded across borders, and firms in each corner of the world sell cryptocurrency mining hardware.
Although different cryptocurrencies and blockchains have differing mining requirements, most operate on the same principle: the computer system has to solve a complex mathematical equation to upload a transaction onto the distributed ledger. Once verified, the miner is rewarded in new cryptocurrency for their troubles.
There is also a difficulty level in cryptocurrency mining, which is the chance of reaching the correct answer to the equation given for a particular set of transactions. Difficulty levels often sit at an odd of one in a trillion. The slimmer the chance of cracking the code, the higher the difficulty rate is said to be.
The good news is that mining equipment has advanced, therefore increasing the odds miners will solve the equation with ease. But as mining equipment improves, the difficulty rate has to be adjusted.
Thanks to Satoshi Nakamoto’s ingenuity, the difficulty rate increases and decreases depending on the number of miners operating on the network. The cherry on top is that this ‘readjustment’ process is programmed into the blockchain via an algorithm—decentralization at its finest.
Now the actual ‘cryptocurrency mining’ process is quite interesting, and if you’re a sucker for new technology or mathematics, it will probably blow your mind. This is how it works:
- Transaction metadata is batched up through a cryptographic hash: an algorithm that takes in data and outputs enciphered text (called a hash value).
- Miners run their computers to generate the correct hash associated with the hash value.
- Once a miner guesses the hash, the block (series of transactions) is mined.
- Once the block is mined, unminted cryptocurrency is circulated by rewarding the miner who guessed the correct hash.
- Rinse and repeat.
What’s a cryptocurrency mining pool?
The rising demand for cryptocurrency presents a problem for ordinary people like you and I—mining is becoming more difficult and competitive, and blockchains are increasing in size.
And for us, we’re either competing against multi-billion dollar companies with warehouses full of cryptocurrency mining hardware, or we’re too impatient to see the results. There’s no in-between.
But the matter of fact is that sitting at home and mining cryptocurrency may not be the best option for you. You have to think about the variable and fixed costs of mining: electricity and hardware to be specific. Without conducting a cost analysis, you will probably go the whole year without making a penny out of the market.
Therefore, it’s advised you join a mining pool. What’s that, you may ask?
A cryptocurrency mining pool is a group of people ‘pooling’ their computational resources to mine cryptocurrencies and distribute profits. The miners share all expenses, such as electricity and data bills, and in return, they receive an equal amount of profit according to their participation.
It’s recommended you join a cryptocurrency mining pool because, realistically, it’s the only way you can compete against whales like Bitfarms Ltd. If you lack the resources to mine, you’ll never guess a hash.
With pools, you stand a chance to get a profit, no matter the outcome. However, profits are shared based on your input. So if you have more mining GPUs than your buddy Fred, and you both participate in the same cryptocurrency mining pool, you’ll get more profits.
Cryptocurrency mining methods
The principles of cryptocurrency mining stay the same across each blockchain, but how cryptocurrencies are mined may vary depending on the user.
1. Cloud mining
Cloud mining is by far the most convenient way to mine cryptocurrency because it doesn’t require much on your end.
You don’t even need to buy mining equipment… but wait, this doesn’t make sense. How are you supposed to mine if you don’t have a cryptocurrency mining rig?
Fret not; just subscribe to a cloud mining service, and you’ll finally be in the mix.
A cloud mining service is a business that owns and operates a so-called “mining farm,” with hundreds to even thousands of cryptocurrency mining rigs (computers). Remember Bitfarms Ltd? It’s sort of similar, except the service is provided to customers.
All you need to do is buy a subscription (monthly, annually, etc.) and connect your desired rig to your cryptocurrency wallet. From then on out, all crypto mined from the rig will be transferred directly into your wallet.
Some cloud mining services even offer free plans. I bet you’re wondering how cloud mining services make money; Nothing in life is free. Apart from the actual subscription fee, operating costs are deducted from the tokens you receive.
You’re also unlikely to break even after a few months, as you’ll still have an adequate amount of costs in subscription fees. But don’t worry—after a couple of months, you’ll begin earning a profit.
So if you’re patient and want hassle-free cryptocurrency mining, this is the best choice for you.
2. CPU mining
Although cloud mining is convenient, CPU mining is the most basic alternative to mine cryptocurrency.
This is because it only involves running some programs on a computer system, with the CPU performing the functions in the background. The problem with this method? Your electricity bill will go through the roof, and if you have a basic setup, your computer will overheat.
Therefore, if you want to stick to mining your own crypto, you have to choose a CPU proficient in handling the task. Stick to a higher number of cores—this shouldn’t be an issue as newer CPU models are more than capable of mining efficiently.
All in all, CPU mining is a decent option if you’re new to mining and want to learn the ropes of blockchain technology and cryptocurrencies. It’s also an excellent method if you already have a powerful CPU.
3. GPU mining
GPU mining: another prevalent method of cryptocurrency mining used by normies and mining corporations.
In this case, the GPU, or graphics card, is part of the larger GPU rig. The rig also contains a processor, motherboard, cooling, and a rig frame, tailored for cryptocurrency mining. The perks of using a GPU rig are that they’re not expensive to acquire, they’re cost-effective, and they’re more powerful than CPUs.
Some mining software lets you use your built-in GPU to mine. However, if you want to dive a bit deeper, you can also explore external GPU setups to speed up your mining.
4. ASIC Mining
ASICs are designed for the sole purpose of cryptocurrency mining, thus heavily outperforming CPU and GPUs. Albeit, they’re somewhat controversial within the industry because of this reason.
While they’ve been designed and altered to fit specific blockchain algorithms, they perform their job a little too well
What should I choose?
The answer lies within your needs and goals, and unfortunately, we can only provide all the information necessary for making your first purchase.
If you’re looking at giving it a shot and don’t want to empty out your pockets, then CPU mining should be your first step. You may also want to browse GPU mining rigs if you’re really getting into it.
5 best cryptocurrency mining software for Windows
Explore the best mining software for Windows.
If you’re more serious about cryptocurrency mining, we suggest you take note of advanced mining hardware like ASIC devices or mining GPUs. ASIC chips have been proven to squeeze out the most profit with the least amount of energy.
Steps to mining any cryptocurrency
Feel like you’re ready to go? Follow these steps to begin mining cryptocurrency!
Be wary, though—these are not a one-size-fits-all solution. It’ll help you navigate your first mining experience, but each experience is different depending on the selected hardware, software, and blockchain.
1. Make sure your country supports cryptocurrency mining.
The harsh truth is that some countries are taking a stand against decentralization and cryptocurrencies, some even going as far as declaring popular coins like Bitcoin and Ethereum illegal.
So, before you waste money and energy on cryptocurrency mining software and hardware, make sure you comply with your country’s laws.
Here’s a list of cryptocurrency regulations around the world. Of course, if you don’t find your country on the list, you can always Google your country with a relevant query.
2. Consider your budget and expenses.
Cryptocurrency mining is all about converting electricity into money profitably, so before buying hardware, make sure you compare associated costs.
We recommend you bring up a fresh spreadsheet, write down your monthly electricity bill, add up the estimated amount of energy you’ll be spending when mining, and integrate the one-time hardware payment.
3. Purchase mining hardware.
Obviously, you can’t manually mine cryptocurrency, so you should decide on the equipment you intend to use. Apart from your basic needs and goals, consider cost, customer feedback, and overall reputation before choosing.
4. Create a cryptocurrency wallet.
You will need a place to store all the coins you will be mining. Thankfully, we have a complete guide covering various cryptocurrency wallets, their differences, and how they work.
5. Get on a trusted cryptocurrency exchange.
The internet is full of scammers and malevolent behaviour. If you want to sell your tokens, ensure you find a trusted cryptocurrency exchange that will help you convert your coins into cash.
6. Join a mining pool.
As a newbie in cryptocurrency mining, we highly recommend joining a mining pool to get you started.
It’s pretty likely solo mining will not be profitable for you, as you’re just a tiny fish competing against Great White sharks. Remember how mining works? The more resources you dedicate to verifying transactions on the blockchain, the more rewards you’ll earn. Companies have far more resources than you do on your own.
Nevertheless, take precautions when looking for the best cryptocurrency mining pools. People will always try to rip you off your hard-earned money, especially in the unregulated crypto market.
What is the best cryptocurrency to mine?
Bitcoin is—hands down—the best cryptocurrency to mine in the entire industry. Bitcoin is the OG cryptocurrency, hitting the market back in 2009. Other cryptocurrencies followed suit.
Since it’s the first mover in the crypto market, most of the techniques and strategies developed by Satoshi Nakamoto have now been adopted by altcoins like Ethereum. To sum it up, the network and security of Bitcoin are top-notch as its encrypted and backed with blockchain.
The 10 easiest cryptocurrencies to mine at home
People like you and I are starting to mine like never before. If you want to learn about other cryptocurrencies you can mine, click the link down below.
Bitcoin arguably has the largest userbase in all crypto, including miners, merchants, and institutions. It also has millions running through the network 24/7—as of April 2020, Bitcoin accounts for a whopping $117.81 billion of the total crypto market.
All in all, since Bitcoin’s ecosystem is extensive and trusted by millions of people and corporations worldwide, the need for cryptocurrency mining for the blockchain is vital to the livelihood of all its users.
Cryptocurrency mining keeps the blockchain up and running—not only do everyday people mine crypto as a full-time job, but the security and function of the blockchain rely on this process.
We hope this guide has armed you with adequate knowledge to tackle cryptocurrency mining. Good luck and happy mining!
Frequently Asked Questions (FAQs)