How to mine cryptocurrency? Back in 2009, cryptocurrencies started with a bang and today it has become mainstream with more and more people showing their interest in it and entering the market every day in some way or the other.
Some of them make money by simply investing in this exciting world of blockchain, some trade crypto coins, while others ‘mine’ cryptocurrencies.
Crypto mining is a process that is considered to be one of the most practical ways to participate in this market space and enjoy the upsides of digital currencies.
To put things in a few very simple words, crypto mining is a process of solving complex mathematical problems.
These equations, when solved, help in verifying a crypto transaction and at the same time, if it is approved, it is updated in the shared and distributed ledger called the blockchain.
As reward for solving the problem, the miners get a share of the crypto associated with that particular blockchain of which they are part of.
However, crypto mining is not easy and needs a lot of understanding, resources, efforts, and technical knowledge.
Moreover, it is not a process to get rich overnight. The payout can vary due to the volatility of the crypto market that it is well-known for.
Also, the cost of equipment and electricity bills will eat up a significant amount of your earnings.
If you want to mine crypto but do not know how to, here is an article that will help you a great deal in that aspect having everything covered right from the process to the pros and cons.
Contents
How to Mine Cryptocurrency?
Crypto mining is similar in meaning to any other mining process wherein more units are ‘dug out.’
However, crypto being a highly technological aspect, here it refers to solving cryptographic equations and gaining crypto coins in return.
Technically speaking, crypto mining is a set of formulas with specific properties that needs a high-end computer and a lot of power to solve.
These are very useful for encryption, validating transactions, verifying new blocks of data, and adding them to the public ledger.
It works mainly on the Proof of Work mechanism.
A new block is added to the distributed public ledger only when a miner comes up with a new and winning PoW.
This prevents the participants from gaining additional coins that they did not earn in any way and this happens every 10 minutes within the network.
The entire process is decentralized in nature and involves cryptographic algorithms.
The sole objective of the process is to bring new crypto coins into circulation.
This algorithm can acquire different types of cryptocurrencies but will not allow any single participant in the network to become so powerful or authoritative to run the entire show.
If you are planning to start mining crypto, first you must make sure that you have a computer that is much, much more than an average computer you use in your home or office.
It must be very high in performance and super-powerful. Needless to say, it will dig a deep hole in your pocket.
You will also need to create a wallet and may even join a mining pool. This will increase the chances of making more profits.
Understanding Crypto Mining
So, you know by now that crypto mining is a process in which the machine does almost every task and in return you get to earn a few more crypto coins.
This task is called the ‘Proof of Work.’ This is a mechanism that creates a fair and level playing ground for all the different participants in the network.
These tasks involve complex mathematical equations.
These equations become more complex and tougher to solve when there are more miners involved in the act, like in Bitcoin mining.
This creates a perfect balance in the pool and in the process motivates people to use larger and stronger machinery.
There are lots of factors that come into play while mining crypto coins but the basic idea behind the process is that if you contribute to the network with your effort and equipment, you will be rewarded with a portion of the spoils.
Preparing for Crypto Mining
As said earlier, crypto mining is not an easy task. You will need to prepare yourself well in advance for that.
It is needless to say that you must possess a fair amount of computer skills and technical knowhow.
Once you know that you have the desired potential for crypto mining, you should then follow these fundamental steps for getting prepared.
Choosing your mining hardware is the first important step to follow.
You can use your existing computer but that will just be enough to get the fundamental idea about how crypto mining works.
If you want to make real profits, then it is elementary that you use highly optimized mining equipment, hardware, and other necessities such as:
- A GPU or Graphics Processing Unit or an ASIC or Application-Specific Integrated Circuit miner
- A stable internet connection having a high speed of at least 50 kilobytes per second with no limits for data uploads and downloads.
Remember, your mining node will typically use as much as 200 GB of data every month for uploads.
And, for data downloads, you can expect it to be at least 20 GB per month.
Therefore, make sure to get a stable and unlimited internet connection as well.
Next, you must decide whether you want to go for solo mining or pooled mining.
In pooled mining, as it is evident, you will work together with other miners as a team up.
This is a more feasible way to go because the profits will be consistent, more predictable, and large as compared to mining on your own.
Follow it up with installing and configuring your mining software.
There are several different applications to choose from but make sure it is compatible with your hardware and operating system.
Also, make sure that your setup is connected to a crypto wallet to collect the rewards as and when you earn them.
Finally, it comes to creating a crypto wallet for you.
Look at the different wallet options and choose a reliable one according to the type of crypto coin you want to mine.
It will not be difficult to find one for the popular crypto coins such as Bitcoin, Ethereum, and Litecoin.
However, if you want to mine crypto coins that are lesser known, you will need to research a bit so that you find a reputable crypto wallet.
Remember, it is most important to use a reliable and reputable crypto wallet for minting new coins.
A fishy one will get hacked into easily and all your mining efforts and earning will be lost in an instant.
Typically, using a hardware wallet is the best option since these are most trustworthy and safest of all available out there.
Now, you are now ready to start mining crypto coins.
All you have to do is click the button, sit back, relax, and see your machine do the rest.
Expert tip: You should let your mining rig run for at least 6 hours a day so that it is functional and successful.
However, if you want to increase the likelihood of earning more rewards you should let it run all the time.
Also, make sure that you monitor your mining rig all the time and do some fine tuning off and on or as and when it is necessary.
Remember, mining crypto coins may be passive but it is certainly not a set-it-and-forget-it method fully.
You will need to monitor the energy use and the performance of the mining equipment so that you make sure that it is running as efficiently, functionally, and successfully as possible.
More often than not, a few small changes made in its configuration can enhance your chances to earn more significantly.
Methods for Crypto Mining
Now, it is time to select the right method for crypto mining among several different ways available. Some of the major ones are:
- Cloud mining
- CPU mining
- GPU mining and
- ASIC mining.
Cloud mining: Easiest and Cheapest
This is the easiest, and probably the cheapest of all ways in which you can mine crypto coins.
It is also quite popular because it involves putting in less effort as compared to the other forms of crypto mining.
In this process, you pay someone else, which is often a big corporation, a particular amount of money for renting their mining machine and its process.
This is what reduces the costs involved in crypto mining since you do not need to buy and own a mining rig yourself.
The rent may last for varying periods according to the agreement.
All your earnings within that period via this rig will be transferred to your crypto wallet after deducting the cost of maintenance and electricity.
These companies, or even individuals, that offer cloud mining services typically own huge and even multiple mining facilities with tens or hundreds of mining farms or rigs are loaded up and operating together.
They know exactly how to mine crypto and make profits. Both these make cloud mining most popular, easy, effortless, and the future of crypto mining.
If you go for cloud mining, you will be able to take part in mining even if you do not have a huge amount of capital at your disposal or do not want to own a rig.
There are two forms of cloud mining namely:
- Free cloud mining and
- Paid cloud mining.
Though you may be tempted to choose the free mode to mine crypto coins, remember the results will not be as good as it will be in the paid cloud mining process.
The major downsides of it are additional terms and conditions, and very slow mining speed.
Paid cloud mining is much better in comparison. All you have to do here is find such a host and check out the plans offered by them and the tenure of each.
Usually they will offer as many as four to five plans which will include the cheapest as well as the most expensive ones.
Some paid cloud mining hosts may even allow you to create and customize a plan according to your wish.
As for the tenure it can range anywhere between two years and a lifetime.
Typically, you can break even after 6 to 12 months, though nothing can be said for because prices of crypto coins are extremely volatile and often swings on both sides of the scale quite a bit.
CPU mining: Traditional for Desktop Users
CPU mining is the most traditional way to mine crypto coins.
It uses the processors of a computer for mining crypto and used to be the most practical option back in the day.
However, of late, fewer and fewer people take this route to mine crypto coins.
There are good reasons for this such as:
It is an extremely slow process to mine crypto coins, often taking months to generate a small amount of revenue.
With the cost of energy involved in operation and cooling, it is not worth investing in since the return is miniscule.
It is feasible only in cold places where the cost of electricity is very low, but that is a rarity.
You may wonder at this point, why people still talk about CPU mining then.
Well, the main reason is that it allows anyone with a desktop computer to mine crypto coins, provided other conditions are favorable.
You will simply need a few specific programs for operating your computer for mining.
However, you can also use your laptop for CPU mining but it is strongly advised that you do not.
There is a high chance of your laptop overheating and ‘frying’ in just a couple of hours.
GPU mining: Well Known and Most Popular
This form of crypto mining is perhaps the most popular way known to the users.
You will probably see GPU mining pop up in the Search Engine Result Pages first when you Google search “Cryptocurrency mining.’ Even the cloud miners use GPU rigs to offer their services.
The reason that GPU mining is so popular is that it is both efficient and cheap comparatively, though the construction of the rig can be super expensive.
However, when you compare it with what you get in terms of general workforce and hashrate, GPU mining is a cheap and great option.
This process utilizes the power of the Graphics Processing Unit or GPU in a computer to mine crypto coins.
However, the computer should be good enough and come with:
- A powerful processor
- A good motherboard
- An efficient cooling mechanism
- A solid frame and construction and, of course,
- At least 2 to 8 powerful graphics cards.
This, needless to say, is a hefty investment but the returns will be much better as compared to the CPU mining process.
ASIC mining – Powerful and Very Productive
ASICs or the Application-Specific Integrated Circuits are mining rigs that are specifically designed for this crypto mining purpose only.
These are powerful rigs and therefore are more productive than any other form of crypto mining.
You can generate an insane amount of crypto coins in ASIC mining than in GPU and CPU mining, two of its closest competitors.
However, the ASICs are a big topic of controversy.
It is all due to its immense power that robs other miners participating in the process using a GPU or a CPU miner.
They are unable to keep up with the hashrate and speed in earning tokens.
Crypto experts think that it can create a lot of chaos in this ecosystem if the majority of the coins generated go to one single miner and therefore demand a ban on it.
Now, out of the four options, you may wonder which the best option for you to go ahead is.
Well, that will depend on a lot of factors such as whether or not you are willing to spend some money initially, and if so, how much.
You should also consider what type of mining rig you want to own, if at all.
Ideally, you should go for GPU mining if you want to go with the most popular method of crypto mining.
You may go for a CPU mining process if you are okay with a slow and tedious process and do not want to spend any money and start mining as soon as possible.
You may go for ASIC mining if unpredictability is not a matter of concern to you and you are not afraid of controversies.
And finally, you can go for cloud mining if you do now want to own a rig.
Remember, choosing the right gear and method of crypto mining will largely depend on the type of crypto coins you want to mine.
In that specific regard, you can choose to mine some of the most popular crypto coins among the miners such as:
- Bitcoin
- Ethereum or
- Dash
In order to make the right choice you should do some math and research and also consider a few specific factors such as:
- The method of mining
- The prices of coins and
- The time to expect a return on your investment.
However, remember that Bitcoin mining is the most popular of them all and is also the trickiest.
There are lots of miners involved in it which may result in longer wait times until it starts pouring it.
Therefore, the best option is to stick with Ethereum or any other crypto coin that is less popular.
Understanding the Limits and Risks
There are lots of risks and limits in crypto mining which are also good to know at this point.
Use of energy or electricity is one of the main concerns because different coins may consume different amounts of it.
For example, the Bitcoin network consumes about 120.5 terawatt-hours of electricity in a year which is slightly less than Argentina, and more than Netherlands and Pakistan.
Use of bandwidth is another concern because you will be uploading and downloading data constantly.
Therefore, it is best to use an unlimited and unmetered internet connection where you will not have any data caps and need to pay additional fees for every additional megabyte or gigabyte used.
You should also be wary of the damage caused to the hardware due to the intensity of the crypto mining process.
Make sure that it is configured properly and set up correctly so that damages are nothing more than the usual wear and tear.
Coin supply and reward restrictions should be another significant aspect to care for because few particular coins, such as Bitcoin, are halved periodically.
You should care for the taxes as well and therefore keep a proper track of your capital gains or losses incurred in making crypto transactions. If you ignore your tax obligations, you will end up in deep trouble.
Just keep in mind that the IRS or Internal Revenue Service has specific rules laid down for people involved in crypto transactions.
Therefore, make sure that you report your capital gains, or losses, in your tax report to avoid penalties.
Finally, consider your geographical location and limitations imposed there because crypto mining may not be legal everywhere, China, for example.
If you are not aware of the rules and regulations in your region, you are bound to end up facing legal consequences, which, mind you, can be severe.
Therefore, be wise and careful with your choice if you want to give crypto mining a shot.
Remember, the crypto space is unregulated and it is your responsibility to protect your crypto assets and not lose your coins and sleep together by being lackadaisical.
Conclusion
Crypto mining is a good option to make some passive income, if only you know the right way to do it.
Well, with this article covering almost every aspect of it, you surely are much more confident now than you were before reading it.
I have special interest in crypto and intend to help common people to gain knowledge about the digital asset as well as its potential. Follow Me at Linkedin.
