How to Mine Cryptocurrency: A Beginner’s Guide

How to Mine Cryptocurrency: A Beginner’s Guide

Cryptocurrency has moved from an obscure niche technology to a global phenomenon. No longer are the mysteries of Bitcoin the protected knowledge of select tech experts, instead it’s relatively easy for regular people to purchase Bitcoin and other cryptocurrencies. With very little prior knowledge, you can buy cryptocurrencies from an exchange with your credit or debit card. The extensive network of exchanges and the widespread stories of people making their fortunes through Bitcoin mean that the media spotlight is firmly on crypto coins. However, one aspect that is not quite as mainstream as purchasing or trading in digital currencies is cryptocurrency mining.

Cryptocurrency Mining: Everything You Need to Know

Mining cryptocurrency, although not difficult, requires a fair amount of prior knowledge and preparation. Although generating Bitcoin is no longer as profitable as it once was, there is still money to be made through crypto mining. In this article we’ll examine some of the key points you need to know. We’ll start with defining what cryptocurrency is and how it’s obtained, as well as discuss what you need to have before you can start. We’ll cover mining Bitcoin, as well as examples of using mining pools. As Alt Coins are becoming more popular, we’ll also cover which are the best to mine, and give some examples of how to mine specific coins.

What is Cryptocurrency?

Cryptocurrencies are digital currencies that use encryption techniques to regulate the generation of, and verify the transactions of, the units of currency. Essentially, it’s a peer-to-peer system of electronic cash. The first and most famous digital currency is Bitcoin. Bitcoin was created as a digital, decentralized currency. It runs on something called Blockchain technology. What this means is that there is no central bank responsible distributing the currency. Instead, it’s up to the users to carry out transactions on a peer-to-peer basis. When one such transaction is made, the details are verified and recorded on a public distributed ledger called the Blockchain.

In recent years, many other technologies have been developed, each with their own unique features. However, understanding Bitcoin is a good basis for your knowledge. Many digital currencies can either be mined or exchanged for other cryptocurrencies or fiat currencies. This gives users multiple ways of acquiring and trading currencies such as Bitcoin. Although it’s easier for most people to simply buy cryptocurrencies, many people have profited from crypto mining. However, this knowledge base is much lesser known than simply buying digital currencies with a credit card. So, what is cryptocurrency mining?

What is Cryptocurrency Mining?

Above, we mentioned how Blockchain technology powers Bitcoin. It is a similar system of recording and verifying transactions that powers other forms of cryptocurrency. Essentially, miners use their PC’s processing power to carry out this recording and verification process. In order to verify these transactions, complex mathematical equations must be solved. Due to their complexity, it often requires a great deal of both processing power and time to solve these equations. As a reward for the miners maintaining this system, they get a predetermined amount of the coin they are mining for carrying out the computations.

In the early days of Bitcoin, almost anyone with a semi-powerful computer could mine cryptocurrency. However, as prices of Bitcoin have skyrocketed, and the complexity of the equations has increased, mining has become more and more specialized. Businesses have seen it as an opportunity to make money, and use their vast computer networks to focus on obtaining digital currencies. Furthermore, dedicated technologies such as Application Specific Integrated Circuits (ASICs) are more efficient at mining Bitcoin than a home PC could ever be. As such, it’s difficult for the average user to make money processing Bitcoin with their standard setup. However as we’ll see, there are definitely opportunities to make money mining other cryptocurrencies.

Cryptocurrency Mining: The Basics

In order to better understand how to mine cryptocurrency, Bitcoin is used as the example. Not only is it the forerunner of cyber currencies, the mining process is fairly well explored and explained. We’ll cover the finer details of obtaining Bitcoin shortly, but first there are some basics that you need to know about mining cryptocurrency:

  • The digital currency market is volatile

    There are no guarantees that you will make money in this industry. Even when excavating currencies, success and riches are not a sure thing. Do not stake your savings or livelihood on getting rich quick. Only spend what you can realistically afford to lose.

  • There are associated costs

    It’s unlikely that you will already have the necessary equipment to start successfully mining. The days of everyday PC being able to mine for coins at a profit are nearly gone. The initial outlay will be fairly high, as you’ll need new equipment. You’ll also need access to fairly cheap electricity. We’ll explore both points in more detail further on.

What You Need Before You Start Mining Cryptocurrency

Before you start your crypto mining venture, you will first need to prepare a few things. This covers not only the correct knowledge, but the correct technology and accounts. We’ve separated out the types of things you need before you get started:

Knowledge

You will need to read and research a lot of information surrounding cryptocurrencies and how to mine cryptocurrency. Hopefully this article will arm you with most of the basics, but there is a great deal of intricacies to deal with when you’re actually mining. Having a desire to learn about what you’re doing, how the different elements work, and new trends, is essential for successfully processing digital currencies.

How Much Can You Earn?

The answer to exactly how much you can earn is difficult to answer with any sort of definite figure, but the average income from miners who are able to keep their electricity cost below $0.11 per kilowatt-hour add up to around $8-$10 per day using a 4 GPU video card setup. Again, this is a very rough estimate and relies greatly on the market value of the coin you’re mining.

Home or Office Setup

If your mining rig will be running at home or in an office space, it’s essential that you have all the right equipment to properly maintain it and get the best out of it. This includes:

  • A reliable internet connection

    This needs to be running 24/7. Ideally you should be able to achieve speeds of at least 2 megabits per second as a minimum. Mining can be a data-intensive process.

  • A suitable location

    Ideally you want to aim for an open space that is well ventilated. A basement or air-conditioned room is preferable.

  • A fan

    Although your system will have built-in fans, having an external one will help to keep your system cool. The complex computations produce a lot of heat, which can negatively impact the components.

  • A cheap electricity source

    Most of the balancing act of mining cryptocurrency is keeping electricity costs lower than the amount you make from mining. This isn’t always easy, and electricity can vary in price depending on numerous factors. As a vague guideline, you want to keep your electricity under $0.11 per kilowatt-hour.

Mining System

Mining SystemMost of your initial outlay will go on acquiring a dedicated mining rig. Your current computer will not be able to produce effective enough results to make the process worthwhile. Furthermore, while you’re mining you won’t be able to use the system. Here are some hardware suggestions:

  • A custom-built computer

    Due to the extensive knowledge base you have to draw upon, there are plenty of articles that offer insight into the most effective components for mining. Ideally though, you’ll want a 1000W power supply, a decent motherboard, at least 4GB of RAM, a dual core CPU, an SSD, enough USB riser cables, and a dedicated case.

  • GPU(s)

    The workhorse of your rig will be the GPU or GPUs that you utilize. The current preferred model is the NVIDIA GTX 1060 6GB. It can be easily overclocked and only draws 80 watts of power, making it ideal for mining. If you can, a rig with six of these is preferred (although expensive).

  • ASIC Rig

    If you decide not to use a complex and custom-built GPU rig, your other option for crypto mining is to use an Application Specific Integrated Circuits (ASICs) rig. This is a dedicated piece of hardware that is meant specifically for obtaining digital coins. They have numerous advantages over using a GPU, with the main one being a higher ‘hashrate’, a term we’ll explore in more detail shortly.

Necessary Accounts

In order to make the most of your mining activity, there are a few online accounts and resources that you will need to make use of. These are:

  • A coin wallet

    Once you’ve mined your coins you need to keep them safe. There are a wide variety of options available for wallets, with both hardware and software ones being available. They give you an encrypted and safe way of storing your mined cryptocurrency.

  • A free mining software package

    There are many of these available, including ones from companies such as AMD. They are typically made up of cgminer and stratum technology.

  • A membership to an online mining pool

    We’ll discuss how these pools work shortly, but essentially they allow you to combine your power with other members to increase your yield of coins. It’s very hard to successfully mine without one.

  • A membership to an online exchange

    When you have mined some coins, you’ll likely want to either trade them for other digital currencies or exchange them for fiat currencies. There are many different exchanges available, so do your research to find one that’s right for you.

Once you have all of these elements, you’re ready to start mining for Bitcoins or other currencies.

How Cryptocurrency Mining Works

Above, we mentioned how mining involves solving incredibly complex problems using your processing power. The work done to solve these problems is known as the Proof-of-Work (PoW). By solving these problems, the miners then have the right to add a new block to the Blockchain, thus legitimizing the transaction. This is the public ledger we referred to earlier, and it means that each digital coin is verified and unique, preventing fraudulent or double transactions.  For the work you do as a miner to contribute towards this process, you are rewarded with a set amount of the coin you were searching for.

Essentially then, as a miner you are a node on a peer-to-peer network that solves the proof-of-work problems and verifies them. Generally, the process becomes more difficult as the number of nodes increases, and oftentimes this means the yield decreases with time. This is partly because there are usually a pre-determined and finite number of coins available.

Before we move on to further details, there are a few final terms you need to know. The Hashrate of your GPU or ASIC setup refers to the ability and power it has to process the PoW. The Mining Algorithm refers to the type of cryptocurrency you are mining, and differs for each one.

Crypto Mining: GPU vs ASICs

There are many other coins and currencies aside from Bitcoin that can be mined. However, not all are as reliable and long-lasting as Bitcoin. Regardless of which setup you use to mine, always research both the company and the coin to determine whether it’s legitimate.

As we mentioned above, there are two main ways to mine for cryptocurrencies; with a GPU rig or with an ASIC rig. We’ve separated each and discussed them in more detail below:

GPU Mining

Despite not being particularly well-suited to Bitcoin mining, there are still many other currencies that can be successfully mined using a multi-GPU rig. Some of these include popular coins such as Ethereum, Bitcoin Gold, and Monero. With a powerful GPU-based setup, with six NVIDIA GTX 1060 6GBs for example, users can still mine Bitcoin. It may not be as profitable as using an ASICs rig however. There are certainly many benefits associated with choosing a GPU option:

  • Access to Various Coins

    Unlike ASIC mining, GPU setups aren’t restricted to just one type of coin. In fact, using a GPU system means that you can theoretically mine multiple coins at once. All you need to do is set up for the different mining algorithms. This means that you can alter your focus based on how the market is performing and which are more profitable.

  • Readily Available

    Because GPUs are widely used anyway, they’re fairly easy to come by. Although NVIDIA and AMD have seen a huge increase in demand for their top-end cards, they can still be bought at a reasonable price. Many ASIC systems are custom-built, meaning that wait times for delivery can extend to weeks or months.

  • Resale Value and Multi-Purpose

    GPUs can be reused in a regular system with ease. This not only makes them a versatile purchase, it means that once you decide to upgrade or switch to a different system, you can easily sell them without too big of a loss. Generally speaking, ASIC systems have little resale value once the technology becomes obsolete.

  • More Economical

    As we’ve established, one of the determining factors of your mining profitability is how expensive your electricity bill is. GPUs tend to be less energy-demanding than their ASIC counterparts.

    Despite the many benefits of GPU mining, there are some downsides too. The main one is the time and knowledge required to successfully get set up. You have to purchase all of the parts and know how to assemble them and get them configured. Furthermore, the initial outlay can be rather high. The high-end components needed to create a powerful GPU rig can be costly. In addition to this initial cost, the time taken to mine it back can also be longer than using an ASIC.

ASIC Mining

Although there are some ASIC units that are designed to mine multiple coins, the vast majority are specific to just one. Because of this, they generally tend to be more compact and powerful for that one dedicated task. Let’s take a look at some of the other benefits of cryptocurrency mining with an ASIC:

  • Easy to Use and Powerful

    ASICs are built specifically for the task of mining. Therefore, once you have one, it takes very little setup to get underway. They are ready to go right out of the box, without extensive building and adjusting. What’s more, they outperform just about every GPU rig in terms of Hashrate; they’re quicker at mining and earning you money.

  • Low Initial Outlay and High ROI

    We’ve already discussed the cost of buying a wide variety of components for a dedicated GPU rig. Thankfully ASICs systems are relatively cheap and only incur the initial cost. After this first payment, you can start earning your money back straight away, and at a faster rate than you could with a GPU system.

    Some of the disadvantages of choosing ASICs for your mining needs relate to both the resale value and the practicalities of buying one. Wait times are increasingly long, particularly as demand has risen dramatically. Many of these systems are built in and shipped from China. You also have to consider that this technology can soon become obsolete, and once it does very few people will be interested in buying it. You’ll also likely want to have an entire room dedicates to the process with one of these systems. Their fans are noisy and they produce a lot of heat.

GPU vs ASICs: Which to Choose

Clearly there are benefits to both systems, and different users will have different needs and means. To sum up how the systems compare:

Choose a GPU if you intend to mine multiple crypto coins. They’re flexible enough to do multiple at once. The technology that powers them is also versatile, meaning it can be applied elsewhere or resold once you’re finished with it. Despite the high initial costs, you can make it back long-term across multiple currencies.

Choose ASICs if you’re set on one particular coin and you want to invest a lot of time and effort into it. You should be able to purchase a rig for cheaper than the cost of building a GPU one, and you’ll recoup your money spent quicker.

Cryptocurrency Mining Pools

Once you have your new mining rig, whether it’s a GPU or ASICs one, the temptation is to just start mining by yourself and wait for the profits to roll in. However, in reality it’s not as simple as that. For popular coins such as Bitcoin and Ethereum, it can take an individual years and years to generate a block and get it validated, even with a powerful ASIC system. Instead of striking out alone, most individuals will instead join a cryptocurrency mining pool.

Mining pools are a way of combining the power of multiple devices and users to mine for cryptocurrency. As a result, completing the calculations and verification necessary for mining a coin is much quicker. Users are then rewarded proportionally to how much power they contributed. Oftentimes there will be fees that the mining pool organization takes for orchestrating such a venture. Mining pools are becoming a popular way for miners to turn a profit, and there are many different services available. The most effective ones use servers around the world, so that more users can connect and contribute. We’ve listed some of the most well-known mining pools for you to look at:

  • AntPool

    AntPoolAntPool is not only the biggest mining pool in the world, it is also run by the same company that makes the best ASIC system currently available. The China-based company have a huge global following, meaning that their Hashrate is the highest on the market. The site offers a number of different options for their customers, and has a clean and easy-to-navigate interface. The one major drawback is that because it’s such a large mining pool, the returns can be fairly small.

  • Slush Pool

    Slush PoolAs the oldest name on the market, Slush Pool has established a fine reputation over the years. They don’t have the biggest market share by a long shot, but they do offer a good and reliable service to all of their customers. The Czech Republic-based company launched back in 2010 and have an ethos that rewards loyalty. Much like AntPool, the interface is very user-friendly, and customers can get started mining and making a profit with Slush Pool quickly. However, one thing to note is the 2% transaction fee that each user must pay.

  • BTC.com

    BTC.comAnother China-based pool is BTC.com. Like their larger counterpart AntPool, they have established a good reputation built partly on the sheer number of customers they have. The company is fairly well-known in the world of cryptocurrency, as they were one of the first to offer a powerful Bitcoin wallet and a Blockchain explorer. They tend to reward their customers’ efforts by sharing the often high transaction fees amongst miners, making it an often lucrative venture. One slight concern is the user interface of their website; it can sometimes be hard to understand and navigate.

  • Kano CKPool

    Kano CKPoolDespite being a relatively new and relatively small pool, Kano CKPool, also known as Kano Pool, has established a good reputation in recent years. Part of their appeal is the small, 0.9% fee combined with shared transaction fees. They also make regular payments, meaning you will receive a small amount frequently, rather than having to meet a specific threshold to withdraw. Although their interface is fairly simple and a little outdated, it’s still a popular choice for crypto mining.

What is the Best Cryptocurrency to Mine?

Now that we’ve explored how to mine cryptocurrency, it’s time to focus on which of the many available currencies is the best one to focus on. Finding the best cryptocurrency to mine isn’t an easy task. There are many factors to consider, and for each miner their needs will be different. One of the aspects we’ve tried to highlight is that the cryptocurrency industry has changed considerably over the last few years. In the early days of Bitcoin, nearly anyone could make a modest profit by mining the coin. This is no longer the case. You have to carefully research and plan out your investment, whether it’s in Bitcoin mining or another alternative coin.

Some of the coins with the most potential are:

  • Ethereum
  • Litecoin
  • Monero

We’ll discuss each in more detail further on. Essentially, it comes down to finding a cryptocurrency that appeals to you. It’s very unlikely that any of the newly-introduced and lesser-known coins will be ‘the next Bitcoin’. The world of crypto mining has come a long way since those early days, so it’s unlikely that any digital currency will follow the meteoric rise of the original.

Regardless of whether you’re a newcomer to the industry or experienced, new coins should be approached with caution. Do your research on the company that has created the coin, as well as the prospects for its growth and real-world application. Coins such as Ripple’s XRP have shown that they have a demonstrable use in the world of banking, for example. Although it’s not a coin that can be mined, it’s a good example of a technology and a company that has momentum and credibility.

Best Cryptocurrency to Mine: Ethereum

EthereumEthereum is the second most popular cryptocurrency next to Bitcoin. It currently works on a similar Proof of Work system to Bitcoin, and can therefore be mined in a similar way.

  • What Is Ethereum?

    Ethereum is a currency that aims to help decentralize the internet. The vision that the coin’s creator had is to connect a series of nodes, user’s computers, to create an entire network that replaces existing, third-party controlled web servers and clouds. Many new users have adopted Ethereum mining, particularly with GPU setups.

  • How is Ethereum Mined?

    It’s relatively straightforward to start mining Ethereum, particularly with a GPU setup. Once you have your rig set up, it’s simply a case of installing an app and signing up with a mining pool. See our introduction on how to mine cryptocurrency for further information.

  • Is Ethereum Profitable?

    The last couple of years have seen the price of Ethereum skyrocket. The market as a whole has been buoyed by the success of Bitcoin, and now many new users are mining cryptocurrency. Despite this, Ethereum is still a viable source of profit. Provided you can keep your electricity costs low, you should be able to start making back your initial outlay on hardware with relative ease.

  • What is Ethereum’s Mining Difficulty?

    Mining Difficulty, as explored earlier, is a measure of how difficult each algorithm on the network is to solve. The more difficult the problem, the less Ethereum you receive for your GPUs output. Recently, the difficulty of obtaining Ethereum has been steadily increasing, and it now sits at around 2,500H. This is up from 1,500H in December 2017.  Despite this, the daily block rewards has remained constant at around 20.339.

  • What is Ethereum’s Hashrate?

    We’ve mentioned Hashrate a few times so far, and it’s a measure of the speed at which your mining setup can solve the algorithm needed to verify a transaction. The average Hashrate of Ethereum network has also increased since December 2017. It was around 125492GH/s, and now stands somewhere near 203394GH/s. This makes it the highest rate it’s ever been at.

  • What are Ethereum’s Long-term Prospects?

    Ethereum has been striving to demonstrate its real-world application. As such, the price of the coin continues to rise. For the meantime, mining is still a profitable venture. However, the aim of the company behind Ethereum is to switch from a proof-of-work model to a proof-of-stake framework to confirm transactions. With this newly proposed proof-of-stake system, those who hold Ethereum will stake coins by putting them up as collateral to validate transactions.

    Moving to a proof-of-stake model means that energy costs will be reduced to great extent. This reduction of energy costs means that powerful mining systems will no longer be required by the network, and mining will become obsolete. However, for the time being it remains a viable choice.

Best Cryptocurrency to Mine: Litecoin

LitecoinLitecoin is the third largest cryptocurrency next to Bitcoin and Ripple’s XRP in terms of market capitalization. This is a measure of the total amount of currency in the market. It’s quickly becoming a favourite amongst cryptocurrency miners.

  • What is Litecoin?

    Litecoin is built upon the same Blockchain framework as Bitcoin and Ethereum. It was launched in 2011 as a means of rapidly changing money and making financial transactions. It’s has seen widespread adoption thanks to its impressive speeds and large number of available coins.

  • How is Litecoin Mined?

    Because the nature of Litecoin is similar to that of Bitcoin and Ethereum, it is mined in a very similar way. However, as it’s a newer technology, there are very few available ASIC miners for Litecoin. This means that users must rely on GPU setups in order to verify transactions and mine the cryptocurrency. The same proof-of-work system is applied to Litecoin mining, but the speed at which it completes a block is around four times faster than that of Bitcoin. There is also a finite number of Litecoin in circulation.

  • Is Litecoin Profitable?

    As with all cryptocurrency mining, profitability depends largely on the hardware you have and your electricity costs. That being said, there is a big following of Litecoin miners who make a profit from the coin. If your Hashrate is high enough, and your electricity costs are low enough, you can certainly make money from mining for Litecoin.

  • What is Litecoin’s Mining Difficulty?

    Like many other coins, the mining difficulty of Litecoin has increased considerably over the last few months. It was barely over 1M in November 2017, and at the time of writing is hovering just below the 5M mark.

  • What is Litecoin’s Hashrate?

    The huge spike in mining difficulty is also reflected in the Hashrate of Litecoin. In November 2017, Hashrate figures were around 20,000 GH/s. At the time of writing it has reached 140,401 GH/s. The incredible rise is reflective of the vast number of people now mining the cryptocurrency.

  • What are Litecoin’s Long-term Prospects?

    The success of Litecoin, like any other digital currency, is hard to determine. Although the current trend is generally upwards, no one can tell if or for how long this will continue. However, the technology that powers currencies such as Bitcoin, Ethereum, and Litecoin has proved that it has a real-world application. As such, miners remain hopeful of the continued success of this exciting technology.

Best Cryptocurrency to Mine: Monero

MoneroThe final coin we’ll cover in detail is a fairly new one. Despite the fact it’s a newcomer, it stands out in the market thanks to the fact it’s one of the most advanced anonymous digital currencies. Many experts have tipped it to be a fast riser, and mining is relatively easy even with basic technology.

  • What is Monero?

    According to Monero, their currency is a secure, private and untraceable currency system. Transactions carried out in Monero are untraceable and unlikable, giving an unrivalled level of anonymity when using it. The technology was first launched back in 2014 and has seen a steady rise in popularity ever since.

  • How is Monero Mined?

    Monero mining is still a reasonably straightforward process. It’s also one of the few major cryptocurrencies that can be mined using a standard PC or laptop. Monero uses the same proof-of-work system as other coins, and in this instance relies on a technology named CryptoNight. It’s easy to download the necessary software to mine Monero and from there you only need to enter your wallet address and mining pool details.

  • Is Monero Profitable?

    As always, profitability relies heavily on the individual and their technology and energy costs. Many people are confident that Monero mining is a profitable venture, so it’s worth exploring it if you have the resources.

  • What is Monero’s Mining Difficulty?

    The trend of increasing mining difficulty continues with Monero. Figures from November 2017 show that the mining difficulty was around 31G, whereas at the time of writing it has surpassed the 120G mark. This is further proof of the increased interest in mining cryptocurrency. Whether or not this trend will continue remains to be seen, but it certainly seems likely.

  • What is Monero’s Hashrate?

    November 2017 saw a Monero Hashrate of around 260MH/s. At the time of writing this article, it was at 1.03GH/s, with an all-time peak of 1.08GH/s. This huge leap shows the flood of new nodes mining for the currency and is great for raising awareness of the coin.

  • What are Monero’s Long-term Prospects?

    Once again, speculating on such things as the long-term success of cryptocurrencies, either individually or as a market, is hard. One of the reasons that you shouldn’t invest more than you can afford to lose in these technologies is the fact that they’re so volatile. However, many outlets are predicting big things from Monero over the coming months and years. Now might be a good time to get involved.

What is Cryptocurrency Mining? A Recap

From what we’ve learned over the course of this article, it’s clear to see that cryptocurrency mining is an evolving and potentially profitable industry. The last couple of years have seen a huge surge in interest in this area, and many new users are scrambling to get involved. However, there can be no denying that it’s an incredibly volatile market. Fortunes can be made and lost, and one thing we’ve tried to emphasize is the importance of thorough research.

The best cryptocurrency to mine depends largely on how much you’re willing to spend, and how cheap you can get your electricity. Although it is certainly possible to make a profit mining, particularly if your electricity is free or very cheap, it can take a while to recoup the costs of building or buying a dedicated mining rig. Once you are set up however, there are a vast number of mining pools that can help you make the most of your efforts.

Bitcoin mining is becoming harder for the average user. In its place, cryptocurrencies such as Ethereum, Litecoin, and Monero are becoming more popular. With this influx of new coins, the market is changing again. It’s hard to predict the new trends, but hopefully it’s an industry that will continue to grow and succeed.

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