If you want to know how crypto mining works, whether you can do it, or if it is even worth the effort check out our article for all your answers.
Crypto mining is the process of collecting cryptocurrencies by using high-power computers and solving cryptographic equations. To solve these equations, another set of complex encryption techniques are used such as identifying data blocks and adding records to the blockchain.
For distribution, cryptocurrency uses a decentralized method and for verification, it uses cryptographic algorithms. It is not controlled by any central authority or centralized ledger. To get new coins you will have to identify virtual currency transactions and update the blockchain ledger. As a reward for doing so, you will receive cryptocurrency. These tasks all together are referred to as crypto mining.
How Does Crypto Mining Work?
Through ordering and verifying transactions, miners can use mining equipment and rigs to generate new blocks of transactions for the ledger or blockchain. And in return, they receive cryptocurrencies such as Bitcoin, Etherium, Litecoin, and several other types depending on the blockchain.
Since mining uses a peer-to-peer network, it is more secure than other forms of transaction and the miners themselves make sure their transactions stay protected from malware attacks and hackers.
5 Steps to Mining Cryptocurrency
The first form of mining was done through CPU but over time it became less efficient and impractical. It took over months to receive a small portion of the profit and considering the expenses incurred for the mining equipment, that profit was quite insignificant.
Nowadays, GPU and ASIC rigs are used for more efficient mining.
Here are 5 steps to help set up a rig and start mining.
1) Purchase the Right Gears
An average computer with low processing power will not be capable of mining. In today’s cryptocurrencies market appropriate hardware for mining would be ASICs or Application-Specific Integrated Circuit and GPUs or Graphical Processing Units.
You can either use a GPU or an ASIC setup or a combination of both. For mining Ethereum, Zcash and Monero GPUs like the Nvidia GeForce GTX 1060, RX 850, and GTX 1070 will be quite efficient.
But if you go for an ASIC setup, the top quality applications like the energy-efficient kd box goldshell, Avalon Miner 921, Bitmain Antminer S19 Pro, Canaan AvalonMiner 1246, or the Ebang EBIT E11++ will be better.
These are going to be more expensive than GPU units but offer more efficiency in terms of mining Bitcoins, Ethereum, and all other types of cryptocurrency.
2) Invest in High-Quality Cooling Systems
Even with the latest hardware systems, it can take a long time to mine. You might need to keep your systems on for days or more. Mining also consumes a lot of energy which can lead to overheated systems.
To keep your rigs running in good condition you need to invest in cooling systems. You can place air fans or electric cooling fans next to your system, or install your system in an air-conditioned room to keep it cool. If you have multiple units running 24/7, storing them in an air-conditioned room would be a good idea.
3) Set up Your Crypto Wallet
A crypto wallet is like a secured vault where all your cryptocurrencies will be transferred. There are different versions of wallets such as a desktop wallet, online wallet, mobile wallet, and even hardware wallet.
To set up a crypto wallet, you need to decide what type of wallet you want. Download and install it on your device, set up your security codes and deposit your currency.
You can simply use Coinbase and open an account to create your wallet.
4) Download and Install a Mining Software
You have to take into account your hardware, equipment, and whether you want to go for pool mining or solo mining before choosing a software. Some software needs to replace the existing operating system and some like Honeyminer and Nicehash can run along with Windows, Linux, or macOS.
No matter what type of software you run, make sure it is authentic. Because of the immense popularity of cryptocurrency and mining, there are thousands of cheap, fake, and dodgy software on the internet. So make sure you check out the reviews and authenticity of a software before downloading it.
5) Join a Pool if You are a Beginner
Solo mining is profitable if you have enough resources and can operate them by yourself. This needs experience and a lot of work. Also, solo mining is more profitable for a newer currency. For mining existing crypto, you will be better off joining a mining pool.
Mining pools are sites where multiple miners or groups of miners share their equipment and computational power to mine crypto in a short time. The miners then share the profits among themselves according to their agreement. A pool mining software will provide the instructions you have to follow once you join the pool.
Solo mining becomes more difficult because creating and mining a completely new block on your own can be extremely difficult. That is why all beginner miners should focus on pool mining to ensure steady growth.
Is Crypto Mining Expensive?
The short answer would be yes. It is expensive no matter how many miners or the type of gear you use. The broader question would be if it’s profitable enough.
To calculate your costs, you have to consider equipment cost, power consumption cost, cooling costs, hash rate, and maintenance.
As mentioned earlier, mining equipment consumes a lot of electricity. For instance, if an ASIC rig has to mine one bitcoin in ten minutes, it will have to use over 70 terawatts of power.
Depending on the type of crypto and difficulty level the power consumption rate can fluctuate. However, mining is still profitable. Especially, if you are going for bitcoins. You can certainly bank on bitcoins if you have cheap electricity, efficient hardware, and a reliable pool.
As a beginner miner, you will not be able to make a profit right away so, always have extra cash to meet ongoing costs.
Is Mining Crypto Legal in Every State?
Whether mining is legal for you depends on two factors-
- Your location
- The method used for mining
The legality regarding cryptocurrencies is still unclear in many states since most of the authorities have no enacted laws.
For instance, in some regions crypto miners are referred to as money transmitters under FinCEN, so mining is legal there. The United States and Canada are very open and free about it whereas in India the legality and laws regarding mining are still unclear.
Crypto mining may seem complex to beginners, and it is since you have to consider all the different variables and factors. But with a little more research and the right equipment, you too can start mining cryptocurrency.