For years, mining cryptocurrencies has proven to be a fairly successful business venture, even with the large number of people who currently engage in some form of the mining activity. Many of them made a fortune, but experts and experienced miners warn us that those times are behind us, especially when it comes to the well-known crypto coins such as Bitcoin, Bitcoin Cash, Ethereum, etc.
In this guide, we will discuss the main aspects you need to keep in mind when deciding whether mining crypto coins should be your next business venture. We shall also go through the required steps and explore a couple of cool, mining-related facts.
What is Cryptocurrency Mining?
Unlike traditional, fiat currencies, most cryptocurrencies are not issued nor controlled by a central authority. Furthermore, there are no middleman checking and approving/rejecting crypto transactions.
By contrast, transactions are performed directly between two parties, the sender and receiver, on a blockchain-powered network. If you want to send your friend 1 Bitcoin, for example, all you need is her Bitcoin address, a Bitcoin wallet where your bitcoins are stored, and an internet connection.
As soon as you initiate the transfer, it will be registered on the bitcoin network. Before your friend can receive 1 Bitcoin, nodes on the network that run it need to verify your transaction.
After three verifications, your friend will be able to use Bitcoin that you sent her.
This process is known as crypto mining.
Is Mining Digital Currencies Still Worth It?
“Why would I want to participate in mining cryptocurrencies?” you might ask. If you opt to mine Bitcoin, and you are the first one to verify a block of data (block = bundle of transactions on the network), you will be rewarded with 12.5 bitcoins. As of the mid-May, 2019, that amounts to around $91,500.
Isn’t this amount more than worth it? The answer to this question is complex because there are numerous factors that play a role in determining the profitability of mining.
If you plan to mine as a hobby without investing in expensive hardware equipment or renting high-powered cloud mining services, then it could be a fun experience but with little to no profitability.
To put things better into perspective, you will need to consider the type of mining protocol your desired currency is using and type of mining machine to utilize. Not every currency can be mined with a specific type of mining machine.
There are three main sorts of mining machines – CPU, GPU, and ASIC. We have sorted them according to their availability and price.
CPU (Central Processing Unit) is basically a regular, home computer designed for ordinary use. Because of its weak processing power (compared to other machines we will discuss in this section), it is possible to successfully mine with it less known or new crypto coins where competition is not stiff.
If you wish to use this type of machine, check first whether the desired cryptocurrency uses CryptoNight or Scrypt mining algorithm. If it doesn’t, you are not going to be able to mine it.
Some of the top cryptocurrencies using these algorithms include Monero, Dogecoin, and Litecoin. Note, however, that you need to buy a serious CPU computer if you want to earn some profits when it comes to these currencies.
The thing is, you are competing against hundreds of thousands of other miners, most of which use exceptionally equipped machines, so you need to follow suit.
Another way to join the mining business is to get a GPU-based mining machine. As you can probably guess, just like with the gaming, the best GPU options here are Nvidia and AMD Radeon cards.
So what can you mine with GPU? A lot of currencies that can be mined with CPU can also be mined with GPU. More precisely, you will earn more if you utilize the latter. But first, you need to ensure that cryptos you consider to mine use Scrypt, X11, or Dagger algorithm, among others.
Some of the most popular currencies you can mine with these devices are Ethereum and Ethereum Classic, both being among the top 20 cryptos.
In the beginning, you were able to mine Bitcoin with regular, CPU computer. It didn’t take long before Bitcoin community decided to switch to GPU, and then to special machines built for mining only (unlike GPUs that could be still utilized for gaming, for example).
Nowadays, if you want to mine Bitcoin, you will need to invest at least around $1,000 into buying the latest mining machine called ASIC (Application-Specific Integrated Circuit). Note, however, that even in this case, you cannot expect significant profits unless you join a mining pool.
Antminer S17 Pro-53 TH/s by Bitmain, currently one of the best ASIC miners in the world. It costs $2,030. Image Source: Bitmain
Simply said, a mining pool is a place where miners from all over the world join forces (mining machines) in order to stand a better chance at mining the next Bitcoin block, for example. If they are successful, they will split rewards in accordance with the contributed hash power (essentially, the mining power of a mining machine).
In any case, the most popular use of ASIC is, unsurprisingly, SHA-256 algorithm that BItcoin and Bitcoin Cash are based on.
How Profitable is Cryptocurrency Mining Nowadays?
We will be honest here — significant profit only appears when a significant amount of money is invested in the business. Research has shown that an investment of roughly $5,000 in hardware equipment is required to break even and earn a daily profit.
Yet, as we already outlined, this alone isn’t guaranteed to help you earn a lot, since other factors apart from the competition, like electricity cost, hardware efficiency and quality, and taxes play an important role in determining the potential ROI.
Therefore, it is important to create reasonable expectations regarding what you want to do with your mining gig. Everyone has heard stories of Bitcoin miners becoming millionaires, but those people made the right investments at the right time.
Long gone are the days when Bitcoin was worth less than $100 and when the mining difficulty allowed earning more than 1 BTC on a daily basis.
Just like trading or holding digital currencies, mining is a venture that’s prone to volatility, expressed in the shifting value of coins, hardware equipment, and electricity. For many, taking the capital and investing it in trading or holding digital currencies is a much safer bet.
Choosing Your Mining Method
At this time, there are two most popular methods of mining cryptocurrencies.
This is certainly the easiest way to get started, granted that the process entails users to set-up an account with a cloud mining company in order to rent mining hardware. In exchange for the firm’s processing power, you’ll be paying for equipment maintenance, electricity, and a commission, yet all of the coins that have been mined using your portion of the hash power belong to you.
Cloud mining companies usually offer mining packages with a set amount of hash power, so look through the offers to figure out what you can afford.
This method is appreciated in the industry because it is not time-consuming, does not require users to be tech-savvy, and offers added flexibility bonuses. You’ll find that there are numerous cloud mining firms, so make sure to do your due diligence to learn as much as possible about each of them, their services, commissions, and terms.
We should warn you, however, that cloud mining could be tricky business. You need to be careful when picking a company and study its terms and condition, especially the part explaining funds withdrawal policy.
Note that there were incidents in the past when companies refused to pay their users when Bitcoin’s price suddenly collapsed. Therefore, you need to be aware of the general crypto market as well, and closely follow social media channels and posts by your chosen company.
Hardware mining means that you have purchased and maintain your own mining hardware at home. It’s for people who are rather tech-savvy or have access to cheap electricity.
Before anything else, it is important to mention that the investment needed to break even and earn a profit is significantly higher for hardware mining when compared to cloud mining. The time investment is also bound to be bigger, so keep this in mind. You also need access to cheap, reliable electricity, otherwise, the costs could skyrocket.
If you decide to go through with hardware mining and mine a crypto coin with clogged mining network, you will need to purchase an ASIC miner that we mentioned above, or at least a solid GPU device.
At this time, the market is filled with offers from different companies, so make sure you study each option carefully before buying any machines. ASICs, for example, are pretty much expensive, so you want to be sure you’ve made the right choice.
When carrying out your research, keep in mind the hash power you’ll be mining with, and use mining profitability calculators to get a better idea of your expected profits. Depending on your country of residence and electricity costs, with one ASIC miner, you could earn between $10-$30 daily should you opt for mining Bitcoin.
Once your machine has been ordered and set up, you’ll need to download the blockchain associated with the coin you’re mining and install the required software.
Just like with the cloud mining, you have the option of either mining for yourself or joining a mining pool. Solo mining is only bound to be profitable if your machine is powerful enough to mine blocks on its own (which is, as we already noted, quite a difficult feat for the well-known cryptocurrencies).
This is the primary reason why so many hardware miners eventually decide to join a pool to increase their ROI.
Transaction Fee Mining
We should mention another, less popular way of mining cryptocurrencies, which does not involve mining machines nor cloud leasing. In fact, it does not involve anything on your side.
Well established crypto exchanges take a small fee when you buy or sell cryptocurrencies on their platforms. This is how they make money. However, some exchanges will reimburse these fees by offering you their own tokens as a reward and invitation to continue doing your business on their services.
This practice is considered dubious, to say the least, and could even land you in hot water in some countries. Our advice is to stay away from such places, especially if you are not an experienced trader or miner.
Cryptocurrency Mining Conclusion
Based on everything that has been outlined so far, it is safe to say that mining cryptocurrencies could still be a great way to earn some profit if you can overcome the initial high costs.
Getting involved in this industry represents a great service to the market of whichever coin you’re mining, granted that mining is essential for verifying and bundling up transactions in blocks, but also for minting new coins.
Lastly, a higher number of miners results in larger decentralization, which is an essential feature of modern cryptocurrencies.
That said, not only will you potentially earn a passive income, but you would also contribute to the overall cryptocurrency ecosystem.
Many thanks for the good people at SaaSicorn for helping with this post.
Image Source: Avesta.io
Source: Guide To Different Methods Of Cryptocurrency Mining | UseTheBitcoin