Cryptocurrency mining: full tutorial for beginners
Cryptocurrency mining is one of the most important concepts in the crypto industry. Although it’s not the only existing method for generating crypto coins, crypto mining is used in many popular cryptocurrencies, including Bitcoin and Ethereum.
What is cryptocurrency mining?
With e-currency based on cryptographic proof, without the need to trust a third party middleman, money can be secure and transactions effortless. - Satoshi Nakamoto, Bitcoin’s developer
Mining is the process of generating the new structures necessary for the cryptocurrency to function. Most often, these are new blocks in a blockchain. It is usually a process of coming up with a solution to a specific mathematical problem to find a hash that matches certain criteria. After the solution is found, it can be easily and quickly verified. The first miner to complete all the necessary calculations receives a reward from the blockchain network. The reward for solving this problem is a “block reward” in the form of issuing new coins to the miner and, in many cases, a commission for the transactions included in the block. Miners compete for the opportunity to solve the problem first and get the reward. The difficulty of finding the block adjusts to the miners’ collective processing power.
The purpose of cryptocurrency mining
Crypto mining is the process of verifying cryptocurrency transactions and adding them to the blockchain. As such, it serves to keep the cryptocurrency network running and enable transactions. Miners’ work also protects the cryptocurrency network from fake transactions and various kinds of attacks, while also supporting its decentralisation. Without it, the cryptocurrency simply wouldn’t function. Producing new coins and receiving transaction fees are a form of payment for this work.
Is crypto mining still worth it?
Many people interested in cryptocurrencies wonder: “Is it still worth mining cryptocurrency?” That question doesn’t have a simple answer. Many variables have to be considered:
- The price of the chosen cryptocurrency and the chances that it will change
- The difficulty of the chosen cryptocurrency mining
- The price of electricity used for mining
- The price of mining equipment
- The possibility of further reducing the cost of mining
- The ability to switch mining equipment to another coin
With increasing competition among miners, the amount of investments needed to mine at a profit grows. At the same time, the average amount of time it takes to recoup the cost of mining equipment increases.
Cryptocurrency mining in 2019
Crypto miners had a decent year in 2019. The long decline in cryptocurrency prices in 2018 forced many miners to leave the business. This, in turn, led to a decrease in mining difficulty, on the one hand. On the other hand, used mining equipment at reduced prices began to appear on the market. The cryptocurrency market’s recovery since then has enabled those who started the mining business at the beginning of the year to make decent profits.
Cryptocurrency mining in 2020
While crypto mining is no longer a way to get rich quick, it can still be profitable. If you aren’t ready to make the significant investments required for mining on ASICs, you should consider the cryptocurrencies for which only GPU mining is available. At the same time, establishing mining farms in 2020 is much cheaper than it was in 2017-2018 since the market is flush with much less expensive video cards. Depending on the price of electricity, the time it takes to recoup investments in GPU rigs is currently anywhere from 11 to 36 months or more. On top of that, the cryptocurrency market’s high volatility must be taken into account. Future fluctuations in cryptocurrencies prices can either significantly reduce or increase the recoup time.
How to mine cryptocurrency
Several profitable crypto mining solutions differ in terms of the money and effort required to invest.
Solo mining cryptocurrency means only one person mines the asset. At one time, it was entirely possible to mine cryptocurrencies alone on a personal computer. But those days are long gone. Given the current competition and mining difficulty, successful solo mining requires enormous investments. This has given rise to mining pools.
|You don’t have to pay a pool commission fee or to purchase a cloud mining contract||If you can’t afford the massive investment in equipment, the chance of receiving a reward will be minimal|
|You own the equipment|
A mining pool is a server that splits the task of calculating the block signature into smaller tasks and distributes them between devices connected to that pool. By doing so, the pool combines miners’ computing power to reduce the randomness factor and provide more predictable rewards. When pool members manage to find a block through their collective efforts, the reward is divided among all pool members per the pool’s rules.
There are currently many mining pools. Some of them are designed to mine a particular cryptocurrency. Others are more flexible and offer a choice between several cryptocurrencies. When choosing a pool for mining, one should take into account the pool size, hashrate, specific terms of working with that particular pool (commission rate and minimum payout), as well as the pool’s reputation. After choosing a pool, you need to configure your mining hardware and software, connect to the pool and start mining.
|Predictable and steady reward||Hardware investment required|
|You own the equipment||Cheap electric required|
|Specialised knowledge is required to select and configure equipment properly|
|Mining equipment generates heat and noise|
Cloud mining is mining on leased remote equipment. A company that provides cloud mining services buys and sets up the equipment and takes care of its housing, maintenance and repair. It then leases the equipment’s processing power to users. All the user needs to start cloud mining is to purchase a contract for a certain amount of processing power. After that, the cryptocurrency mined with this share of the capacity within the contract term will be transferred to the user’s wallet.
Although this mining method has many advantages over traditional mining, it doesn’t come without downsides. The main disadvantage is the risk of fraud. So, when choosing this mining option, it’s essential to pick a reputable service provider.
It’s also possible to earn through mining without investing money. Some companies provide registered users with a free hashrate. Free mining won’t make you rich, but this option offers real experience working with cryptocurrencies. Most services providing free crypto mining closed in 2019 or earlier, but StormGain has recently launched its new Cloud Miner tool that enables its users to mine crypto for free.
|Predictable and steady reward||You don’t own the equipment|
|Low entry threshold. You can start with small investments||Risk of fraud|
|No special knowledge or skills required|
|No need to maintain equipment|
What I need to become a crypto miner
To begin mining crypto, you need several things:
- A wallet for the cryptocurrency you’ve chosen to mine
- Hardware designed for crypto mining
- Specialised mining software
- A fast and reliable internet connection
- A cheap and steady source of electricity
If you want to try cloud mining, you only need to choose a trustworthy company, register on their website and purchase a contract.
How much does it cost to start mining cryptocurrency
The cost of entering the crypto mining business depends entirely on the mining option you select. To set up your own farm, you need at least 1000 EUR (for instance, the popular ASIC Antminer Z15 for mining cryptocurrencies based on Equihash algorithm costs about 3200 EUR). On the other hand, you can spend as little as several dozen euros to purchase a cloud mining contract for a simpler start.
Best crypto mining hardware
There are two types of efficient modern equipment for crypto mining: ASICs and GPUs.
ASIC (Application Specific Integrated Circuit) is a chip designed to serve a specific purpose. Unlike general purpose microchips, ASICs are used in specialised devices and perform only a limited set of functions. Their use in mining stems from their higher processing power and energy efficiency thanks to their narrow specialisation.
Currently, the best ASICs are:
- Hummer Miner Mars H1 for the Handshake algorithm
- Bitmain Antminer Z15 for the Equihash algorithm
- Todek Toddminer C1 Pro for the Eaglesong algorithm
- Innosilicon A10 ETHMaster 500Mh for the Ethash algorithm
GPU mining is based on the use of processing power of video cards (which are also known as graphic processors or GPUs). Powerful video cards in a personal computer or a special device (called a rig) containing several video cards for mining. Presently, due to the widespread use of ASICs, GPU mining is only justified for mining those cryptocurrencies that use algorithms protected from ASIC mining.
The most profitable GPUs right now are:
- Nvidia 2060 and 2070
- AMD 5700 XT
The best computer for mining crypto also needs a good power supply unit, at least 4GB RAM and HDD with a minimum capacity of 100 GB for the operating system, as well as mining software. The motherboard must have at least 4 PCI-E slots.
Cryptocurrency mining software
When choosing the best OS for crypto mining, take a look at the Windows family of operating systems. They are easy to configure, provide high speed for mining farms and allow the mined coin to be easily changed if necessary. The operating system versions commonly used for mining are 64-bit versions with a minimum of installed utilities and running services.
Windows 7 is the fastest system with minimum add-ons. When setting up a rig with 12 AMD cards, use the latest version of Windows 10. Otherwise, the rig won’t work. When using AMD and Nvidia cards together, it is better to use the LTSB version of Windows 10.
As for mining programs, the following are the most popular right now:
- CGMiner, designed for Bitcoin mining. It doesn’t have a graphical interface, instead working via a command-line interface.
- Claymore, designed for GPU mining. It allows you to mine many different cryptocurrencies and works via a command-line interface.
- MultiMiner is a program for Bitcoin and Litecoin mining with a graphical interface.
- PhoenixMiner is similar to Claymore but is faster for the Ethash algorithm.
- Dstm’s ZCash Cuda miner is for the Equihash algorithm on Nvidia cards.
- MinerGate is a miner with a graphical user interface. It supports many cryptocurrencies and is user-friendly for beginners.
Crypto mining trading
Mining and trading are the two main ways to earn profit with crypto. Each has its pros and cons that should be weighed when deciding which is best: mining or trading cryptocurrency.
|Less risky. Despite all the risks of mining, trading is much riskier.||More profit potential. With the same investment, trading can potentially earn you much more profit than mining.|
|Doesn’t require trading skills.||Does not require technical skills.|
|Requires less time. Trading is a profession. Mining, in comparison, is more like a form of a passive income.||Requires less financial investment to be profitable.|
Given that, the choice between mining and trading depends on the knowledge and skills you have, the amount of time and money you’re willing to invest, and, of course, your personal preferences.