The Beginner’s Guide to Mining Cryptocurrency in 2018
You’ve probably heard of Bitcoin. Who hasn’t really, with headlines about the Bitcoin bubble and how much money one could earn flashing left and right. At one point, everyone was buzzing about mining, cryptocurrencies and how profitable it can be. The commotion has somewhat died down, with Bitcoin no longer increasing in value at an alarming speed. However, cryptocurrencies are still on the rise, with more and more people gaining interest in mining them.
With the popularity of Bitcoin, other cryptocurrencies started gaining much more traction as well. After all, a lot of people didn’t even know what cryptocurrency was before mass media started covering the drastically increasing price of Bitcoin. These days, a lot of people are not only knowledgeable when it comes to digital currencies, they’re also mining it. If you’re reading this article, you’re likely interested in mining but lack the necessary knowledge to do it. Or you could just be interested in what this cryptocurrency mining business is all about. Whatever the case may be, continue reading in order to understand what cryptocurrency mining is, how it works, and whether it’s worth it.
What is cryptocurrency mining and how does it work
In order to understand how cryptocurrency mining works, one needs to know what blockchain is. Blockchain is essentially a digital ledger, and it’s public which means everyone has access to the same one. Blocks (list of transactions) are continually added to it and secured using cryptography. And cryptocurrency mining is validating those transactions (blocks) on the blockchain. Imagine it as 24/7 computer accounting, with miners (people doing the mining, aka the ones running mining software) acting as bookkeepers. For validating those transactions, miners are given cryptocurrency as a reward.
How does mining work
When a transaction on the network is made, it is grouped with other transactions in order to make a block. So a block is basically a list of transactions. The block is then added to the blockchain by miners. However, in order to add the block to the blockchain, the block first needs to be validated.
This is done by solving a complex math problem, or in other words, by guessing the nonce. Lets define what a hashrate, hashes and a nonce are in this context:
- Hashrate – computing power or the number of guesses per second;
- Hashes – in simple terms, it’s guessing the nonce for a block;
- Nonce – a series of completely random numbers that need to be guessed in order to allow a new block to be added to blockchain.
Now that we understand what those words mean, the explanation will make much more sense.
The more hashrate you have, the more guesses at the nonce you can make per second (perform hashes). In simple words, the more powerful your computer is, the quicker it can solve the complex math problem, thus add a block to the blockchain. The miner that correctly guesses the nonce adds the block to the blockchain and gets cryptocurrency as a reward.
In the case of Bitcoin, when Satoshi Nakamoto created it in 2008, he/she/they also set the reward system. With every 210,000 created blocks, the reward is cut in half. In the beginning, the reward for a adding a block was 50 Bitcoins. After 210,000 blocks were added, the reward decreased in half and became 25 Bitcoins, after another 210,000 blocks, it was 12,5 Bitcoins, and so on.
Back in the day, you could have used your personal computer to mine for Bitcoin but over the years, the difficulty of mining it has increased dramatically, thus you need something much more powerful. This happens because the Bitcoin network automatically changes the difficultly of the math problems depending on how fast they are solved. Specialized mining hardware is now necessary in order to mine Bitcoin profitably. It’s known as application-specific integrated circuits (ASICs).
Is it worth mining cryptocurrencies?
Like we said before, the difficulty of the math problem that needs solving (guessing the nonce) changes depending on how quickly they are solved. Overtime, mining has become a business and there are entire mining farms, with thousands of miners running at the same time. As a result, individual miners only have a tiny chance at correctly guessing the nonce for a block (in the case of Bitcoin). The more popular a cryptocurrency becomes, the more difficult it will be to mine it. This is why early participants get the most benefits. For example, if you had mined Bitcoin in the early days, you could have made thousands of dollars, seeing as one Bitcoin was worth nearly $20,000 at one point.
However glamorous and simple cryptocurrency mining may seem, the reality is that unless you’re ready to invest thousands of dollars into ASICs, you’re not going to make a profit by mining Bitcoin or any other popular cryptocurrency. Other, not as popular cryptocurrencies, are much easier to mine, thus you do not need highly expensive equipment. You won’t make a lot of money from them, however. So if you’re just trying to make money from cryptocurrencies, you might want to skip mining and just purchase them, hoping their price will rise significantly in the near future.
We should mention that you also have the option of joining a mining pool. If you become a member of one, your hashrate will be combined with the hashrate of other participants, making it much more likely that a nonce will be guessed correctly. However, rewards are split between the participants. So while you have a much higher chance at solving the math problem correctly, you would get a much lesser reward because it’s split.
A lot of people see mining as a hobby, so they’re not aiming at making thousands of dollars. The couple of dollars they make in a day is sufficient for them, as they enjoy the process more than the profit it makes. Thus, if you’re looking for a new hobby and think this may be it, go for it. And if the cryptocurrency of your choice becomes popular later on, you could be looking at making significant money.
Disadvantages of mining cryptocurrency
If you have decided you want to mine, you should not be blinded by the benefits. You also need to consider the disadvantages.
One of the main issues with mining cryptocurrency is the amount of energy the processes consumes, making it quite expensive to mine popular cryptocurrencies. For example, Bitcoin mining uses more electricity than a lot of countries.
In addition, mining is becoming increasingly more difficult due to the popularity of cryptocurrencies. The more people mine it, the more difficult it becomes to solve the nonce for a block. And the more difficult solving the problem is, the more powerful hardware you need. In order to mine profitably, you need to invest into expensive hardware, which can cost thousands of dollars.
You also need to be well versed in the cryptocurrency market. How profitable a cryptocurrency is depends on its price, and the prices are very unpredictable, so you’re taking a risk.
What you need in order to start mining
So if you’re still set on mining cryptocurrency, you will need a few things.
First of all, if you want to seriously mine, you will need to invest into hardware (the device you will use for mining). Depending on which cryptocurrency you’re aiming at, you’ll need different hardware. For example, to mine Bitcoin even remotely profitably, you will need an ASIC. You can try mining other cryptocurrency using your regular computer, but don’t expect to make a lot.
Next, you will need to invest in mining software. Mining software is what connects your device (hardware) to the blockchain. Look into the software and decide what works best for you.
Another important thing you need to invest in is a fast internet connection. If your Internet is laggy, you won’t get anywhere.
Do not forget that you will also need a wallet. A digital wallet would be used to store, send and receive cryptocurrency. Research different ones and pick one.
You now have all the essential things necessary to begin mining cryptocurrency. However, do keep in mind that mining is loud and can run pretty hot. So choose a space for the equipment where you will not be disrupted by the noise and make sure you have some kind of cooling system, such as fans.
Before you start mining cryptocurrency, you need to know the specifics, weigh whether the advantages of mining are worth the expenses. Of course, you can also learn as you go but do consider the fact that you will need to invest money early on in order to mine cryptocurrency profitably.