The Complete Guide to Crypto Mining
When cryptocurrency is mentioned, many people automatically think of Bitcoin. Released in early 2009, Bitcoin is one of the most well-known, decentralized cryptocurrencies. Yet there are other digital currencies available in the market today. Bitcoin Cash, a spin-off from Bitcoin, is among similar digital currencies that have found their way into the crypto market. In mining crypto currency, it’s early adopters who reap the largest rewards.
How can you cash in on cryptocurrency mining?
By taking the time to properly learn the basics of cryptocurrency and this cryptocurrency mining guide you too can join the bandwagon and get positive returns.
What Are Cryptocurrencies?
Cryptocurrencies can be defined as a form of digital money intended to facilitate online purchases and transfers. Cryptocurrencies provide their users with a safe and secure way of transacting without the involvement of third parties, banks or governments.
Cryptocurrencies have completely transformed the world we live in. In 2009, when Satoshi Nakamoto created Bitcoin, the tech world saw a new industry created. Today, we are looking at a digital asset software and the largest and widely accepted peer-to-peer decentralized network called Blockchain. Blockchains facilitate the online cryptocurrency trading such as Bitcoin without the involvement of a third party. Blockchain’s are public inventories of every transaction carried out in specific cryptocurrencies. These transactions are formed into so-called “blocks.”
As it stands in the tech world right now, cryptocurrencies are not just gaining popularity, they are also evolving. The number of people who are dealing with cryptocurrencies is also increasing as more and more people look forward to be a part of this game-changing technology and learning more about it.
Cryptocurrency Mining Meaning
Cryptocurrency mining is a method through which these digital currencies are created. It’s referred to as mining because the process is similar to ‘Gold Mining.’ Just like gold is found underground and must be mined, some specific cryptocurrencies can be found in the protocol and need to be ‘brought into the light’ by miners. The purpose of cryptocurrency mining is to add transactions into the blockchain network and to release new cryptocurrency. Once the miners find the cryptocurrency, they build blocks of transactions, add these transactions into the blockchain network, and in return, they are rewarded with new cryptocurrency.
Which Alt-Coins Can You Mine?
The possibility of having earned thousands of dollars if you had begun mining Bitcoin back in 2009 is as real as the possibility of losing money as well. Miners who are starting out and want to work on a small scale should avoid Bitcoin. This is because of the huge upfront investment and maintenance costs. In addition to this, the sheer mathematical complexity of the process makes it unprofitable for consumer-level hardware. Bitcoin mining is a reserve of large-scale operations only.
Mining scrypt-based cryptocurrencies such as Litecoins, Feathercoins, and Dogecoins gives beginners the best returns. Looking at the value of Litecoin currently, it’s possible to earn between 50 cents to 10 dollars daily with consumer level cryptocurrency mining hardware.
Using the same mining hardware, Feathercoins and Dogecoins may yield lower profits however these two scrypt-based currencies are becoming more popular as days go by. PeerCoin is another form of cryptocurrency that can bring in a modest return on the time and energy you will have to invest.
It’s likely that it will become more difficult to mine the digital currency of your choice as mining becomes more popular and more people enter the cryptocurrency market, necessitating more expensive hardware to discover coins. You may have to invest heavily in advanced hardware to keep mining the coin of your choice or collect your earnings and move to an easier cryptocurrency. It’s in your best interest to start by understanding the three leading methods of Bitcoin mining. In this article, we will be focusing on mining scrypt coins.
It’s also important to check your country’s position on the legality of Bitcoin and Bitcoin mining.
Are Cryptocurrencies Worth Mining?
Cryptocurrency Mining Profitability
It’s possible to make a small income from cryptocurrency mining of around one dollar or two dailies. It’s a venture that one can undertake in the free time. The above mentioned digital currencies, in particular, can regularly be accessed for mining and it’s possible to recover up to $1,000 in hardware costs over a period of 18-24 months.
The profit made from cryptocurrency mining, however, doesn’t qualify as second income for most people. The only way to make substantial or significant profits is if you are in a position to invest $3,000 to $5,000 upfront in hardware costs. This kind of investment has the potential to earn you $50 a day or more.
Set Reasonable Expectations
If you intend to earn a considerable amount of money as a supplementary income, you should probably consider purchasing crypto by using cash instead of mining them. You then hold on to these coins and wait for their value to appreciate and sell. If you intend to make a couple of digital bucks and then spend them, mining might be a slow way of getting there.
A smart miner knows that keeping the cost of electricity under $0.11 per kilowatt-hour is crucial to netting profits. You can earn $8.00 to $10.00 daily or $252 to $300 monthly if you mine using 4 GPU video cards. Again, this will depend on the chosen cryptocurrency.
Having said that, there is a catch – two to be precise:
- You will need to make an upfront purchase of either 4 ASIC processors or 4 AMD graphic processing units
- The cryptocurrency market value
There’s a small probability that at some point; the digital currency you have chosen could go up in value alongside Bitcoin. Should you find yourself in this scenario, then you will be in possession of thousands of dollars in cryptocurrency. Emphasis must be placed on the ‘small probability’ with small here meaning your chances are a ‘little higher than winning the lottery.’
Anyone considering cryptocurrency mining should definitely undertake the venture as a hobby knowing that the returns will be low. It’s best to think of mining as ‘gathering gold dust’ but not actually collecting gold nuggets. It’s very important for you to research the currency beforehand so you can avoid scam currencies.
How Mining Works
The focus should be on mining scrypt coins such as LiteCoins, FeatherCoins, and DogeCoins
The goal behind mining is to achieve three things:
- Verify transactions through 24/7 computer accounting. In other words, provide bookkeeping to the coin network.
- Receive a reward for the accounting services offered. How this works is that every couple of days you will receive fractions of these coins.
- Keep costs such as electricity and hardware costs down.
What Will You Need to Mine Cryptocurrency?
For you to mine LiteCoins, FeatherCoins and/or DogeCoins, you will need the following things:
- A coin wallet which is a free private database. The coin wallet is a container that’s protected by a password and keeps a record of your earnings as well as a ledger of network-wide transactions.
- A mining software package, which is free of charge and mostly comprises of cgminer and stratum.
- An online mining pool membership. This is a group of miners who bring together their computers to increase income stability and profitability.
- Online currency exchange membership to facilitate the exchange of virtual coins for traditional cash and vice versa.
- A stable internet connection that’s available 24/7. One with speeds of not less than 2Mbps if possible.
- An air-conditioned space or any other cool location where you can set-up hardware.
- A separate desktop or a custom-built computer specifically for mining. The computer needs to be separate from the computer you regularly use because as long the miner is running, you will not be able to use it. A point to note here is to avoid using handheld devices, laptops or gaming consoles for mining as these devices won’t be effective enough to produce an income.
- An ATI GPU (graphics processing unit) or alternatively an ASIC chip which is a specialized processing device used for mining. You can expect to spend around $90 for a used GPU or ASIC chip and $3,000 for a new one. These devices will handle the work of providing accounting services as well as mining.
- Since mining generates a considerable amount of heat, it’s crucial that the hardware is kept cool. You will need a house fan to blow cool air around your mining computer continuously.
- Enthusiasm and a real appetite for reading is key to your success. Successful miners spend hours weekly researching and learning the best ways to fine-tune their mining rigs. This is because technology is continuously evolving, and new techniques related to optimizing coin mining keep coming up.
Losing Out While Mining Cryptocurrencies
Mining cryptocurrencies have its own risks. In the long run, chances of reaping substantial rewards are possible, but it’s best to compare cryptocurrency mining to investing in the money markets before 1929, i.e. before government-insured banks and shareholders lost millions of dollars. After all, digital currencies exist outside of government regulation.
Before you start mining for coins, here’s what you need to know:
Top 5 Risks of Cryptocurrency Mining
It’s important to be aware of the substantial risks that come with cryptocurrency mining:
- Losing your digital wallet: This can happen if you forget your password and you lock yourself out of your wallet or through a broken hard drive and if the provider of your online wallet closes shop.
- Dishonest mining pool organizers: This can happen if you join a mining pool operated by dishonest administrators who may take your earnings or skim coins from your income and get out of business.
- High electricity costs: Spending more than 14 cents per kilowatt-hour mining currencies such as LiteCoin, FeatherCoin, PeerCoin or Bitcoin is not worth the time. You want to keep your electricity expenses at 14 cents/kilowatt-hour. In the same way, if you spend several hundred dollars investing in mining hardware and you make $2 in profit daily – here we are assuming that there will be no leap in coin value – it will take you two years to pay off the hardware investment.
- Blackhat Hackers: There’s the possibility of becoming the victim of a talented hacker who will hack into the mining pool and empty all the users’ wallets including yours.
- The cryptocurrency you’re mining could drop in value: As with any other commodity such as gold, your chosen crypto could experience a drop-in value, and you could then end up with a pile of pennies rather than dollars.
Reducing Coin Mining Risks
There’s certainly no risk-free, money-making venture. However, there are steps you can take to minimize and manage your cryptocurrency mining risks.
- Hardware and personal habit is the best way to prevent getting hacked. Use a detachable hard drive/USB stick to store your coin wallet database and make sure to detach this device from the network and your computer when not in use. Don’t accumulate your coins online; instead, transfer them from the online storage and into your detachable wallet.
- Back up your wallet often, at least every two days and make sure to write down your password and store it in a safe place. A personal wallet should be kept on your home computer to minimize the risk of losing it.
- Identify and be a part of a reputable mining pool. Find one that has active members who keep each other accountable and honest through keeping a watchful eye on pool operations.
- To keep electricity costs down, check if your electricity provider can allow you to lock in the fee for your per-kilowatt-hour for say a year or two. Locking in at 14 cents or less will be good not just for mining purposes but also for you as a consumer.
What is an Accepted Share?
Crypto mining also involves shares! These shares depict your contribution to the mining group. In your cryptocurrency mining software, ‘Accepted Shares’ and ‘Rejected Shares’ signify scorekeeping.
Do Accepted Shares Matter?
Accepted shares matter because they mean that your work is contributing significantly towards the discovery of new cryptocurrencies. Contributing more accepted shares means more coin blocks are found which translates to a bigger pool payout. It’s important to aim for 100 percent acceptance of your shares because this will mean that all the computations on your computer are working towards a coin discovery.
What Are Rejected Shares?
As the name suggests, rejected shares are rejected work. They symbolize work that will not contribute towards a blockchain discovery and work that will not be paid. Rejected shares happen when your computer gets caught up breaking down a cryptocurrency share problem that it doesn’t present the results in good time as to count towards coin discovery.
It’s worth noting that rejected shares are to be expected and any mining pool with over a dozen users will experience rejected shares. It’s the unfortunate reality of crypto mining.
Serious miners will often tweak the settings of their graphics processing unit, so they can maximize the per-second submission of their computers’ work.