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What is Cryptocurrency Mining?
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How to Start Mining Cryptocurrency and What is Crypto Mining?

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With 25+ years of financial marketing experience, Niki has an extensive knowledge of the forex, fintech, stocks and cryptocurrency sectors. Niki is a founder and director at the Contentworks agency.
By Niki Nikolaou
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With 25+ years of financial marketing experience, Niki has an extensive knowledge of the forex, fintech, stocks and cryptocurrency sectors. Niki is a founder and director at the Contentworks agency.
on March 06, 2023 | 6 min
Updated on Jan 22, 2024
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Charles Archer
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Charles Archer is an experienced financial writer specialising in monetary law. With a background in stock market and private equity analysis, he’s worked for many years as a freelance investment author, and has had articles published in a wide range of regional and national titles, both online and in print. He holds a Master’s degree in Law from the University of Law, the UK’s largest legal training institution. Charles believes the key to successful investing lies in quality research, and aims to offer a unique viewpoint that investors cannot find elsewhere.
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The crypto mining segment contributes more than 70% of the revenues generated in the digital assets market. Expanding at a CAGR of 12.9% from 2023 to 2032, it is projected to hit $7 billion by the end of the forecast period. Rapid development in distributed ledger technology (DLT) and rising adoption of cryptocurrencies globally have shaped the massive crypto mining segment. This ultimate guide will help you learn how to mine cryptocurrency, from the basics to the best ways to mine crypto.

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What is Cryptocurrency Mining?

Cryptocurrency mining refers to bringing new coins of a digital currency into circulation. Unlike fiat, the production of cryptocurrencies is a rather complex process and is performed by network participants in a decentralized way.

 

Miners compete to solve cryptographic puzzles to win rights to verify and update transactions on a blockchain. They get crypto coins as a reward for every successful update in the distributed ledger. Once this happens, the newly minted coins are made available for use in the crypto ecosystem. Miners earn incentives in two ways, from the party whose transaction they verify and from the blockchain for successfully adding a block.

 

The technique of verifying and validating a block for mining new coins is also known as the consensus mechanism. It is specific to the underlying blockchain design.

Did you know?

Mining was initially a term used for blockchains that use proof-of-work as consensus. However, it has now become synonymous with generating coins for any blockchain due to the popularity of Bitcoin.

Types of Crypto Mining

Cryptocurrency mining is categorized based on the type of processor or processing power used in the mining setup:  

Cloud Mining

In cloud mining, miners pay big companies to mine for them under a time-bound contract. These companies are equipped with the necessary computing power. Often called mining farms, they invest in and own the hardware and computing knowledge to mine profitably. The miner pays the company an agreed amount and earns in the cryptocurrency being mined. This offers a way to mine cryptocurrency without investing in the equipment. However, it is risky, as mining is competitive and, if the mining farm fails to mine enough, the investment by miners may not result in returns.

CPU Mining

Using a desktop and its native processor to mine cryptocurrencies is known as CPU mining. With the growing popularity and competition of cryptos, the amount of computing power in terms of both speed and memory required to mine popular coins has risen manifold. Therefore, solo mining with a CPU has become less rewarding than previously, especially for the popular cryptocurrencies. Miners can instead invest their computing power into mining new cryptos and gain exposure to the potential of making big bucks in case they become very popular. This requires thorough fundamental analysis before picking a cryptocurrency.

GPU Mining

As graphics processors have higher processing capabilities than CPUs and only a little extra seed investment, they are more popular among individual miners. Although there is a slightly higher initial cost, the returns have been faster than with CPU or cloud mining. A typical GPU mining rig consists of graphics cards, a rig processor, a motherboard, cooling equipment, and a rig frame. The only additional cost to consider is the electricity to run the setup.

ASIC Mining

ASICs, or application-specific integrated circuits, are designed with a specific purpose, which may be to mine a particular cryptocurrency. For instance, a Bitcoin ASIC can be used only for mining Bitcoins. Being highly efficient, an ASIC-mining farm can skew the blockchain’s economy in its favour, resulting in centralisation of power. Some ASIC-resistant cryptocurrencies have spung up to ensure that decentralisation is maintained in the blockchain network.

Pool Mining

In pool mining, a group of miners combine their computing power and share the mining rewards among themselves. This increases the miners’ probability of verifying transactions and adding new blocks. So, earnings are steadier and more predictable when working with mining pools. Pooling attracts individual miners, as stiffening competition makes it increasingly difficult to be successful as a solo miner.

How to Start Mining Cryptocurrencies – A Step-By-Step Guide

Cryptocurrencies have different levels of mining difficulty, popularity, and price. Here are the steps to build a mining rig and start mining:

1. Choose a Cryptocurrency to Mine

This requires miners to evaluate the investment and efforts needed in mining against the rewards. A miner must consider their level of technical skill to decide the consensus mechanism they wish to participate in. A single blockchain may have multiple projects, giving traders multiple opportunities to mine.

 

For instance, the massive competition for Bitcoin mining requires miners to have an extensive mining rig, while the rewarded number of coins is halved every 4 years. On the other hand, there is an increasing emphasis on the ‘greenification’ of the mining process to limit carbon emissions. What happens when Bitcoin mining goes green? Will existing rigs need a completely new setup? There are many other consensus mechanisms such as proof-of-time elapsed, proof-of-space, and proof-of-capacity.

Which Cryptocurrency to Mine?

While mining, it is essential to ensure the crypto gains in value and its transactions proliferate to make verification and validation rewarding. Fundamental analysis of the cryptocurrency, involving a study of the blockchain technology, the project leadership, the progress roadmap, and the whitepaper help identify the cryptocurrency to mine.

2. Prepare Your Mining Equipment

Mining is a competition and winning requires using the best equipment. The complete mining setup, including the hardware and software of the computing device, along with additional processors and coolers, forms the mining rig. Miners should consider GPU, pool, and solo mining options to evaluate which will be best for the difficulty level and profitability of mining the crypto chosen in the first step.

Mining Software

While selecting mining software, miners should consider the ease of use, security, difficulty of configuring, and available support from the community as well as the software provider, if needed. Additionally, it should be compatible with the existing hardware and be scalable if the miner needs to eventually increase their computing power. Since this is a one-time investment, choosing a good one is more important than the cost. There are some free options that one can try out.

Mining Hardware

Firstly, miners generally prefer dedicated computers to mine cryptocurrencies. Undoubtedly, ASICs are the fastest. However, one would need to ensure that the crypto is not ASIC-resistant. Additionally, choosing hardware with the low power requirements and heat dissipation may incur a high initial cost but will help reduce running costs.

3. Set up a crypto wallet

A crypto wallet stores the keys that allow access to the crypto coins earned from mining. Some wallets support multiple blockchains and allow the miner to access more opportunities to verify transactions and validate blocks.

4. Configure the Mining Device

Configuring the device means using the software to download the blockchain state. Experts advise to include a mechanism to monitor electricity consumption. Crypto mining is a 24×7 activity with unending updates to the blockchain. After all, that is what makes earning possible. So, the computer must remain online to keep up with the latest state of the blockchain. Miners need to choose a location to manage the heat dissipated and sometimes the mechanical hum with the constant running of the mining rig.

5. Join A Mining Pool

Mining pools help maximise opportunities and stabilise earnings. Therefore, beginners might consider joining a mining pool to get additional support and learn the nitty-gritties of the mining industry. A good practise is to align the hardware and software to that of the group to improve coordinated functioning.

Is Cryptocurrency Mining Worth It?

The answer to this question depends hugely on the investment and the blockchain selected. Setting up a rig and the electricity bills can offset profits, especially for popular cryptocurrencies with intense competition.

Here’s how to maximise your chances of profiting from crypto mining:

  • For those with technical knowledge, identifying high-potential altcoins with a setup requirement within their budget can be helpful. Rigorous fundamental analysis, reading expert comments, and an understanding of the business roadmap can help pick a coin.
  • For those who wish to mine cryptocurrencies with personal computing setups, joining mining pools is the way to go, as this supports steadier returns in the longer run. One can look for a group of enthusiastic miners of their chosen coin.
  • If one is interested but does not possess the technical knowledge needed to mine cryptocurrencies, paying mining farms to mine is an option worth considering. Their returns may be lower but are quicker than investing in setting up the mining infrastructure and learning to mine.
  • To mine cryptocurrency for free, one can begin with a mobile app that offers some activities like playing a game or walking a certain number of steps. It is a good idea to research well before choosing an app and committing your time to it. Often, they require paid upgrades after certain milestones have been reached. Moreover, one needs knowledge to stay safe from scams.

Final Thoughts

Crypto mining is gaining popularity as a mode of earning from the digital currency ecosystem. For those who are starting out, the mining strategy needs to be aligned with the investment potential and technical knowledge to make the most of this unique class of assets. Always do thorough research before committing capital to mining. Learn also how to mine crypto on mobile and how does it work. 

FAQ

  • Is crypto mining legal?
    Cryptocurrency mining is legal in most countries. Some consider them as convertible digital assets, while few even recognise cryptos as a legal tender. Cryptocurrency taxation laws may differ across jurisdictions. Some governments may have restrictions on mining.
  • Is it easy to start mining crypto?
    Crypto mining is easy for those who have the required computing knowledge to verify transactions and validate blocks of the ledger. The best way to start mining cryptocurrency is to join mining pools as this involves lower upfront investment in computing power.
  • How long does it take to mine 1 cryptocurrency?
    The time required for mining a coin differs for each blockchain. It is based on two things – the complexity of the mining algorithm and the number of active miners in the blockchain network. For instance, if you have the ideal hardware and software, it is possible to mine 1 Bitcoin in 10 minutes. However, since you are competing with others, it could take up to 30 days, even if you are successful.
  • How much does it cost to build a crypto mining rig?
    The cost of building a crypto mining rig could range from $2,000 to $20,000. It depends on the cost of hardware, the software used, and the computing power required for the crypto of your choice.
  • Can you get rich by crypto mining?
    Crypto mining can potentially make you very rich. However, there are several factors that miners need to consider, like choosing a cryptocurrency that has the potential of becoming extremely popular but has a blockchain with low entry barriers. Miners also need to make investments in equipment without the guarantee of any returns.
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About Niki Nikolaou
With 25+ years of financial marketing experience, Niki has an extensive knowledge of the forex, fintech, stocks and cryptocurrency sectors. Niki is a founder and director at the Contentworks agency.
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