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More often than not, people are introduced to the world of cryptocurrencies through the concepts of bitcoin and mining. This is because people associate both with making money. And if everything is more or less clear with the first one, the second word usually causes a lot of questions and misunderstanding. Today I want to tell you about mining, what it is, what kinds of mining exist, what kind of cryptocurrency you can mine, what to focus on and is it relevant in 2023.
What is mining?
As you may have already guessed, mining is not a physical job that a person does with their hands. However, cryptocurrency miners use computers to solve cryptographic problems and earn rewards in the form of cryptocurrency. Mining is a process in which a computer performs certain algorithmic tasks to generate new cryptocurrency tokens or coins.
Imagine that you have a network of computers that are solving the same algorithmic problem at the same time and the first computer to solve that problem is rewarded with the cash equivalent in the form of cryptocurrency. This is the whole point of mining. This computational work of computers is needed to open a new block in the cryptocurrency block. The more miners want to mine this block, the tighter the algorithmic equation will become. Such a system provides a balance in the mining pool, which is a server combining the efforts of all the computers, where the contribution of each miner is counted in order to subsequently divide the reward in appropriate proportions. Anyone who wants to mine cryptocurrencies makes a choice: go it alone with their own efforts or join a mining pool to join forces with other miners. Mining pools refer to a group of miners who mine cryptocurrency on blockchains that operate on the Proof-of-Work consensus mechanism, such as Bitcoin.
Advantages of a mining pool
When it comes to solo mining, where you have full ownership for a fee, the chances of success are very low because of the high power and resource requirements. To put it this way, mining for most individuals is not profitable at all. Every year, the requirements for mining cryptocurrency are only increasing as the demand for it only increases, and as a consequence, more people want to make money from it.
On the other hand, mining pools require less from each individual participant in terms of equipment and power costs, and pooling makes it easier to mine.
Disadvantages of a mining pool
Depending on the mining pool that users choose, in addition to the fact that you are required to share rewards from finding a block between other participants, so you are also usually tied to the conditions that dictate the pool itself.
Criteria for choosing a mining pool
When choosing a mining pool, first of all, you should pay attention to the following parameters: the commission of the pool, the power of the pool, the value of the minimum payout. And, of course, you should not forget about the fact that you can look at the reviews of the pool on the Internet.
What do I need for mining?
As we have already found out, first of all, you need to buy equipment for mining. In addition to that, you also need software and a wallet for storing cryptocurrency.
Cryptocurrency wallet
Let's start with the simplest thing: a cryptocurrency wallet. In order to store our mining fees somewhere, we need a cryptocurrency wallet.
There are different varieties of these wallets, but the most reliable ones are cold wallets. We've already written an article on cold wallets and how to choose the right one. But if you don't go into details, the most popular options are purses from Ledger or Trezor. These wallets have the best protection for your assets. If you don't want to spend money on a cold wallet, you can use online wallets some of which are free, but keep in mind that they are not as secure as cold wallets, and storing large amounts there is not recommended.
Mining Software
There is a huge amount of different software for mining on the Internet, which is free and available on different platforms. However, it is worth noting that depending on the software the conditions for mining may vary, so it is necessary to find out the details of this or that software in advance.
Mining equipment
Well, the last stage and the most expensive one is the mining equipment. As we have already mentioned, in mining, the power of your computing system is important, because it directly affects the final reward. Since production computers were not originally designed for this kind of task, specialized mining farms began to be assembled specifically for mining. The higher the computing power, the higher the hash rate, and thus the benefit from mining. Let's consider different types of equipment and their approximate cost.
ASIC miners
If you don't want to bother with assembling the equipment, you can simply buy an ASIC-miner - a ready-made mining rig. However, this option is the most expensive. For example, the cost of one of the popular ASIC-miner BITMAIN ANTMINER E9 is about $16000. At the same time, it gives a hash rate in the region of 2400 Mh/s, and power consumption is 1920 W. Of course, there are more economical solutions such as MICROBT WHATSMINER M30S+ which costs around $3000 and gives a hash rate of 100 Th/s, but its power consumption is 3400 Watts. But I think you understand that the more expensive the equipment is, the better it is.
Home assemblies and mining farms
As I mentioned before, you can build a home pc that will handle cryptocurrency mining. The key component that can increase the hash rate is your video card. The more powerful it is, the more computational operations it can handle. The most powerful graphics card today is the Nvidia RTX 3090 Ti. This video card costs $1700 and depending on mining algorithm it can hash with the speed of 133 Mh/s, which is much lower than the speed of ASIC-mainers. Sure, you can put together a mining farm with a dozen of these video cards, but it can still take years to recoup your costs and start making a profit. On top of that, it is also worth considering the electricity costs, and the fact that video cards are short-lived and can simply fail from such loads.
What cryptocurrency to mine?
The first thing you need to do is find out which cryptocurrency blockchains work on the Proof-of-Work consensus mechanism. Next, you should understand that the more popular a particular coin is, the harder it will be to mine it. An example of such coin is bitcoin, which due to its popularity is mined by the whole factories, in order to get a piece from this giant. To date, the most optimal cryptocurrencies for mining are Dogecoin, Litecoin, Monero, Ethereum Classic, Bitcoin Cash and others.
What should you consider before you start mining?
First of all, I would recommend to calculate the costs that are needed for the equipment and the potential profit that this equipment can bring. Also, it is best to choose the region with the cheapest electricity for mining, as it will directly affect your profits. This will help you recoup your equipment faster and start making a profit.
How long does it take to pay off the equipment?
Of course, it depends on many factors, including the capacity of your equipment. But if we take ASIC equipment as an example, depending on the cost of electricity in your area the payback period can be from 1-3 years.
Is mining relevant in 2023?
Since Ethereum switched from Proof-of-Work to Proof-of-State, the world of mining has hardened. This is due to the fact that Ethereum accounted for 20-30% of all computing power. Since it was no longer possible to mine ether, miners began to switch to cheaper coins. Because of the great competition in the market, the complexity of computation increased. For example, the hash rate of Ethereum Classic before the transition was 60 Th/s, but now it ranges around 120 Th/s. We should also not forget that bitcoin halving is due to happen in 2024, meaning that the computational complexity for mining will increase. However, this does not mean that mining will become unprofitable. On the contrary, if most miners find mining unprofitable, then the hash rate of the network will decrease, and thus the complexity of mining will also decrease. True, equipment costs will now be higher.
Conclusion
Mining is going through bad times right now, just like the entire cryptocurrency market. However, this does not mean that it is no longer possible to make money here. Most likely, soon all miners will switch to equipment, which will consist only of ASIC-mainers, because they are more profitable in terms of profit. After all, even now the cost of video cards has decreased noticeably, indicating that the demand for them is decreasing. But if you are not ready to give a lot of money for mining equipment, you might want to look for a more economical way to invest your money, because mining is not the only way to make money from cryptocurrency. The cryptocurrency world is still evolving and each year brings new unique opportunities. It's important to follow trends in the market and invest in what you're good at.