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How to mine cryptocurrency: A step-by-step guide
Brief Notes
- At its core, cryptocurrency mining involves using computer power to solve complex equations or algorithms.
- By solving these algorithms, miners help record and validate transactions on a blockchain, earning rewards for their efforts.
- Miners can mine solo, join a pool of miners or participate in cloud mining to generate profits.
- Mining is also for everyone, as it is possible on almost any device, and miners can contribute from the comfort of their homes.
- Cryptocurrency miners can participate on multiple networks, including Bitcoin, Ethereum Classic and Litecoin.
Banks and governmental entities completely control the traditional financial system. For example, when a user makes a transaction with their debit card, a bank can approve or deny the transaction based on its rules, often leaving the user with no say.
On the other hand, blockchain networks are open entities that aren’t controlled by a single person or group. They offer much more fairness by removing the need for a single entity to validate transactions.
A lot of this fairness comes down to a blockchain requiring its users to validate transactions through a process called cryptocurrency mining. Miners agreeing on transactions and creating new blocks enable blockchain transactions to be decentralized and thus censorship-free and fair.
This cryptocurrency mining for beginners article details the basics of crypto mining and why it’s important. It also breaks down how to mine cryptocurrency in 2024, the different ways to get into mining, as well as the pros and cons of doing so.
The basics of cryptocurrency mining
When someone makes a transaction with cryptocurrency on a blockchain, a block receives their transaction data. Once the block is full, it must be checked for validity before it is committed to the blockchain ledger. Just like a paper ledger, where an account may be recording transactions, once a page (or block) is full, the accountant may ask an auditor to check that all the info is correct. On a blockchain, once the block is full, it is validated and confirmed correct by miners.
Each block in a blockchain has a unique 64-digit code made up of numbers and letters. To validate a block, a user must find that code by mining it.
When mining, miners use computer power to solve complex algorithms until one equals a block’s hexadecimal code, similar to how a real-world miner constantly digs through dirt to find a piece of gold.
The algorithms a computer attempts to solve represent the dirt a miner searches through. Once a crypto miner finds the code, the block is considered valid and added to the blockchain.
The miner receives a block reward (in the form of new Bitcoin
, for example) for their efforts, just as gold is the reward for a real-life miner’s efforts.
But, it’s important to note that while many miners work to find a block’s code, only the first one to do so receives a reward. This is like a race where only the first runner to cross the finish line wins the prize.
Miners may acquire more powerful hardware, such as graphics processing units (GPUs), to increase their mining power or hashrate. The higher their hashrate, the more likely the miner will reach a code before their competitors.
Did you know? The first-ever block of Bitcoin, known as the “Genesis Block,” was mined by Bitcoin’s creator, Satoshi Nakamoto, in January 2009. This block included a hidden message: “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.”
How to mine Bitcoin
You can mine Bitcoin through cloud mining or by installing software on your PC that utilizes its central processing unit (CPU), GPU or application-specific integrated circuit (ASIC). Specialized mining rigs are also available.
However, if you are wondering how to start Bitcoin mining, consider the following factors.
Firstly, the network automatically halves its block rewards every four years in an event called the halving, similar to a company reducing bonuses periodically. The most recent Halving took place on April 19, 2024, and lowered the Bitcoin block reward from 6.25 BTC to 3.125 BTC.
Secondly, the average Bitcoin block mining time is 10 minutes, meaning a new block is added to the Bitcoin chain roughly every 10 minutes. This intentional number results from mining difficulty programmed into the Bitcoin blockchain. Mining difficulty changes based on the number of miners contributing to the Bitcoin network, much like a game getting harder as more players join.
While you can mine Bitcoin independently, due to the network’s high mining difficulty, it is better to mine Bitcoin through a mining pool such as F2Pool or SlushPool, similar to joining a team, to increase chances of success.
For those considering how to start a crypto mining business, it’s important to understand the complexities involved. A profitable crypto mining business requires a ton of hash power and involves significant upfront costs to establish competitive mining capabilities. But, it can yield substantial returns despite the high costs.
How to mine crypto at home
The best way to mine cryptocurrency at home is through a mining rig. Mining rigs aren’t too different from a typical PC, but their hardware makes them stand out.
A miner can participate with their traditional computer hardware. Graphics cards provide enough power to solve complex algorithms at a reasonable pace and are one of the more accessible ways to get involved in the process.
However, dedicated mining rigs harness ASICs — cards built for decrypting specific encryption algorithms, such as Bitcoin’s SHA-256 algorithm.
Did you know? In the early days of Bitcoin, it was possible to mine hundreds of coins using just a regular home computer. Today, mining even a fraction of a Bitcoin requires specialized hardware and significant electricity consumption.
Cryptocurrency mining hardware
When learning how to mine crypto on PC, note that the rig’s many parts contribute to its hashrate. The most significant contributors are the CPU and its GPU.
CPU mining
- In Bitcoin’s early days, CPUs were a popular way to mine the asset.
- While it’s still possible to mine with a CPU today, using a GPU or an ASIC miner is better for higher profits. It’s like using a basic calculator for complex math; it works, but there are better tools now.
- However, a good CPU is still essential as it dictates how fast a computer can interact with its different parts.
GPU mining
- Computers use GPUs, also known as graphics cards, to render graphics and run other visual processes.
- Due to their power and accessibility, GPUs are a popular method of cryptocurrency mining. It’s like having a high-performance sports car for a race.
- One can increase their hashrate by harnessing multiple GPUs if their rig allows it.
Any PC will come with a CPU and a GPU, which make for great starter mining machines. Yet, dedicated mining rigs have the pieces of a normal PC with an ASIC over a typical GPU.
ASIC mining
- ASIC stands for application-specific integrated circuit, which is similar to a GPU, but it’s built specifically for crypto mining.
- ASICs are expensive but result in an increased hashrate compared to a GPU.
- An ASIC is also more efficient, uses less power and is more environmentally friendly, much like an energy-efficient appliance in your home. This often results in the most profitable cryptocurrency mining.
- Due to their specific nature, an ASIC is bound to last longer than a GPU, which can “fry” over time due to being overworked.
- Depending on the currency one is mining, they can purchase an ASIC optimized for their network to increase their hashrate. For example, a Litecoin -optimized ASIC works differently than a Bitcoin-optimized ASIC due to their distinctive encryption methods. It’s like having specialized tools for different jobs to maximize efficiency.
LTC
$65.22
Did you know? One of the largest Bitcoin mining farms is located in Iceland. Its cold climate and abundance of geothermal energy make it an ideal location for mining, helping to keep hardware cool and energy costs low.
Cryptocurrency mining software
After deciding on your hardware, be it a PC or mining rig, you will next need to find the right mining software.
The best mining programs support GPU and ASIC mining and offer an accessible way for new miners to get involved. For example, NiceHash is a mining client that auto-detects a user’s hardware and automatically directs their hash power to generate the most profits.
However, what ultimately matters is if a user is trying to solo mine, join a mining pool or start cloud mining.
Solo mining
- Solo miners compete with the rest of the world to find a block’s target hash.
- Like fishing alone in a vast ocean, they face tough competition but, if successful, earn a complete block reward.
- Solo miners might struggle to earn block rewards and will likely deal with high electricity bills.
Mining pool
- Mining pools are groups of miners consolidating their hash power to find a block’s target hash.
- Pools, just like teams, are much more likely to earn block rewards, though rewards are split based on each user’s contribution.
- A mining pool is a sustainable way for miners with less hash power to get involved, as their lower power is still a valuable contribution.
- Most mining pools charge a small fee in addition to the reward splitting. While rewards are more consistent, they’re valued less than those of a solo miner.
Cloud mining
- Cloud mining brings the mining process to users without a mining rig.
- One can sign up for a cloud mining cryptocurrency platform and rent a miner’s hash power — essentially covering its electricity and maintenance costs.
- The user earns a share of the block reward proportional to their funding contribution.
- On the other side, miners with a mining rig can offer their power to a cloud mining pool to subsidize their expenses.
Finally, you will need a crypto wallet to store block rewards. Wallets come in multiple forms, including desktop, mobile and exchange wallets. Any wallet can receive block rewards, but each type has risks and advantages.
With all of these decisions made, you can finally build a mining rig.
How to build a crypto mining rig
The proper cryptocurrency mining setup requires the following hardware:
- GPU: The GPU is like the engine of a mining rig, crucial for achieving a higher hashrate, similar to how a car’s engine power determines its speed. More GPUs increase the rig’s computational power, the same as adding more engines to a vehicle for greater horsepower.
- Motherboard: The motherboard acts as the central nervous system, connecting all parts of the rig, much like a hub that links various devices in a home entertainment system.
- Random access memory (RAM): RAM serves as the rig’s short-term memory, enabling it to run mining software efficiently, similar to how a desk with ample workspace helps one organize tasks smoothly.
- Power supply unit (PSU): A mining rig needs a power supply unit to run power from an electricity grid to a computer. The more GPUs a computer has, the more power it needs to run properly. Think of the PSU as a power grid for the rig, delivering electricity to all components.
- Hard drive or solid-state drive (HDD/SDD): Mining rigs need an SSD or HDD for storage, as one must download mining software to participate in the process. It is similar to how a toolbox stores necessary equipment for a task.
- CPU: A CPU pairs with the motherboard to instruct a computer’s many parts. Faster CPUs result in more calculations per second, resulting in a speedier rig overall.
Once you have all these parts, you should follow a guide to assemble the PC so it can start mining.
Is it possible to mine Bitcoin via a smartphone?
If you are wondering how to mine cryptocurrency on Android or in general, you should note that while phones share similar parts with PCs, they lack the power of a dedicated rig. Attempting to mine on a phone could be likened to using a bicycle in a race against cars — it’s less effective and may cost more than it earns.
Thus, mining cryptocurrency on phones can be difficult, as they’re not nearly as powerful as a typical mining rig, and attempting to mine via phone may cost more than it brings in.
How to mine altcoins
Altcoin mining involves mining cryptocurrencies other than Bitcoin, such as Ether
and Litecoin. In September 2022, Ethereum switched from a proof-of-work (PoW) consensus mechanism to a proof-of-stake (PoS) mechanism, which means it is no longer a mineable currency.That said, miners looking to mine Ether can still do so via Ethereum Classic
— a fork of Ethereum that still runs on a PoW consensus mechanism.Litecoin follows a mining process similar to that of its predecessor, Bitcoin (Litecoin is a fork of Bitcoin and one of the older cryptocurrencies still around today). To mine Litecoin, you just need to find Litecoin-specific mining software, such as Ukrpool or Zergpool. Similar steps apply to other altcoins. Researching an asset’s specific hashing algorithm and building a rig that caters to it for optimal results is important.
Pros and cons of cryptocurrency mining
Pros
- Accessibility: Thanks to mining pools, cloud mining, and other methods, cryptocurrency mining is accessible to those with the hardware (or the funds) to get started.
- Decentralization: Due to mining, the world can enjoy a decentralized financial infrastructure free from the power of a central authority.
- Higher security: Mining incentivizes users to act in a network’s best interest, ensuring security and preventing double-spending problems
- Passive income: Once set up, cryptocurrency mining can generate passive income, especially when using cloud mining or mining pools.
Cons
- Costs: While cryptocurrency mining can generate profits, it can also be expensive due to hardware and electricity costs. Essentially, the answer to the question “how to mine cryptocurrency for free” is that it’s impossible.
- Volatility: Depending on one’s choice of coin, mining a currency can still result in a loss if the asset’s price drops.
- Risk of theft: Crypto miners are a target for bad actors, and without the proper security methods in place, they may suffer a theft of funds.
- Mining difficulty: Networks have various types of mining difficulty. Many, such as Bitcoin, lower their block rewards over time while increasing difficulty, which results in lower rewards despite the higher requirements.
Did you know? Some Bitcoin mining operations are now powered entirely by renewable energy sources, such as hydroelectric, solar and wind power. For instance, a significant portion of Bitcoin mining in Canada and Scandinavia uses hydropower to reduce the environmental impact of mining.
The future of crypto mining
While this beginner’s guide to crypto mining has covered the current state of mining, it’s important to consider the future of this lucrative process.
Bitcoin mining is as prevalent as ever in 2024, with United States citizens spending $2.7 billion on it in the first few months alone. This isn’t to mention that the Bitcoin halving will continue every four years, making Bitcoin scarcer and scarcer as time goes on.
However, the cost of mining and its energy usage will significantly affect its longevity. Many crypto projects, such as Ethereum, have shifted to a proof-of-stake consensus mechanism. These projects claim that PoS is the future of crypto and that it will address many of mining’s faults.
But, the transition from PoW to PoS is not without its challenges, including centralization of power among significant holders. As the crypto landscape evolves, the debate between PoW and PoS and other consensus mechanisms will continue to shape the future of blockchain technology.
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