Mining is the central component to Proof of Work (PoW) cryptocurrencies, where such blockchain networks relying on miners for transaction processing and network security. Miners are given calculations to solve, and the first to find the correct answer is rewarded with new coins. Other participants verify the new block before it is added to the chain.
Currently, most miners on the largest networks, such as Bitcoin, Ethereum and Litecoin, mine through specific mining pools. However, a few other cryptocurrencies still allow solo mining. This tutorial focuses on mining cryptocurrencies and explaining which hardware is suitable for which coins and why miners are essential.
Mining cryptocurrencies explained
In this section, we will explore crypto mining in great detail. We aim to present the mining process in an easy-to-understand way and help you get a clear picture of the role of miners in a particular network. You can use the following information to choose a coin to mine and start mining profitably.
What is crypto mining?
Mining cryptocurrencies is the process by which blockchain networks create or generate new coins. Mining only works with PoW blockchains, which all use different types of algorithms. The Bitcoin network, for example, relies on the SHA-256 algorithm, while Ethereum uses the Ethash algorithm.
Before you decide to mine, you need to find out about the mining algorithm, which indicates the type of hardware that is supported on the network. While some cryptocurrencies allow the use of special mining devices called ASICs, others are ASIC-resistant, so it is possible to mine with a graphics card. We inform more about this in one of the following sections.
Anyone can become a cryptocurrency miner as long as they have the right mining equipment or the required computing power to mine a new block on the network.
In cryptocurrency mining, special computers, also called miners or nodes, compete to solve complex mathematical problems and find a value that identifies the valid block. The value is a hash called a nonce, and how long it takes to achieve one depends on the protocol. Bitcoin typically takes about 10 minutes (at best), while Ethereum takes about 15 seconds (at best), and Ravencoin has a 1-minute block generation time.
Once a miner is the first to find the value, it sends it to the network. The decentralised nature of the process requires a majority of miners to verify the block before it is added to the blockchain. The winning miner receives a block reward that puts new cryptocurrency coins into circulation.
Why are cryptocurrency miners important?
From the section above, it is clear that miners play a significant role in any PoW blockchain network. It is not just about verifying transactions; their part is essential in keeping the network secure and active at all times.
How do the miners manage this? When verifying transactions, they do their due diligence and ensure that no block can be added to the blockchain twice. In short, they solve the problem of duplication.
Blockchains make it much easier to prevent this issue. The technology underlying cryptocurrency puts a timestamp on each set of transactions before sending them to the nodes. Each block also has a hash that contains a relevant timestamp of the previous block, making it difficult for nodes to send a transaction twice.
To ensure a higher level of security, miners verify and validate transactions before they are formally considered part of the ever-growing blockchain.
Miners also secure the relevant network by dedicating their computing power to the blockchain. Note that the number of users (miners) on a network is also essential to its security. In particular, as the number of miners increases, the network enjoys a higher hash rate. A higher network hash rate means enough active decision-makers to avert any security risk on the network.
Limitations of mining cryptocurrencies
As mentioned above, all proof-of-work networks use miners to process transactions and secure the network. However, various networks approach this critical component differently and have certain limitations that you should consider before deciding to mine a particular coin.
The first limitation relates to the coin supply and how these coins are brought into circulation through mining.
Some coins have a fixed supply, meaning that a finite number of coins will ever exist. For example, Bitcoin has a fixed total supply of 21 million BTC, which is also copied by many Bitcoin forks, such as Bitcoin Cash, Bitcoin Gold, or Litecoin. Litecoin has a maximum supply of 84 million, while Ethereum Classic is said to have a fixed maximum supply of 210,700,000 ETC. Others like Electroneum and Ravencoin have capped their total supply at 21 billion coins.
As some miners can use superior mining equipment to achieve maximum returns, coin supply capping and halving block rewards are also designed to make mining more difficult. This means that the supply of coins remains limited despite the efficiency of the mining machines and the number of users joining the network.
Of course, you can profit from mining cryptocurrencies without investing in expensive mining machines or assembling large mining rigs to get a higher number of hashes. The best way to make a significant return from mining digital currencies is to identify a coin (cryptocurrency) that allows you to mine through a mining pool. You then identify a mining pool with the lowest fees or no fees, and their operations are in a country or region with the lowest electricity costs. This way, your hash rate will attract less cost for electricity, and you won’t pay a percentage every time you get a share of the reward.
Technical aspects of mining cryptocurrencies
In this section, we will explain the more technical aspects of crypto mining. Some of the key concepts we will focus on are hash rate and processing power. We will also help you understand the importance of a higher hash rate and the resources you need to mine profitably.
What does hash rate mean?
A mining rig with a higher hash rate has more hashing power, which means it can mine faster and more efficiently than a machine with a low number.
A higher hash rate of the entire network shows that more miners are active, which increases mining difficulty and thus mining competition. However, the most crucial aspect of a higher network hash rate is that more miners equal better decentralisation. In turn, there is better protection of the network from a 51% attack.
The higher hash rate makes it difficult and highly unprofitable for bad actors to hijack the system, thus increasing the network’s security.
How is the hash rate measured?
The hash rate is measured in hashes per second or solutions per second (H/s or Sol/s) on different networks. However, this means looking at how many calculations you get per second with the hardware you have.
The five common units of measurement are kilo hashes per second (Kh/s), mega hashes per second (Mh/s), giga hashes per second (Gh/s), tera hashes per second (Th/s) and peta hashes per second (Ph/s).
Kilo means 1,000 hashes, and the number grow to 1 million, 1 billion, 1 trillion and 1 quadrillion hashes for every other of the four ratings.
When selecting a device for mining, you should consider its hash rate. A device with the required hashing power will increase your chances of making a profit.
Also, check the network hash rate because, as mentioned above, this determines mining difficulty. You can get this information from various block explorer sites, including Blockchain.com, Etherscan.io and Bitinfocharts.com.
Processing power: CPU & GPU
When it comes to mining cryptocurrencies, computing power refers to the speed of the mining machine. It’s about how fast the computer’s microprocessor calculates the maths to find new blocks and thus block rewards.
The faster and more powerful the processor, the better your chances of finding a new block when competing with other miners. This may be why you can mine some cryptocurrencies with the power of the central processing unit (CPU) but not others. For those that can’t, you probably need a faster processor, the graphics processing unit (GPU).
In the early days, you were able to mine Bitcoin comfortably with the CPU, but that is now obsolete, and the same is valid for CPU mining of most other major networks. The basic explanation for this is that the CPU is suited to simple mathematical calculations. The alternative is GPU mining, which allows more hashing power and is suitable for complex mathematical calculations.
Today, most crypto miners use GPU mining and application-specific integrated circuits (ASICs), but another device was specifically tailored for crypto mining. The Field-Programmable Gate Array (FPGA) is a dedicated mining machine designed by miners seeking higher processing speed with lower power consumption. However, these customised fixed-function devices are not common as miners rely on GPUs and ASICs.
The ASIC is specifically designed for mining a particular PoW algorithm, with many available for SHA-256. However, apart from being expensive, they are not easily accessible to individual miners as manufacturers and vendors prefer bulk orders.
Hashrate needed to mine cryptocurrency profitably
As you may have noticed, different coins require different hash rates. The difference comes from the fact that the network difficulty is not the same. At the same time, the hash rate and difficulty are not static, meaning that the requirements fluctuate from time to time.
It is also important that miners have to follow different consensus rules. The type of hardware is also relevant, depending on whether the protocol is ASIC-resistant or not.
Overall, it would help if you had a decent machine that gives you enough hash rate to mine individually or get a good share reward from a pool.
Mining Cryptocurrencies - How to Get Started
In this section, we will cover in detail what you need to do to get started with crypto mining. Some of the main areas we will focus on are the best hardware and software and the associated costs you should be prepared to incur.
Best Mining Hardware for Cryptocurrencies
As we mentioned earlier, you need low-cost hardware to mine cryptocurrencies. Different cryptocurrencies use different mining algorithms, and this is reflected in the mining hardware.
For Bitcoin and some selected coins, ASIC miners are the best as they offer the highest performance and are efficient. However, the cost is a major deterrent to new miners wanting to start operations.
For example, not many people can afford the new Bitmain Antminer S19 Pro, which boasts 110 TH/s and has a total power consumption of 3250W. This ASIC beast sells for over $18,000 with a power supply unit (PSU) and power cables. It is very expensive, but it is still the best hardware for mining Bitcoin’s SHA-256 algorithm.
When it comes to ASIC-resistant networks, you can only mine efficiently with GPU hardware. Nvidia and AMD graphics cards are best suited for mining cryptocurrencies and are typically used to assemble mining rigs to get the desired range of processing power.
Nicehash, for example, offers a customised 10x NVIDIA RTX 3060 Ti mining rig that manages a decent 600 MH/s with just 1400W. A single RTX 3060 costs around $399.
If you decide to start mining a coin, the first step is to find out what it costs to buy the hardware.
Other costs to consider
While hardware is considered the most crucial mining component, you can’t get anything done without adequate power. Machines that use more power are more profitable, which means higher costs for electricity and high-end power supplies.
It would be best to consider how much you will pay for electricity, both to run the mining machines and for the elaborate cooling system. While ASICs have fans, you may need to install additional fans for better results, even if you are assembling a mining rig.
The best way to cushion the extra cost is to use cheap electricity and use miners as efficient as possible.
Once you have the entire hardware set up, you are one step away from mining cryptocurrencies. The next step is to download the compatible mining software.
If you’re a Windows user, download a Windows-supported software miner, likewise for Linux and Mac. You could also mine some coins with your Android phone, which then requires mobile-supported software.
We also mentioned that you might need to join a mining pool. Choose one and proceed to configure your mining software and connect your hardware to the pool and network you want to mine. Once you have set up the wallet, configured the software and switched on the hardware, you can start mining.
Mining has become so complex on some networks that the best alternative for most people is to join mining pools. A mining service or provider allows many miners to pool their hardware power and mine cryptocurrency as one unit with a much higher hash rate.
If you want to join a mining pool, the most important suggestion is to make sure you choose one that guarantees you rewards for your efforts.
One of the main factors to consider is the mining fees. The average fee should be 1 per cent. It is important to pay close attention to this as you want to save on increasing your profit.
The location of the relevant server is also important. If you choose a server that is closer to your location, you increase the chances of generating more valid blocks. If the mining servers are located in a country or region where electricity is cheap, you will have an additional advantage in terms of cost reductions.
The mining pool must also be trustworthy. Established pools are often reliable. If you want to join a new mining pool, do extensive research to see what the mining community says about them.
You should also consider the payout scheme. Some are luck-based, while others share rewards evenly. Some come with higher risks but reward their miners generously. So it is a matter of your preference.
Other factors you should consider are the pool’s uptime, minimum payout and the pool’s overall hash performance. There are several mining pools to select from, with top options depending on the coin you want to mine. In this case, do extensive research on the coin in question and see which pools are the best for the cryptocurrency. Use the above highlighted points to guide you.
What if you want to mine cryptocurrency coins but don’t want to invest in any hardware or run it yourself? The simple answer is to try cloud mining.
A cloud mining service enables you to rent hash rate and mine for a set period as agreed in a contract. It takes away the responsibility of purchasing and operating mining machines. The added advantage is that you can mine any coin at a price you are happy with.
However, cloud mining also has weaknesses that you should consider before entering into any contracts. The prevalence of scams in the crypto industry is still worrying. If you fail to do your due diligence, you are likely to fall prey to them.
Some cloud miners may also take advantage of your naivety to pay you less than you are worth. Others could terminate your contract at will. So it is essential to read all the clauses in your contract before you sign.
With that in mind, some of the best cloud mining services to check out on the market include Genesis Mining, HashFlare, NiceHash, and Hashgains. You can also research the specific coin to find out which cloud mining service is supported.
Where to store mined coins
Before you start mining a cryptocurrency, you need to choose the right wallet to store your mined coins safely and securely. This is where you will receive your coins, aka block rewards.
You have a lot of professional options to choose from in the market nowadays. Hardware wallets, such as from Ledger or D’Cent, for example, are the best option if you want to store your coins safely offline. These hardware wallets offer the right balance between security and accessibility.
A good crypto wallet will help you keep your newly minted coins safe but will also allow you to send, receive or trade with ease.