CRYPTOCURRENCY MINING is blockchain maintenance work. The mining of each cryptocurrency is slightly different, although the fundamentals are the same. Mining hardware varies from ASIC computers to graphics cards and CPU processing. Mining with a mobile phone is not feasible.
In addition to the price of a cryptocurrency, the profitability of mining is impacted by energy consumption and the equipment used. Anyone can set up their own mining farm and start mining one of the dozens of different cryptocurrencies! This article will give you the basics of cryptocurrency mining.
What is cryptocurrency mining?
Cryptocurrency mining is blockchain maintenance work. This principle holds true for all known cryptocurrencies that are mined. Whether it’s Litecoin, Dash, or Monero, as an example. Miners are vital players in the world of cryptocurrencies.
A blockchain is a distributed database. It is the backbone of a cryptocurrency and stores all transactions related to that coin. Other information can be stored in the blockchain as well, but for reasons of efficiency, it mainly contains transaction data. How many coins have been sent from an address X to address Y at time Z. Each block can only have a limited number of transactions.
The mining work is often performed with specially-made ASIC computers. It depends on the cryptocurrency, whether mining is also profitable with graphics cards (GPU) or “normal” processors (CPU). Below is a video of a mining farm where mining is done with ASIC devices.
What does blockchain maintenance work mean in practice? Miners create the blocks of a blockchain. First, they collect new transactions sent to the network and then add those transactions to a new block. Cryptocurrency mining is a competition between miners for permission to create a new block.
You could compare the mining process to a lottery draw. There is a lucky winner almost every week, even though the probability is vanishingly small. You could say that miners are also trying to guess the right lottery numbers and one of them always gets it right at regular intervals. This miner creates the new block and the race is then re-started.
Note. Our in-depth blockchain guide gives more details about blockchain technology and the work of the miners.
Cryptocurrency mining has become more and more of a large-scale business. In the case of Monero and Litecoin, even small investors can profitably compete in mining. The smaller the cryptocurrency, the better off an individual will be.
Differences in cryptocurrency mining
There are differences in cryptocurrency mining depending on the currency, although the fundamentals are the same. The differences come from the hardware used, which in turn is determined by the mining algorithm of each cryptocurrency.
Let’s start with the technical differences. For example, the block time of Bitcoin (and Bitcoin forks) is 10 mins, the block time of Dogecoin is about a minute, and Litecoin blocks are generated once every 2.5 minutes. Below is a picture of the Litecoin homepage.
Each cryptocurrency also adjusts the mining difficulty level so that new miners joining the network do not change the block time. As miners become more efficient and more hash rate enters the network, the difficulty has to be adjusted. Otherwise, the block time of each mineable coin would decrease over time toward zero. This principle is the same for each mineable coin.
The most significant differences are in the mining algorithms. Proof of Work is a consensus algorithm. It tells, on a general level, how the consensus of the blockchain data is formed. The opposite of PoW is Proof of Stake, where no miners are used.
The mining algorithm, on the other hand, tells what kind of mining devices the cryptocurrency is optimized for. The private crypto Monero has changed its mining algorithm over the years so that it would not be possible to mine it with ASIC devices. The purpose of the measure is to keep mining as decentralized as possible.
The biggest difference between cryptocurrencies is that only a fraction of them require mining. More than 99 percent of cryptocurrencies use Proof of Stake consensus instead of Proof of Work. Many beginners may have the opposite picture. This is because the largest and most well-known currency on the market, Bitcoin, is a Proof of Work coin.
Cryptocurrency mining hardware
Mining hardware varies from ASIC computers to graphics cards and CPU processing. It depends on the cryptocurrency and the budget, what type of mining machine you should buy. The mining hardware can be divided into two main categories: GPU miners and ASIC devices.
GPU stands for graphics card. There are ready-built set-ups available, but most miners build their own GPU rigs. There are typically 5-10 graphics cards connected to one motherboard. There are also specially-made motherboards for this purpose. They are also optimized for power consumption.
The picture below has a cryptocurrency-mining GPU rig.
ASIC devices are specially-made computers that are designed only for a certain task. For example, a GPU rig can be harnessed to mine any cryptocurrency. Each ASIC, on the other hand, is optimized for a specific mining algorithm.
Ten years ago, ASIC devices were only available for Bitcoin, but nowadays all major cryptocurrencies can be mined with ASIC machines. Such a mining machine is more expensive than a GPU but it’s also much more efficient.
Is it worth mining cryptocurrencies in your country?
Cryptocurrency mining is a profitable business in many countries of the world. Is that also the case in your country? This is a question that many beginners often ask. The answer to the question depends on three factors:
- The price of cryptocurrency
- The price of electricity
- The efficiency of mining equipment
The first point is of course important. The hash rate of the largest cryptocurrencies is constantly increasing as new miners join the network and the efficiency of hardware improves. If the price of the crypto in question doesn’t increase in the same proportion, mining becomes profitable only for the most efficient operators.
The price of electricity is also a critical element. Many people think that 10 cents of a dollar per KWh is a good rule of thumb. It means that if you don’t get electricity below this price don’t even dream about profitable mining.
The third point is also important. Mining equipment becomes obsolete in a couple of years. New and more efficient hardware enables better profits. The image below shows the calculation of mining profitability on the cryptocompare.com website.
The example calculation has been done by using a Bitmain S19 ASIC miner with a power consumption of 3250 watts and a hashing power of 95 TH/s. If the price of electricity were $0.1/KWh, the profit would be about $32 per month, which is 1/100 of the purchase price of the device. This means the price of the cryptocurrency would have to multiply for mining to make any sense.
If the price of electricity fell to the level of five cents, the profit would increase almost fivefold. If the coin price would also double, the cost of the mining device could be amortized in less than a year.
These principles apply to all mining cryptocurrencies. You can test how profitable it would be to mine Litecoin, Ethereum Classic, or Monero at cryptocompare.com. It is important to reach the shortest possible amortization period with your hardware.
Mining devices become more efficient every year. Today’s expensive and powerful GPU could be far behind the next-generation devices in a year’s time. ASIC miners are also developing very quickly. Due to this, the profit generated by your miners starts to drop quickly over time.
The most popular cryptocurrencies to mine
Let’s go through the most popular cryptocurrencies to mine. This list is by no means complete, as new cryptos are created all the time. The situation in the market can also change from a technological point of view. For example, Ethereum moved away from mining at the end of 2021. Fortunately, Ethereum Classic continues to be a Proof of Work currency, so many Ethereum miners switched to it.
Since this article is about cryptocurrencies in general, we’ll skip the BTC. You can find a comprehensive guide to BTC mining in the main menu. Since Ethereum has also switched away from mining, the list now includes significantly smaller cryptocurrencies. The list of minable cryptos is in order by market value.
- Ethereum Classic
- Bitcoin Cash
In addition to these, Flow, Dash, Ravencoin, and Digibyte are also fairly popular. There are dozens of mineable cryptocurrencies on the market which means plenty of coins to choose from! If you are interested in mining cryptocurrencies, research the profitability of each cryptocurrency with online calculators.
Is it possible to mine cryptocurrencies on a mobile phone?
The revolution of mobile devices has raised the question: is it possible to mine cryptocurrencies on a mobile phone? In short, no, but a mobile phone can be used to perform operations similar to mining.
Cryptocurrency mining requires heavy usage of either CPU (central processing unit) or GPU (graphics processing unit) 24/7. It’s simply not smart to use a regular mobile device like this. You would destroy the phone’s battery quickly. A mobile phone processor isn’t simply designed for such use and electricity consumption would become a huge problem.
There are various apps on the internet built for mining cryptocurrencies on a phone. In practice, these apps are games or similar where you perform tasks to “mine”. These mining-like apps might be worth using when the crypto market is booming and prices are rising rapidly.
If you want to make real money from mining, you should invest in proper equipment, get a cheap electricity contract, and forget about using your phone.
What is cloud mining?
Cloud mining means buying computing (hashing) power from a mining farm. Cloud mining is an option for a person who wants to participate in mining but doesn’t want to buy the equipment. The reason can be e.g. lack of storage place or technical know-how combined with high electricity costs.
Investments in cloud mining are also an order of magnitude smaller. You can usually join with investments starting at 1000 dollars. Genesis Mining, shown in the image below, is the most popular cloud mining provider on the market.
Cloud mining sounds like an easy and risk-free way to make money, right? The truth is something else. First of all, there have been a lot of scams in the industry. It is close to impossible to know whether the cloud mining provider has actually the miners or not. Even if there is a mining farm, they might sell more mining power than there is equipment.
In addition to this, the rapid price drop of cryptocurrencies can trigger unpleasant terms in contracts. If prices fall too low and mining becomes unprofitable, the service provider may terminate all contracts. You typically have to buy a mining contract for 12-24 months at once.
We recommend cloud mining only for experienced investors. Make sure you have read the terms and conditions carefully before making any purchases.
Cryptocurrency mining – Summary
Cryptocurrency mining was reviewed in this article at a general level. Each cryptocurrency has its own tricks and sources of information. There is usually a Discord channel, Telegram groups, Youtube channels, etc. for the mining of each cryptocurrency.
Mining is not recommended for the majority of users. It requires technical know-how and, above all, cheap electricity. Most crypto investors won’t have both of these. You also need a storage place for the mining hardware, since they cannot be just placed in the corner of your living room.
An ordinary investor should simply buy the cryptocurrency from an exchange and wait for its price to rise. You are much more likely to make money this way than investing the same principle in mining hardware. Also, remember to watch out for scams if you are interested in cloud mining.