How to mine digital currencies
In this era of digital currencies, mining operations have become a huge source of income for individuals and groups. Here is now all about how to mine cryptocurrency.
Over a decade ago, it was incredibly easy to mine bitcoins from home. You could have assembled a few gaming computers, or simply exploited your school or office infrastructure to mine a lot of bitcoins that would stay with you for life provided you didn’t sell them or throw away your hard drive at some point.
Although there are some rare exceptions like the guy who single-handedly mined a bitcoin block in January 2022, such crazy things are now a distant memory. The bitcoin network is now so massive that mining has become difficult with massive pools full of powerful purpose-built miners now competing against each other to earn block rewards. But there are ways in which cryptocurrency mining can remain profitable for the average person, as there are countless currencies other than Bitcoin in the world right now.
Is it profitable to mine bitcoin at home?
Bitcoin was the first cryptocurrency to be mined. Mining is a process in which a miner uses computational power to generate a winning token (known as a hash) before anyone else is chosen to add a new block to the blockchain. In return for their efforts, each successful miner is rewarded with a newly created digital currency and benefits from any transaction fees associated with the new block addition currency. This type of validation mechanism is known as a “proof-of-work” mechanism.
When you are mining a coin, you have to keep in mind the liabilities that will reduce your profits. They include the current market price of the coin, the cost of electricity, the maintenance fee, the cost of your mining equipment and how long you are likely to invest in this mining operation in order to be able to compete with the powerful miners in the market. And as more powerful machines hit the market, your hardware may not be able to keep up.
Profitability calculators, such as those at Nicehash, help you determine if your operation is likely to generate profits or losses. For example, let’s work on the assumption that you don’t have a hydroelectric dam at your disposal, but are based on the average electricity grid rate in your country. In this case, all the odds will not be in your favor because Bitcoin mining consumes a huge amount of energy, which can cost you more than half of what you earn or all of what you earn sometimes.
Given the volatile nature of cryptocurrencies, the risk increases and this may mean that you will not make any profits. In addition to this, the network difficulty, which determines how difficult it will be (computationally) to mine new bitcoins, is also volatile. Following the crackdown on cryptocurrency mining that occurred in China in July 2021, network difficulty had fallen by 28%. This made it easier for the remaining miners to mine new blocks. However, this was of short-lived duration and the difficulty level has since almost returned to its previous high levels.
Mining benefits from volume as well, and home miners usually make a lower profit per mineral than a professional miner. To cover their costs, professional miners are often placed in areas with cheap electricity and the possibility of brokering deals with local power grids.
How to mine profitable cryptocurrency at home
However, there are plenty of other cryptocurrency options that you can consider if you are thinking of starting a profitable mining career. Although there are too many variables to make an accurate comparison of these options, there are many truisms. After a certain point, it is generally better to mine Bitcoin than to mine Ethereum with computer chips because Ethereum strongly favors GPU miners. Although this will not be the case for long, as they are currently working on phasing out miners before migrating them to the Proof of Stake mechanism.
Finding the mining hardware itself is still a big problem. The GPU market has gone crazy in 2021, making things even more difficult for miners. To make things even more confusing, some networks, like Chia’s, rely on hard disk drives rather than graphics cards or computer chips. This is causing some to steer to Chia mining due to the hard drive shortage the market has experienced in 2021.
However, some profitability calculators like CoinWarz do show a percentage of profitability, assuming that hashing power, the amount of computational power you use to mine a coin, is constant. Using a $1,000 hardware budget, CoinWarz ranked the following coins as the most profitable:
- Ethereum coin
- Peercoin
- Bitcoin Cash
- Bitcoin currency
- Ethereum Classic coin
Small coins, which have less competition from other miners, may be more profitable. However, since the prices of smaller cryptocurrencies are generally more volatile than large, established coins, the value of the returns is less predictable.
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If you are interested in increasing your chances of reaping the rewards of your mining efforts, you can also consider joining a Bitcoin mining pool. How this involves joining forces with other miners to increase the odds of discovering new blocks and making a profit, but also that you share the revenue with the rest of the members.
In case you do not have enough computing power at home, you can look into cloud mining and try to weigh the advantages and disadvantages of outsourcing your hardware needs.
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