An Intro to Cryptocurrency Mining
Cryptocurrency mining can be a point of confusion for many beginners. The blockchain is a new concept that can be difficult to grasp at first, not to mention all the intricacies of mining. But in order to have a complete understanding of cryptocurrencies and blockchain technology, one must understand why mining is important and what role it plays in the maintenance of the blockchain.
Mining, simply put, is the process of recording and storing transaction data on the blockchain. Those that decide to commit resources to the maintenance of a blockchain are incentivized by rewards, and these rewards are distributed randomly. Miners that contribute more computing power to the maintenance of the blockchain have a higher chance of receiving the randomly distributed rewards, and in the long-term, miners’ rewards average their input.
Although this may seem like a complicated subject, once some of the mystery is removed, the connection to cryptocurrencies becomes immediately evident. Anyone can technically get into mining, although specific equipment is needed in order to produce enough rewards to notice.
If you want to run a mining application from your personal computer, it will cost you nothing but what you use in electricity! Building a mining rig or purchasing an ASIC miner - especially purchasing an ASIC miner - will be quite expensive, however, and thorough research is required to come to the decision of what’s right for you. It’s best to test the process on your personal machine before investing large quantities of money into creating the next mining farm.
Types of mining
ASIC
ASIC stands for application-specific integrated circuit, which means that the equipment is built with one specific function in mind. In the context of mining, this means that the equipment is built to mine one algorithm extremely well. You can’t switch the algorithm that the equipment is meant for, and therefore it limits the number of different cryptocurrencies that you can mine with it. That being said, it is able to produce more processing power with less energy consumption than a mining rig built with GPUs. This equipment is difficult to develop and has a higher return potential, which is why it’s such an expensive investment.
ASIC hardware gets developed at a pretty quick rate, so in order to be profitable mining with this type of equipment, you need to have access to a supplier that carries the latest equipment as soon as it hits the market. As more ASIC miners enter the market, the earning potential decreases, which is why it’s important to stay up-to-date with the latest equipment news.
Cloud
Yet another option of participating in mining is cloud mining. This type of mining is renting processing power for a fee in order to participate in the maintenance of the blockchain. This is a great way to start out mining if you do not have your own equipment or you would like to bolster your processing power in order to increase your chances of receiving a reward for mining a block.
Anyone can participate because no equipment is necessary. This is why it’s a good option for starters. In the long term, however, it would be cheaper to invest in your own equipment. THis is because the cost of renting equipment for a premium will calculate to be more expensive in the long run, especially since you’re paying a premium to use the equipment.
GPU and CPU
CPU or GPU mining, usually used for ASIC resistant algorithms, are another way to mine cryptocurrencies. Although this equipment is made obsolete by ASIC miners, there are cryptocurrencies that run on ASIC resistant algorithms for which ASIC equipment has not yet been developed. These are the mining rigs that are just beefed-up desktop computers running multiple graphics cards.
With GPU mining, you can switch what cryptocurrency you mine, since the equipment is not algorithm specific. Although not as effective at mining as ASIC hardware, this is a great option for someone that isn’t mining with the goal of making a profit. It allows for flexibility, as the owner can switch the crypto being mined at any time. The equipment is also made obsolete much less quickly, as there are usually a few years between the release of new GPU models.
Although it costs much less to start mining via GPU, it is still a high barrier to entry. Building your own mining rig will require at least $1,000 of initial investment, and don’t forget about electricity costs.
Parts
ASIC
ASIC miners are made to mine one specific algorithm very well. This means that these coins can typically only mine one specific coin, but they can mine that one coin extremely well. They only require one piece of equipment, which is the miner itself. As previously discussed, these are quite expensive and the technological turnover is much greater than the other options.
GPU and CPU
GPU
This is the backbone of ASIC Resistant mining. The graphics cards, or GPUs as they’re more also known, is the most important part to an ASIC resistant mining rig. CPUs used to be used to mine cryptocurrencies, but over the years, graphics cards have become more powerful at a faster rate than CPUs, and that’s why they’re the most important part to a mining rig nowadays.
CPU
The CPU, known as the Central Processing Unit, is the brains of the computer. This component does not have an effect on a computer’s hash power, otherwise referred to as processing power in this article.
Motherboard
This component is important because of the graphics card spaces. The more GPUs you can fit onto your motherboard, the higher processing capacity you have.
RAM (Random Access Memory)
This component is not the most crucial, although at least 8GB of RAM is recommended for a mining rig. Running a mining application without enough RAM will cause the application to crash, rendering your mining rig useless.
Operating System
Although the operating system is not as important, it is important to run either Linux, which is free, or Windows. The Mac operating system does not do as good of a job of mining, and Mac components are not made for mining so it’s not suggested that you mine if you have an Apple device.
Power Supply
In order to run your mining rig, you need to have a power supply that can supply enough power to run your rig. You can look up the average power usage for each component you’re purchasing. Adding them together will get you a threshold of the amount of power you need to run your rig. It’s smart to buy a power supply that uses only 80% of its capacity, as the rig will frequently jump above your average power usage, and this would short the circuits if you do not have a little wiggle room.
Profitability
Is it worth it?
It depends on your motivation and the profit you want to achieve; if you’re profit-driven, may as well buy your cryptocurrency and hodl.
Why do people mine?
If it’s not all about profits, then why do people mine? To support their favorite cryptocurrency projects, of course! If there’s a project that you believe in and would like to support, helping to maintain the blockchain is a great way to do so. This is another factor to consider when picking your equipment; would you like to support a specific project? If so, research what type of equipment is used to mine that cryptocurrency and invest in that instead of what might get you the best short-term profits.
Getting Started
Now it’s time to make your choice in mining equipment. Are you going to invest in ASIC hardware? Are you going to build your own ASIC resistant mining rig? Or will you just start out with cloud mining? Now that you know the differences, be sure to do some more research before jumping into something you’re not ready for.
After you’ve made the decision on how you want to mine, it’s time to choose what coin you want to mine! Some miners allow you to mine two coins at once, but this just partitions your processing power in two and splits it between the two coins.
Did you find this helpful? Stay tuned to our blog posts for an in-depth review of setting up your own mining rig! And don't forget to visit us at CryptoScores.org for more information on cryptocurrencies and blockchain technology!
