Cryptocurrency mining is verifying transactions on a blockchain ledger. Anyone with access to the internet and suitable hardware can participate in mining. The participant who first solves the problem gets to place the next block on the blockchain and claim the rewards. The rewards are transaction fees (from the transactions in the block) as well as the newly released cryptocurrency e.g. Bitcoins.
Cryptocurrency mining and Proof of Work
Proof of Work (PoW) is a demonstration of the difficulty in making the new block. The difficulty is in terms of how hard the processor has to work to solve the problem. Costs involved in cryptocurrency mining will be for the hardware (the processor or miner) and the costs associated with the electricity used.
Cryptocurrency mining is resource-intensive and difficult (in the sense of the processing effort required) and this is deliberate. The first miner to solve the next block gets the reward but the amount of processing required to do this is enormous.
How hard is it to mine one Bitcoin?
To get a sense of how much effort is required to mine a cryptocurrency let’s take a look at an example using Bitcoin.
Whilst you can’t mine one Bitcoin ( the mining effort is used to solve a block that comes with a reward of 12.5 Bitcoins) we have treated it as though you can just to make the guide easier to follow.There are several online calculators that allow users to estimate their potential daily earnings depending on a number of variables such as processing power. Processing power is called the hash rate and this online calculator shows we need to deliver 16,500 terra hashes per second (TH/s) for a whole day to mine one Bitcoin (calculation made at 15/5/18 at 15.36). A terra hash is one trillion hashes.
The hash rate of the highest specification bitcoin mining machine available to purchase on Amazon (the Bitmain New Antminer S9i) is 13.5 TH/s. So we would need 1,222 machines to mine one Bitcoin in a day. My laptop has a hash rate of 48 H/s so my chances of mining Bitcoin with it are effectively zero.
The potential rewards in mining cryptocurrencies (particularly in the early days of established ones) has encouraged so many miners into the market that as an individual, the only realistic way of mining is by joining a mining pool to share the processing effort (and rewards) with other miners.
How to start cryptocurrency mining
These are the things you will need to start mining:
1. Mining hardware – a processor
You can buy the hardware on Amazon or ebay. A quick search at the time of writing (10/5/18 14:46) shows about 20 devices for sale on amazon ranging from £600 – £4,000. In addition there are lots of other pieces of supporting hardware available – cooling fans, stacking racks (allowing more than one miner to be conveniently set up) and processing boards, cards and chips.
The basic way to maximise returns is to have your hardware running for as long as possible every day and as efficiently as possible. The online calculator linked in the article above can be used to calculate the potential profits.
To use the calculator you need to know the hashing power of the miner, power consumption, price of electricity in your country and the mining pool fee. A mining pool is the pooling of resources by miners who share their processing power over a network, to split the reward equally. In return you pay the mining pool a fee (usually a percentage). The difficulty (in terms of computer effort) means realistically this is the most practical option to mine Bitcoin.
The hashing power and power consumption will be included in the miner specs. The price of electricity in your country can be easily found via a Google search and you’ll know the pool fee when you choose the pool you want to join.
2. Get a cryptocurrency wallet
Selecting the right cryptocurrency wallet will depend on your particular circumstances. If you hold one currency then using that currency’s official wallet is probably the easiest option. If you hold more than one currency (or are planning to own more than one) then you will need a wallet that can hold more than one type of currency.
3. Find a mining pool
There are a range of mining pools easily found on the web. For beginners most crypto commentators would recommend Slush Pool which has been around since 2010 and was the first mining pool.
The kind of things you should be looking at when considering your pool is the reward method (e.g. proportional, pay per share); any fees charged for withdrawal; how frequently is a block mined; how stable is the pool and how easy is it to withdraw money. There are many comparison sites and blogs which talk about the different pools.
Once you’ve selected your pool it’s normally straightforward to sign up and add a “worker” that will have its own ID so the pool can keep track of your miner and its mining efforts.
4. Get a mining programme
Your miner will already have the appropriate software loaded but you will need a programme for your computer to measure, control and monitor your miner. Many mining pools have their own software but if you need to find your own then it’s easily found with a Google search.
Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.