The increased demand for cryptocurrencies has been followed by a renewed interest in cryptocurrency mining, which has reached an all-time high. Among the most popular coins are bitcoin
With the help of Alexander Benfield, a cryptocurrency analyst at Weiss Ratings, we’ll answer questions you might have about this profitable activity.
Before we begin, let’s answer the most important question: What is cryptocurrency mining?
Cryptocurrency mining is the process of recording and verifying transactions on a public digital record of transactions, known as a blockchain. To do that, miners solve complex mathematical problems. In return, there is a possibility they will be rewarded with cryptocurrency.
This means that mining not only helps keep transactions verified and secure, but also introduces new coins into circulation.
Mining can be done using specialized software on a personal computer, mobile phone or a computing device that’s specialized for mining — ASIC (application-specific integrated circuit). The more powerful the hardware, the more profitable the mining operation.
When asked which of those devices should be used for mining, Benfield recommended ASICs because they provide the best hash rate per dollar. (A hash rate is a measure of the computational power per second used when mining.)
Since ASICs tend to be pricey, a beginner miner should start with just a couple of ASICs and then expand the operation. The biggest recurring cost is usually electricity, but this improves as miners purchase more devices and scale their mining operation. Having access to alternative sources of energy, like solar power, also helps, Benfield added.
Deciding what ASIC is best for you is a challenging task, and one that shouldn’t be taken lightly. Not all ASICs are the same, and each can mine only a select group of cryptocurrencies. That is defined by the hashing algorithm they’re configured to use.
Benfield notes that miners should either choose one asset to target or use an ASIC that supports a hashing algorithm with more assets to choose from, such as Scrypt, in which you can switch between litecoin, dogecoin and verge.
So now we know what crypto mining is and how it’s done. The question is, which coin represents the best opportunity for the budding miner?
In the early days of crypto, mining was profitable and easy, but for some coins — especially bitcoin — this has changed dramatically. Mining difficulty, which is a measure of how hard it is to earn mining rewards, has been growing steadily. Requirements for additional hardware and electricity have risen.
Knowing this, I asked Benfield if it still makes sense for individuals to mine bitcoin and other coins in 2021?
He said: “For most people, it is a little late to start mining bitcoin because the profit margins tend to be pretty small. That said, there are other proof-of-work cryptos that are valuable to mine, and sometimes it’s most profitable to mine cryptocurrencies that aren’t popular yet. For example, early ravencoin miners probably weren’t making tons of money right away; however, when the price started appreciating, their mining profits increased. Obviously, mining lesser-known cryptocurrencies is riskier, but this strategy offers higher profit potential if the currencies grow in popularity and price.”
The case of ravencoin is particularly interesting. It surged from an all-time low of $0.008794 on March 13, 2020, to an all-time high of $0.2854 on Feb. 20, 2021, a 3,145% increase. I’m sure there are similar opportunities for those of us willing to do their research.
Benfield tells me a better strategy would be to mine in a pool instead of alone. Mining pools are groups of miners that anybody can join. Profits are split, based on respective computing power.
For example, if a miner contributed 1% of total computing power, he would receive 1% of profits (minus any fees). Although solo mining has potential for higher returns, the odds of that actually happening are much slimmer than in the case of mining in a pool.
You should also seek out coins with lower hash rates where you would represent a larger portion of hashing power within a pool more easily, and therefore receive a great portion of profit once it’s realized.
To recap, if you are looking for an “easy” coin to mine, you could choose a smaller, less widely used coin with smaller hash rate and hope that price and adoption increase over time. Nowadays, it definitely takes more work and research to make money mining than it did in the past, but it can be done.
Are you interested in mining crypto? Let me know in the comment section below.