Cryptocurrency Mining – A Complete Guide for Beginners

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Crypto Currency

There’s a lot of buzz around cryptocurrency, blockchain, and the financial returns it offers. You may also come across the term “cryptocurrency mining” a lot. Mining is a highly lucrative opportunity to passively generate some cryptocurrency tokens.

So I want to spend the time today to help you understand what “mining” is all about, why people spend money on buying powerful hardware for mining, and how you can begin mining crypto currency tokens right away.

Without further ado, let’s get started!

Also read: Blockchain vs. Cryptocurrency – A Complete Comparison

What is Mining?

In the most basic sense, mining is the process of verifying and adding transaction records to a publicly-distributed ledger called a blockchain. If you verify and add these transactions to the blockchain, you’ll be rewarded with cryptocurrency tokens for the efforts.

This process of verification and addition of transactions is what we call “mining”. It’s a process that requires quite a bit of computing power and energy.

The process of mining is how new cryptocurrency is created. When a miner solves a problem and adds a new block of transactions to the blockchain, they are rewarded with a certain amount of the cryptocurrency.

The difficulty of the mathematical problems that miners need to solve increases as more people start mining. This is because there can only be a maximum of 21 million Bitcoin in existence and so miners need to compete against each other to find the next block.

So, in order to be a successful miner, you’ll need access to a powerful computer and the willingness to pay for the considerable amount of electricity that it takes to run it.

What you need to know about cryptocurrency mining:

  • It is a process of verifying and adding transaction records to a public ledger (blockchain). Miners are rewarded with cryptocurrency for their efforts.
  • This process is resource-intensive and requires specialized hardware and software.
  • Mining can be profitable. But the rewards are never guaranteed. Also the price of cryptocurrency can fluctuate, and mining difficulty can change which can cause changes to how profitable your mining venture is.

Let’s take an example of the Bitcoin blockchain here. The transactions on the Bitcoin blockchain are verified through Proof-of-Work. We’ll look at what Proof-of-work is and then jump into the technicalities of mining.

What is Proof-of-Work?

Proof Of Work
Proof Of Work

Proof of Work is a system that helps to ensure that miners are actually working to add new blocks of transactions to the blockchain. In order to receive a reward, miners need to show that they have done work by including proof of work in their block.

It is a piece of data that is difficult to produce but easy for others to verify. For Bitcoin, the proof of work is a hash of the block header. This means that in order to create a valid block, miners need to find a hash that meets certain criteria.

The difficulty of the problem that miners need to solve is adjusted so that on average, a new block is added to the blockchain every 10 minutes. This means that as more people start mining, the difficulty of the problems will increase and it will take longer to find a valid hash.

Proof of work is an important part of cryptocurrency mining because it helps to ensure that miners are actually contributing to the network. Without proof of work, it would be easy for someone to add invalid blocks of transactions to the blockchain and receive a reward. This would lead to the creation of fake cryptocurrency and could ruin the entire system.

Is Cryptocurrency Mining Profitable?

For most people, mining is not an activity that is undertaken for profit. In fact, many people who mine cryptocurrencies do so for the sole purpose of supporting the network.

However, there are people who do it for the money too. If you want to earn money with cryptocurrency mining, you need to know the two common ways to do so.

The two most common ways to make money from mining are:

  1. by receiving cryptocurrency rewards for verifying and adding transactions to the blockchain, and
  2. by selling the computing power that you’ve used for mining on a cryptocurrency marketplace.

Let’s take a closer look at each of these methods.

1. Receiving cryptocurrency rewards for verifying and adding transactions to the blockchain

This is the most common way that people make money from mining. When you mine a cryptocurrency, you are using your computer’s processing power to verify and add transaction records to the blockchain.

In return for your efforts, you are rewarded with cryptocurrency tokens. The amount of cryptocurrency rewards you receive depend on what currency you’re mining and the difficulty of the network.

2. Selling the computing power that you’ve used for mining on a cryptocurrency marketplace

If you don’t like the idea of mining, you can always cash in on this trend by selling your computing power.

There are a few different types of these marketplaces, but the most common one is called a “cloud mining” service. These services allow you to rent out your unused computing power to cryptocurrency enthusiasts in exchange for a monthly fee.

The downside of this method is that you lose out on the crypto rewards. But the benefit is that you generate regular fixed income without much effort.

How to Choose a Cryptocurrency to Mine?

Did the monetary aspect spike your interest? Let’s now look at how you can choose a cryptocurrency to mine.

There are a few different factors that you should consider when making this decision.

Market Capitalization – The first thing you need to look at is the market capitalisation of the cryptocurrency. The market capitalization is the value of all the currency that has been mined. You can find this information on most cryptocurrency exchanges. A currency with a high market capitalization is typically more valuable, and therefore more profitable to mine.

Network Difficulty – You also need to look at the difficulty of the network. The difficulty is a measure of how difficult it is to add transaction records to the blockchain. A higher difficulty means that it will take longer to mine a block, and you’ll receive less cryptocurrency as a reward.

Token Pricing – Finally, you need to look at the price of the currency. A higher price means that you can sell your cryptocurrency for more money, and therefore make a higher profit. The best way to find out which cryptocurrency is most profitable to mine is to use a profitability calculator.

Here are a few mining profitability calculators to check:

There are a others available, but they all work in essentially the same way.

You simply enter in the market capitalization, difficulty, and price of the currency you want to mine. The calculator will then tell you how much cryptocurrency you can expect to receive as a reward.

Keep in mind that these calculators are just estimates, and your actual earnings may be different. This is because the market conditions can change at any time, and the calculator doesn’t take this into account.

How to Mine Cryptocurrency Using A Mining Pool?

There are a few different ways to mine cryptocurrency. The most expensive method is through the use of specialized hardware known as ASICs. ASICs are purpose-built devices that are designed to optimize cryptocurrency mining performance, and are much more efficient than traditional CPU or GPU miners.

But in this method, we’ll learn how to mine cryptocurrency using a mining pool. This is the cheapest method to get started with and can also yield more profit as a beginner. We use SlushPool as it’s the oldest one on the market for Bitcoin mining.

Slushpool
Slushpool

Steps to Start Mining Using SlushPool

Here are the steps to get started with mining cryptocurrency using a mining pool:

  • Sign up for a mining pool – This part requires some research to identify which mining pool is the best for your needs. Compare the fees and the hash rates of the pools to find the best one for your needs. You can also consider using Slushpool, of the oldest bitcoin mining pools. Once you find a pool, simply sign up and go ahead.
  • Connect the pool to your mining tool – Next, you’ll need to connect your miner to one of SlushPool’s pool servers. Make sure you configure your user credentials correctly, as this will be how you access your account information.
  • Register your payout address – Next, add the wallet address where you wish to receive the rewards collected from your mining effort. This can be done directly on your mining pool’s dashboard.
  • Confirm your mining – Finally, check if your miners are functional by checking the account dashboard. That’s all there is to configure your mining setup!

Here’s a video from Bitmain that will help walk you through the steps to connect your pool to a miner. It’s easy, and once you’re setup, there’s nothing much left to do from your end apart from keep the machine running.

Conclusion

Cryptocurrency mining can be a great way to earn some extra income. With this guide, you can get started quickly and easily. Just make sure to double-check your settings and configurations before you begin, so that everything is set up correctly. Happy mining!

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