- What is cryptocurrency mining
- How crypto coins are actually mined
- What people mean when they say mining difficulty
- Some useful words that often come up when you’re reading about mining altcoins or Bitcoin
- How to choose what to mine
- Finally, I’ll look at a few of the benefits of mining some of the top cryptos today
Table of Contents
- 1 What is Cryptocurrency Mining?
- 2 Mining Difficulty
- 3 Glossary of Cryptocurrency Mining Terms
- 4 What to Look for When Choosing a Coin
- 5 Mining Profitability Calculators
- 6 Long Term Potential of Project
- 7 Best Coin to Mine: Some Examples
- 8 Conclusion
What is Cryptocurrency Mining?Mining is a vital feature of many cryptocurrencies. Put simply, it’s the process by which transactions are checked to see that they follow certain rules of the network. Miners are encouraged to perform the necessary checks and verifications financially. This is done with the fees that are collected from users paying to send their transactions, as well as a special reward of new currency that gets released with every new block added to the chain. This type of payment is called the block reward.
A Breakdown of Cryptocurrency MiningLet’s look at a breakdown of what a cryptocurrency mining unit is actually doing to secure the network and release new coins. For simplicity, I’ll refer to the currency being mined as Bitcoin. The process is very much the same for all cryptocurrencies that require mining though:
- First, the computer checks a list of waiting transactions against the blockchain. They are making sure that none of the coins have been spent twice and each account or wallet has enough balance to send the Bitcoin transaction being requested.
- Then, the computer bundles these verified transactions into a block.
- Once a set of transactions is formed into a block, the miner must solve a sort of puzzle to publish the block on the chain. This puzzle is to guess the “hash” of the block.
Note: A hash is created by using a cryptographic algorithm to turn the text that represents all the transaction amounts for that block, as well as their senders and receivers into a string of characters. This string of characters is completely unique and can only refer to the block trying to be published. If you were to change some detail of the block’s information, the hash would completely change too. This is very important.
- When the mining computer system finally guesses the correct combination of letters and numbers of the hash, it can publish the block at the end of the chain.
- Since each block contains the hash of the previous block too, the chain cannot be tampered with. If someone was to try to alter the number of Bitcoin at a certain address, it would make every block in the chain (after the tamper) invalid.
Mining DifficultyA cryptocurrency network automatically changes the difficultly of the problems that need to be solved. This ensures that coins are released at a steady rate. If many miners are mining the network, the difficulty will increase. If very few miners are securing the network, it will be relatively easy to solve the problems. The difficulty of a coin also influences its profitability to mine. If your hardware is limited to GPU units, the best coin to mine will have a lower difficulty.
Glossary of Cryptocurrency Mining Terms
- Hash rate – how many guesses a miner can make at the hash of a block.
- ASIC – Application-Specific Integrated Circuit. These chips have been specially designed to mine cryptocurrency. They are expensive to buy and power hungry but are the best on the market for mining.
- Mining rig – A mining rig is a collection of CPUs, GPUs, or ASIC chips running together to increase the miner’s hash rate.
- GPU – Graphics processing unit designed to render 3D graphics. They can create more guesses at a hash than a CPU in the same amount of time.
- CPU – Central Processing Unit. A CPU is like your computers brain. It processes information given to it by computer programs. CPUs are also the cheapest, most readily available way to mine cryptocurrency.
- Proof of work – the process of guessing the hash is known as proof-of-work. Proof-of-work makes it very expensive to cheat a cryptocurrency network. It is a vital security feature of most blockchain networks.
What to Look for When Choosing a CoinIf you want to pick the best coin to mine, there is a lot to look. First, you need to think about what you’re mining cryptocurrency to achieve. To some, this will be obvious – immediate profit. Others will be considering their mining as a hobby that could make them very rich in the long-term. Finally, there are those people who want to mine cryptocurrency to secure a network. This is the case with many Bitcoin hobbyists. Whilst they won’t be making any direct profit, they are helping to decentralise the network. For them, mining the network is like paying for anti-virus software to secure your computer – everyone should be doing it. Short Term Profitability If you’re just looking for short term profits, you will have to stay up-to-date with changing mining conditions for different projects. Since the mining difficulty of each currency is constantly altering, it’s no good me telling you to point your hardware at one coin and for you to just let your hardware go to work at it. What’s profitable today might not be tomorrow! For this reason, it makes much more sense for me to explain how to discover what to mine yourself. That way, you constantly know the best coins to mine and can switch to mining altcoins that represent the most profitability at any given moment!
Mining Profitability CalculatorsOne of the easiest ways to check the profitability of each cryptocurrency is to use a mining profitability calculator. There are lots to choose from. One that I particularly like using is provided by CryptoCompare. All you need to do is enter some details and the calculator will show you which is most profitable out of BTC, XMR, DASH, ETH, ZEC, LTC, ETC, and PASC. Other calculators will show the profitability of other coins too. Finding out what to mine using the crypto compare mining calculator is easy. I’ve detailed the steps below:
- Enter the total hashing power (hash rate) of your mining rigs. Each GPU or CPU will have a different rate. You can check them here for non-specialised units (GPUs and CPUs), or here for ASIC chips.
- Enter the total power that your rigs consume in watts. This will be detailed somewhere on the specification page of a piece of mining hardware, or on the two links in the previous bullet point.
- Enter the price of your electricity. This will be in kilowatt-hour (kWh). You can get this from your electricity provider.
- Enter your mining pool fee if necessary.
Long Term Potential of ProjectAnother way to decide the best coin to mine is to look at the project’s long-term potential. It might not be quite the most profitable coin to mine today, but your mining could be a way to gather many coins before the price increases with future adoption. A coin like Ethereum would be an example of a project with huge long-term potential that might not be the most profitable today. One thing to note, if you are considering taking this approach to deciding the best coin to mine, is that you will have to decide whether your mining rig would be more useful mining a different coin and then trading that coin for your chosen long-term project. This will involve a little more work on your behalf (actually trading the coins as well as constantly checking which is the most profitable coin to mine), as well as some transaction and trading fees. Now that you’ve got some idea about Bitcoin and altcoin mining, and some ideas about how to choose what coin to mine, I’ll talk you through some of the most popular options for cryptocurrency mining today.
Best Coin to Mine: Some Examples
BitcoinBitcoin is currently the number one ranked cryptocurrency in terms of its market capitalisation. Unfortunately, this doesn’t mean it’s the best coin to mine in terms of profits. This is because there are so many ASIC mining rigs mining on the network already. For a miner who isn’t willing to invest literally millions of dollars on hardware, it’s not going to be worth mining Bitcoin. All that said, there is still a very good reason to mine Bitcoin – to increase decentralisation on the network. Many Bitcoin purists believe that only Bitcoin offers the level of immutability and censorship resistance needed for a truly decentralised currency. For them, the costs of running a small Bitcoin mining rig is a small price to pay to play a part in securing the most important of all cryptocurrencies.
EthereumLet’s look into the topic more to find out whether Ethereum could be the best coin to mine.
Ohanian and other bullish commentators are basing their predictions on the fact that applications can be built on top of the Ethereum network. There is talk of decentralised home sharing apps like Air Bnb or the equivalent of Uber’s ride sharing platforms being created on the Ethereum network. If one of these applications proves as successful as their centralised equivalents, the value of Ether tokens would shoot up. Of note as well is the Enterprise Ethereum Alliance. This group of some of the largest companies on the planet are currently testing out blockchain applications backed by the Ethereum network. If you look at the below screen shot from the group’s website, you’ll see that there are some rather impressive and exciting names that are interested in Ethereum.
MoneroMonero is a cryptocurrency with a very real use case already that already exists in the real world. Since it’s one of the most successful privacy coins, there are all kinds of reasons why people would want to use it. Let’s see in Monero is the best coin to mine.
There are plenty of Monero users who currently buy and sell things for Monero on dark web market places. But there are also many examples where privacy-focused coins are useful that aren’t illegal. There are even entire nations who are interested in Monero. Take North Korea, for example. The rogue state has been reportedly using Monero to evade economic sanctions put on them by the West. Even though the illegal applications of Monero might put some people off mining it, the privacy features of the coin would make it very difficult to crackdown on Monero’s use. After all, how can you police something you cannot see? It’s also very easy to setup a Monero mining operation. It can be done using the GUI version of the wallet software. This makes Monero one of the best coins to mine for absolute beginners.
ElectroneumElectroneum was based on Monero. This means that it’s just as simple to mine as Monero is. Again, the wallet itself has a very easy to use “mine” function that will start generating Electroneum with a click of a button. The decision by the Electroneum team to make their coin one of the easiest currencies to start mining was deliberate. Electroneum also has some big goals. The team behind it truly wants it to become the cryptocurrency of the unbanked. By making it easy for mobile phone users to use the inbuilt mining software connected with the default Electroneum wallet, they are hoping it will evolve into the most decentralised cryptocurrency. This easy way to mine the currency should give all those mobile phone owners in emerging economies a chance to partake in the digital economy without needing traditional banking services.
ZcashZcash is another privacy-focused cryptocurrency. One of the things that makes it a popular choice amongst cryptocurrency miners is that it ASIC resistant. This means that it is still very profitable to mine Zcash using the much cheaper GPU chips, so that is a huge plus when choosing your best coin to mine, if you don’t want to spend a lot on GPU. Thanks to its privacy features, Zcash is supported by the likes of Edward Snowden. He claims that its “privacy properties are truly unique”. The former NSA agent is (of course) something of an expert in protecting online data. It’s partly thanks to his exposés on the shady practices of various governments around the world that online privacy even received the mass attention it has done in recent years. There are Lots of Other Coins too! However, hopefully the tips I gave you about how to choose what to mine before the specific examples will help you to narrow down your choices for yourself.
ConclusionThat’s our guide to Bitcoin and altcoin mining. I hope you found it both entertaining and, more importantly, informative. As you can see, there are lots of different things to think about when mining altcoins. There’s immediate profitability, long-term success of a project, and even whether you want to mine a currency for some reason other than profits. In this guide we covered a lot, so let’s have a quick recap. I talked you through the following:
- What cryptocurrency mining is.
- How the process of cryptocurrency mining works.
- What we mean by mining difficulty.
- Some useful words you might come across when exploring learning about mining altcoins or Bitcoin.
- I then covered how to choose the best coin to mine. This involved looking at your goals as a miner.
- Finally, I talked about the benefits of mining some of the top cryptos today. I covered: Bitcoin, Ethereum, Monero, Electroneum, and Zcash.