What is Mining?
Mining is the process of authenticating cryptocurrency transactions in its ledger. Your computer ends up being an all day, everyday computer accountant verifying transactions. Every cryptocurrency has its own ledger that has a record of every transaction from the very first to the most recent. Every time a new transaction happens, it will need to be added to the cryptocurrency ledger or blockchain. Transactions are then added up until there is enough to reach what is known as block status. Then this block is sent offff to miners.
This process happens on many mining computers, all connected to a single peer to peer network. Miners use special hardware, software and data keys called ‘nonces’ to encrypt the block of data into a ‘hash.’ A hash is an identification sequence that includes all the block data. This sequence is added to the block which authenticates it. Then the block is officially added to the blockchain. It is now part of the permanent history of this cryptocurrency. To encourage people to willingly verify the network, miners get reimbursed for their efforts with cryptocurrency when they complete a block. Payment comes in the form of crypto coins and how much depends on the coin you are mining.
Things to Consider Before Mining
Initial & Ongoing Financial Investment:
To be able to mine you will need to have a computer system powerful enough to handle the task. Whoever verifies the block first gets payment, so the better your system is at outperforming slower miners, the more you will make. You will also need to pay to upgrade your equipment regularly. Competition is fierce for some coins, and people are constantly updating their equipment. This includes your software, wallet, and hardware. Stay on top of mining news and never feel like you can’t change your mind about the coins you are mining.
Mining is not a casual task. If you aren’t technically inclined you will need to learn about hardware, the specific software your chosen coin will need, encryption, and be willing to monitor the conditions of the market for the coin you are mining.
Bitcoin vs. Altcoins:
Bitcoins have become very difficult to mine for individual miners. Entire mining pools have been created for the sole purpose of mining Bitcoins, and the difficulty level of Bitcoin has surpassed what an individual miner can achieve. The hardware cost alone could prove to be too much. You do have the option of mining an altcoin though such as Litecoin. The difficulty level, hardware requirements, and power consumption usage are generally less and the payouts high enough that it is worth the effort. Choose wisely; there may be significantly fewer transactions for less popular coins. Do your research to see what coin is worth the effort.
If you still hope to mine Bitcoins or aren’t quite ready to mine alone then joining a mining pool is the recommended path to take. When mining solo, payments are only awarded when you are the first to validate a block or whatever other milestone that coin has. If you aren’t the first, your efforts go unrewarded. If you are competing alone against stronger mining computers, you may never receive a payment. This is where mining pools come in. Users band together to mine as a group, and all payments are divided amongst the group. It is split based on how much computer power you have been contributing. As you can see, this increases your chances of payouts.
Generally, each altcoin has different mining pools. Some pools will actually switch between currencies based on that coin’s position in the market. To find a pool, you can find the community site for the coin you are interested in places like Reddit. When deciding which pool to join there are some important questions you need to have answered. How long have they been in existence? What fees do they charge? Do they divide coins by computer power or another measure? On, average how often do they find blocks? What are the reviews saying about them? What ways can you withdraw?
What You Need to Get Started
What you need to get started might vary between coins but let’s assume you would like to start mining an altcoin such as Litecoins. Here is a general list of what you will need to acquire to make that happen after we cover a few of these requirements in a little more detail.
A wallet: This is a password-protected container that stores your currency.
Mining software: This is free, and for Litecoin you will need CGminer and Stratum.
Mining pool acceptance: Assuming you would like to join a pool, which is recommended for beginners; working together increases your chances of earning coins.
Register with a cryptocurrency exchange: This is where you will trade your mined coins into another cryptocurrency or fiat money; not all exchanges accept all cryptocurrency types and/or exchange for fiat money.
The best internet you can afford: You will need a reliable full time and fast connection speed. If you live in an area where this is difficult, mining might not be possible for you.
A cool space: Your machine will give off heat, and this could be a lot in some cases. You will need a spot in a cool basement or other constantly air-conditioned space to help keep your system from overheating.
Your mining computer: Yes, you can use your regular computer to start mining, but you won’t be able to do anything else on it while you are mining. Instead, use a dedicate a desktop or custom-built computer to mining. Forget trying to use a laptop, tablet, cellphone or game console to mine. They aren’t powerful enough to be effective.
A GPU or ASIC Chip: A GPU is a graphics processing unit, and an ASIC chip is a special processing device used specifically for mining. This is where your pocketbook is going to take a hit. The cost will be anywhere from $90 used to $3000 new for each GPU or ASIC chip. The GPU or ASIC will take care of the processes needed in mining validation. With the growing popularity of mining, there been supply shortages of both so you might not be able to find either to purchase.
A fan: Like we mentioned before mining generates a lot of physical heat. You will need a strong fan to constantly blow air across your computer. If you can manage to get a case with multiple heavy-duty fans built in that would be a bonus.
Time: This isn’t something that you set up to run on your computer, and you step away. The best miners spend hours every week constantly learning about ongoing technology improvements and how they can improve their mining performance
Let’s dive a little deeper on the topic of mining hardware. You will need to decide whether you are going to use a CPU miner or a GPU miner. Some mining software is specifically designed to use your computer processor (CPU), and others are meant to your computers graphics processor (GPU).
It is true that GPU miners are more efficient than CPU miners but only if you have a discrete graphics card. Many places will recommend that you use AMD cards for altcoin mining. Be aware that supplies might be limited, and these prices might have increased dramatically because of this detail. If you are planning to mine on a less powerful computer with integrated graphics, then use a CPU miner. You are going to need to watch the heat and power usage from either setup. There are diagnostic tools available specifically to monitor common mining issues like those.
ASIC boards are meant to mine Bitcoin primarily because many altcoins use a different mining algorithm called ‘scrypt’ that isn’t compatible with ASIC boards. So, unless you plan on taking on the challenge to mine Bitcoins, stick to a GPU or CPU.
In a previous section we covered all the different types of wallets, you can purchase to use to store cryptocurrencies. They all come with different features, including amount limits and payment frequencies. If you don’t have a wallet, then it best to review the types that are better for mining. It isn’t uncommon for traders and miners to have more than one type that they use. Learn how to use them before starting to mine and ensure that you know your keys and they are kept safe!
It’s time to choose the mining software that best suits your needs, and there are many options to choose from. This software should allow you to control your mining process as well as check out your mining computer to make sure it is all running at optimal levels. For those with a background in computer technology, it will seem familiar as some features are like overclocking a processor. If you don’t have much experience in this area, then GUIMiner might be a good choice for you. It has a very easy interface to learn. If you have more experience, you can try out 50Miner or BFGMiner. For those of you on Mac computer, you aren’t excluded, try MacMiner.