Mining Cryptocurrency: Everything You Need to Know
The Basics of Mining Cryptocurrency
With the rise of cryptocurrencies in full force there is a massive curiosity as to what digital currencies are all about. Almost everyone has now heard the term ‘mining cryptocurrency’ too, and there is plenty of interest in the practice as a potential way to make money off the recent digital currency hype.
There are an estimated 1,037 different types of cryptocurrencies, and 626 of these have listed market caps of a minimum of $100,000. Bitcoin may be the most well known, but Ethereum, Ripple, Litecoin, NEM, Dash and IOTA are also attracting attention and market share.
Possibly the biggest benefit about mining cryptocurrencies, or ‘altcoins’, is that you can get into the industry virtually for free. Buying Bitcoins costs hundreds of dollars, but the world of mining is open to hobbyists and investors alike and getting started is relatively simple. We’ve broken down everything you need to know about cryptocurrency mining to give you a head start.
What are ‘Altcoins’?
Most people have heard of Bitcoin, but altcoin might be a new term to you. ‘Altcoin’ is an all-encompassing term that covers cryptocurrencies based on the Bitcoin system, apart from Bitcoin itself, of course. Due to the fact that Bitcoin runs on open-source software, anyone with basic experience developing or C++ would be able to copy the code and create his or her very own currency in a matter of days.
However, like Bitcoin or any other cryptocurrency, the value of altcoins is equal only to how much a target community values it at, and is willing to pay for it. Popular altcoins like Peercoin, Litecoin and Dogecoin have very active communities, which drive up the value of the currencies and make them tempting prospects for investors.
What Does ‘Mining Altcoin’ Mean?
To answer the question of what it means to mine cryptocurrency, you must first understand how they work. Let’s take Bitcoin as an example. Every time somebody spends 1 Bitcoin, the transaction is recorded in a public ledger, which means everyone’s Bitcoin wallets and their contents are open for the public to see. For this system to work, the ledger must be completely reliable, and it must be impossible for people to record fraudulent transactions.
Bitcoin uses cryptography to achieve this, which requires many computers that are connected to one single peer-to-peer network. In order to encourage people to join the network, new Bitcoins are generated frequently and are awarded to the computers that actively maintain the public ledger, and it is these that miners collect and store using various algorithms.
Ins and Outs Of Mining Altcoins
As the values of Bitcoin and other cryptocurrencies have climbed steadily over the past few years, mining them has become a very lucrative business. Almost every ecommerce sector, including online gaming, has been looking at new payment solutions and technology that can be used to generate and streamline revenue, and Bitcoin has featured heavily. Companies have even designed chips specifically for powering the cryptographic programmes Bitcoin requires for mining. These ASIC chips are incredibly adept at mining, making it very hard for typical, all-purpose computer hardware to compete.
With that said, it is still possible to successfully mine altcoin using ordinary PC graphics cards, like the AMD Radeon R9-280. It is for this reason that the price of graphics cards has increased so much over the past few months – mining hobbyists have been frantically setting up their own rigs in an attempt to cash in on the profits!
Many altcoins use a different kind of algorithm called ‘scrypt’, and ASIC boards cannot be used in these cases. However, you may still be able to earn altcoins using a mining programme on your personal computer, and then spend the altcoins or exchange them for Bitcoins. Once you have mined altcoins, it’s a good strategy to wait until the currency’s value skyrockets until selling, much like financial trading! Unfortunately, the fact that it is so easy to mine altcoins lowers their value significantly, which is something to bear in mind if you plan to attempt mining at home.
How to Mine Altcoins
This part is fairly simple; you will need to write a short script to run in your computer’s command prompt. First, you will need to choose a currency to mine, and visit that currency’s home page. Next, download the client, which will allow you to store your altcoins in a virtual wallet on your PC.
Once you have installed the client, it will need to download the whole Blockchain for the altcoin you have chosen. It’s good to note that this process could take hours, so many opt to do it overnight. You can also join a mining pool while the process is in play. Which brings us to another big decision that needs to be made: should you pool or not?
To answer this, you must decide whether you want to mine on your own, or participate in a mining pool. Payments from Bitcoin mining do not come in a steady flow, but instead appear in random chunks when certain milestones are reached, and are paid to the person that reaches them. If you do not have a whole network of advanced mining PCs, your chances of hitting these milestones and receiving the payments are slim.
In a pool, many miners create a group and split payments according to the computing power they contribute. More computing power equals faster mining, and by joining a pool, your payments will be infinitely more reliable. Each altcoin has different dedicated mining pools, and some switch between cryptocurrencies as their values grow and fall.
You’ll also need to choose whether you wish to use a CPU miner or a GPU miner. These software programmes use either a computer’s processor or its graphics processor, with GPU (graphics) mining being much more efficient with the right card. If you have a laptop or a low-end PC, CPU mining is recommended, just be careful to keep an eye on your power usage and heat.
If you are interested in mining there are many comprehensive guides available online detailing exactly how to mine cryptocurrency, set up your PC wallet, and more.
Pitfalls of Mining Cryptocurrency
Mining may seem simple enough at first glance, and can in many cases be lucrative. However, there are a few disadvantages to navigate as well. First, the value of digital currencies like Bitcoin can fluctuate tremendously, It is true that all currencies fluctuate in value, but cryptocurrencies tend to be much more unstable than fiat currencies like the Dollar, Pound or Euro. Bitcoins have been seen to decrease in value dramatically the minute a technical glitch occurs, or simply when people start trusting it less. As altcoin mining is ultimately a lot like trading, this can significantly affect sellers’ profits.
There is also no protection when it comes to dealing with cryptocurrency transactions. Cryptocurrencies cannot be ensured, and if you accidentally lose your wallet by deleting it or wiping your hard-drive, then your coins will be lost forever. To combat this, remember to regularly back up your hard-drive to minimise the chances of something going wrong.
Are There Any Successful Cryptocurrency Miners?
There have been plenty of recent success stories about mining Bitcoin, but many of them belong to massive firms who have dedicated thousands of dollars to setting up powerful peer-to-peer networks to mine cryptocurrency. Your success as a Bitcoin or cryptocurrency miner will largely depend on how much you are willing to spend, as well as a few other key factors like hash rate, Bitcoin difficulty, and electricity rate.
Mining profitability calculators are a great way to estimate whether or not your mining ventures will be successful, taking into account the costs of your hardware and electricity and giving you a projected profit estimate. Successful miners also tend to be those who join pools and create the largest network possible, and while you will be sharing your profits, a mining pool is probably the best way for you to make tangible cash using altcoin mining.