- Marco Fisher
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- Published: October 10, 2018
- Modified: January 13, 2021
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Now that cryptocurrency has proven that it’s here to stay and will play an integral role in the future, you might be wondering how to get your hands on some of it. Of course, you can just buy your cryptocurrency of choice, but you could also learn how to mine it yourself. How to mine cryptocurrency? And what is ‘mining’ exactly? Is this a feasible way to turn a profit? In this article, we’ll go over all of these questions and more so you can see for yourself if mining is for you!
Mining cryptocurrency (for example Bitcoin or Ethereum) is basically verifying a transaction in a blockchain (adding it as a block to the public ledger which keeps track of the transactions), but it’s more than just the process of ensuring that the entire system stays secure…It is also a way to invest in the technology while being rewarded at the same time.
The best part about cryptocurrency mining is that it is part of a decentralized system so you can join a team of miners from almost anywhere around the world to accomplish some amazing things and make money.
In this article, we’re going to show you how easy it is to get started, what you need, and what to consider before you start mining. If you’re looking to learn more about cryptocurrency in general, you can also check out our cryptocurrency guide!
The Complete Checklist for How to Mine Cryptocurrency
While it is possible for anyone to volunteer to be a cryptocurrency miner, there are a few requirements you’ll need to consider before jumping into it head first and thinking you can make quick cash.
This includes equipment, processing power, as well as a few other considerations like legal requirements. Here’s our complete checklist:
Check that you have the required hardware
Computers
Depending on your cryptocurrency of choice, it might be in your best interest to invest in a high power, high performance computer. This computer is going to need to run 24/7 constantly working towards processing transactions.
This may mean that you need to have its resources 100% dedicated to mining, and that mining on a personal computer may not be an option.
However, keep in mind that this might not always be true as some cryptocurrencies may be designed to run more efficiently and be more compatible to run on your personal computer at home. You will have to look into what type of cryptocurrency you want to mine and see which technical requirements this will entail.
Electricity
One of the things you’ll quickly learn about mining cryptocurrency is that it takes constant, steady electricity so you can continue mining uninterrupted. For miners, this will be a consistent overhead cost that you’ll have to address and take into account.
If you live in a country where reliable electricity is cheap and readily available, mining can be a great investment option at a possibly reasonable cost!
Software
Every miner will need to install special cryptocurrency mining software so the computers process the correct algorithms for the mining process. For example, if you’re looking at making an income with Bitcoin, software that is associated with Bitcoin will not be compatible with Ethereum mining software and vice versa. So, make sure you have the proper software tools!
Set up any necessary cryptocurrency wallets to store your mined coins
For any cryptocurrency you want to mine, you’ll also need the associated wallet set up so you can have you coins deposited into the wallet. Each cryptocurrency has its own wallet, so you need to set up one for each currency you’re interested in.
Check that you comply with your country’s legal requirements
Keep in mind that despite the fame of cryptocurrency, it’s still a very new concept that has governments concerned with how to interact and regulate the technology.
Some countries have put restrictions on how people interact with cryptocurrency trading and mining, while others have banned it all together. So before you start learning how to mine cryptocurrency, check to make sure that there are no laws stopping you.
Another thing to keep in mind as a miner is to make sure that you specifically comply with your local laws. This is aimed at staying legal with regards to electrical codes and consumption.
If you are going to do a larger mining setup, you need to make sure that your local power company can supply the electricity you need, and if there are any limits to how much you are legally allowed to consume.
Finally, as you start mining and earning from mining cryptocurrency, check to see how your government prefers to handle declaring cryptocurrency earnings on your income taxes.
Ensure that you have set specific goals for your cryptocurrency ventures
One thing that cannot be stressed enough prior to investing or joining the cryptocurrency mining world is to do research before jumping in! There are many types of cryptocurrencies out there and some of them might be on the verge of booming, while others aren’t quite there yet.
However, you have to make sure that you read about the cryptocurrency, technology, and its goals to make sure that it’s something you think is worth investing in.
Yes, there may be some cryptocurrencies where mining them will cost more at first. But if the cryptocurrency reaches its goal and its value booms then all the coins you own from mining might be worth hundreds or thousands of dollars per coin!
To get to that point you will most certainly need to do your due diligence and find what cryptocurrency works for you before you invest time and money.
Use a cryptocurrency mining calculator to verify if your predicted coin output is worth what you’re spending
One tool to help assist you decide if the cost for mining is going to pay off is to use a cryptocurrency mining calculator (This may not be available for all cryptocurrencies, especially the newer ones).
If you look up a Bitcoin, Ethereum or Litecoin calculator, they can help you find out if the potential money you can make will help you reach your investment goals, as well as what would be the easiest cryptocurrency to mine to achieve your return on investment.
To get as close to an accurate calculation as possible, make sure to factor in
- Any computers and software you may need to get started
- Your monthly costs such as rent and regular electricity bills, if you have a dedicated space just for mining
If you are joining a mining pool you’ll have to check to see the average pay outs given to the pool and how much of the share you would receive if you joined them.
Decide if you’d like to mine cryptocurrency yourself, participate in a mining pool, or get into Cloud Mining
In cryptocurrency mining you have 3 options:
Solo mining
Individual mining usually means that you’ll have your own setup dedicated just for mining a specific cryptocurrency. You will have to purchase one or more computers to set up a cryptocurrency mining rig with the sole job to mine and nothing else.
You receive cryptocurrencies based on how often you can confirm a transaction. So, if you have only 1 computer mining for a cryptocurrency as large as Bitcoin, the chances of you confirming a block as fast as someone else with a full warehouse with 100 mining computers are slim to none.
But if you are working with a cryptocurrency that doesn’t have a lot of miners to compete with, this can be a viable option for you.
This can also work if you are interested in investing in 100 computers and a warehouse dedicated just for mining. But if you are to go this route it is important that you make sure that your warehouse is well-ventilated or climate controlled, your electricity and power cords are all properly wired and regularly inspected by a certified electrician, and that your mining computers are safe.
No one wants to see an investment like that be stolen, damaged or destroyed by a faulty wire!
Mining Pools
The more popular and recommended option for people still learning how to mine cryptocurrency is to join a mining pool. This means you would join another group of people in cryptocurrency mining and split the winnings each time you confirm a block.
How can you do that?
One way is that you and a group of people you know can set up your own mining pool. Much like individual mining you would share the expenses and resources to build and maintain your own mining centre. If your mining efforts are successful, then you and your mining pool share the winnings from each confirmed block.
Another method to do this is to join one of the bigger mining pools. This means that you would pair your mining resources to an existing and larger pool and share winnings each time a block is confirmed.
Mining pools are great if you prefer to mine for the bigger cryptocurrencies and also have limited resources to contribute to mining operations. The downside to this is that your earnings may not be as high if you join a big pool, but you might be paid on a more regular basis.
When you look for a mining pool a few things to look for are: reputation or hash power, fees, and payouts. Hash power is the speed at which a miner or pool can solve the cryptocurrency code and it will determine how much the pool contributes to overall cryptocurrency mining efforts.
Usually the higher the hash power, the higher the success.
Fees and payouts for a mining pool will be different for each one.
Cloud Mining
Instead of buying all this expensive equipment yourself, wouldn’t it be nice if you can just rent it?
That’s exactly what cloud mining is!
A cloud mining provider rents out their mining hardware and software for a fee. You’re basically buying hash rate power from them. This is a much cheaper as you will not be spending a lot of money to buy equipment.
This process makes you one of the participants in a cloud mining pool and is by far the best option to mine cryptocurrency because cloud mining is very easy to understand and you don’t need a lot of technical knowledge to start.
Two providers we can recommend are Genesis Mining and Hashflare. They’re very easy to use and require you to do very little work. You just have to sign up for a plan, sit back and watch the cryptocurrency of choice come in.
How Much Can You Make from Mining Cryptocurrency?
In case you’re wondering how much you can make from mining, it depends on how much you’re willing to invest. Some people are earning $16 per day by just investing a little bit of computer power into mining cryptocurrency.
Meanwhile, others are able to earn somewhere upwards of $700 per day! So if you’re serious and want to learn how to mine cryptocurrency, it really can be an excellent investment for making money online.
Does it take any physical labour to mine cryptocurrency? Nope, apart from setting up the computers. Once you get everything up and running you just let your computers do the work. It’s actually a very easy way to earn a passive income!
The best thing about mining is that you don’t need to purchase cryptocurrency either to start earning income: The process of mining itself gives you the reward of the currency! It’s also a great alternative to having to build a cryptocurrency trading portfolio and watch market graphs all day.
Cryptocurrency Mining and the Blockchain
So, what is cryptocurrency mining and why has it grown to be so successful and profitable? Part of the reason is the revolutionary technology and coding behind cryptocurrency!
Prior to the rise of cryptocurrency, the question of data ownership and security has been an obstacle in the tech industry for a long time. The use of cryptography and blockchain technology has made it possible to bring a layer of security and decentralized ownership that hasn’t been attained before, which is why cryptocurrency and the topic of how to mine it are such a big deal today.
The beauty of a decentralized system for blockchain technology is that it’s built on volunteers who want to contribute their time and resources making cryptocurrency mining full of opportunity for investors.
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Learning how to mine cryptocurrency and joining in mining efforts not only helps further cryptocurrency growth, but also can be rewarding as an investment and help you make extra money.
There are two final items to clarify though:
Security and Confirmation
Blockchain technology works as a form of security by creating permanent “blocks” of code that can be used to reference the authenticity of transactions.
If someone buys a pizza using cryptocurrency and they hit “purchase”, the blockchain code from the cryptocurrency they are spending is going to be compared for confirmation.
That means that, for example, 10 miners with records of this cryptocurrency code will compare each other’s codes and the pending transaction.
Once both the code and the transaction are confirmed, the “purchase” is approved, and the new transaction will be added to a “block” in the cryptocurrency’s blockchain.
Due to the design of blockchain, if someone were to try to hack the system, it would have to hack more than 50% of the miners’ records to get their transaction approved. If you’re saying this is possible, yes, it can be done in theory.
But having a decentralized system with millions of volunteers from around the world working together to confirm transactions makes the option of simply “hacking” hundreds of random computers tricky and quite a feat to accomplish.
How to Create Cryptocurrency
One of the ways to incentivize miners into volunteering in learning how to mine cryptocurrency is the reward system. Since there are multiple miners working on the same transaction, the miner (or mining pool) who can confirm a block first will be rewarded with a predetermined number of newly created coins as a reward.
When thinking about building a group of investment funds for the long term, you’ll need to weigh all of the possible options and costs involved against the possible payouts and rewards.
MoolahNinjas’ Detailed Cryptocurrency Mining Guides
Here is our list of full mining guides for specific cryptocurrencies at MoolahNinjas. You can click on each one to find out the details involved with each coin:
So, Why Should You Mine Cryptocurrency?
So in light of all of this, why should one learn how to mine cryptocurrency?
Is it really worth the investment?
For many who do participate, they don’t see it as only in terms of cryptocurrency mining profitability, but that they are also in sync with the technology.
The revolution of blockchain technology has many excited for what the future can hold. So learning how to mine cryptocurrency has really turned into an active step for anyone to join in on the development of the future.
But from a financial standpoint, mining is definitely an option for making a profit with cryptocurrency. Letting a bunch of computers do the work to mine and be rewarded means that the investor doesn’t have to contribute as much after the initial investment. If you are excited about earning cryptocurrency, this may be a great avenue to add to your investment strategies.
Overall, learning how to mine cryptocurrency is a step beyond just an investment move. It’s also a step towards supporting the growing blockchain industry and its future in an ever changing world. So if want to find a unique way to create passive income, are willing to contribute some resources and want to participate in something exciting, then mining might be an awesome option for you!
