Can anyone mine cryptocurrency? Yes, you can. This article helps you understand whether crypto mining is really meant for you. This question has restarted popping up again as the Bitcoin price bounced back a year back and touched an all-time new high on December 1, 2020. So, without any further ado, let’s check what is cryptocurrency mining, how to do it, what are the different types of mining, and how it is still highly profitable.
Why does Crypto Mining matter?
Cryptocurrency mining is considered rewarding by many investors because mining rewards the miners with crypto tokens. They say the crypto miners consider mining in the same way in which California gold prospectors used to see gold in 1848-55 during the Gold Rush. If you have a flair for technologies, you should give it a try.
Crypto Mining matters because it helps you earn Bitcoin and other cryptocurrencies without having to put down money. You earn them as rewards for completing blocks of verified transactions by solving a complex hashing puzzle first. The probability of whether you (a participant) will discover the solution is dependent on the network’s total mining power.
The Bitcoin or altcoin reward that crypto miners receive is given by the network for motivating people to assist in mining crypto coins. The mining process includes legitimizing and monitoring BTC transactions as well as ensuring their validity. Therefore, all the responsibilities are spread across many users all across the globe, making it a decentralized cryptocurrency. No central authority is there to oversee a digital currency’s regulation.
What is a Crypto Miner? What are the Different Types of Cryptocurrency Mining?
A crypto miner helps in mining cryptocurrencies and in return gets cryptocurrencies as rewards. Crypto networks help provide rewards to miners because the latter helped in solving the crypto network to solve a complex hashing puzzle.
As Bitcoin is the main cryptocurrency with a weightage of more than 79% of the cryptocurrency market, We’ll discuss mainly Bitcoin mining. Bitcoin can be mined in two ways: personal/individual mining and cloud mining.
1. Individual Mining:
Bitcoin can be mined by an individual by using his/her own mining rig. It is costly because the installation of a single rig needs a lot of initial capital. In fact, the maintenance cost is also very high as it consumes a lot of electricity.
Currently, there are 3 existing mining methods:
. ASIC Mining: You can mine Bitcoin and other SHA-256 algorithm based altcoins (such as Zcash) by using ASIC mining.
. GPU Mining: This method is usually used for ASIC-resistant algorithms such as Ethereum Classic (ETH), Zcoin (XZC), and Ravencoin (RVN). Ethereum Classic is the safest bet for most AMD Radeon video cards.
. CPU Mining: It is an obsolete method of mining and profitability is also limited. Monero (XMR) can be mined with a CPU-friendly algorithm.
2. Cloud Mining:
This mining process has come up as a popular mode of mining, which utilizes a remote datacenter (usually rented) with shared processing power among crypto miners.
So, you can mine Bitcoin or altcoins without having to manage the hardware. Unlike individual mining, you generally have to pay some cost (usually a one-time payment) for a contract. As the investment is small, the returns for the miners are also lower. However, it provides you with a continuous passive income, where you usually receive earnings at the end of every month.
How Does Crypto Mining Work?
How do Miners get Paid ?
If you are a crypto miner, you get paid for your work as an auditor. Your work involves verifying the legitimacy of Bitcoin transactions. Bitcoin’s founder, Satoshi Nakamoto, had conceived this convention as he believes that the problem of double-spending can be prevented by verifying transactions.
What is Double Spending?
It is essentially a scenario in which a Bitcoin is spent twice. Double spending essentially happens when a blockchain network is disrupted and the Bitcoin or any other altcoin is stolen. To make it look real, the Bitcoin thief can do two things:
– Either send a copy of the currency transaction so that it looks legitimate
– Erase the transaction altogether.
The blockchain thief can make it look like that a transaction never happened by sending multiple packets to the network and thereby reversing the transactions. Double spending can also take place when a hacker or thief steals the cryptocurrency from a wallet that was not secured properly.
How does a crypto-miner help to prevent double-spending ?
A miner looks at serial numbers of both the transactions and finds out which one is genuine and which one is fake spending. Bitcoin miners make sure that users have not spent the same BTC twice.
1 Megabyte (MB) of Bitcoin transactions is known as a “block”. A miner becomes eligible for receiving rewards once 1 MB worth of Bitcoin transactions are verified. However, making a crypto coin miner eligible for earning Bitcoin doesn’t verify that he/she will receive Bitcoin as a reward.
Two conditions should be met for earning Bitcoins:
- Effort: Verify ~1MB worth of transactions and get eligible to get BTC reward.
- Luck: Become the first Bitcoin miner to arrive at the right answer or the closest answer to a numeric problem. It is known as proof of work.
To get the right answer to a numeric problem, a miner doesn’t have to solve difficult mathematical problems. He/she has to become the first Bitcoin miner to come up with a hash (a 64-digit hexadecimal number), which is either less than or equal to the target hash. Though it should be your best guesswork, it is not that easy. It is incredibly arduous work because the total number of possible guesses for each of these problems can be on the order of trillions.
A crypto miner would need a lot of computing power to solve a problem. For successfully mining crypto, you will need a high hash-rate, which is measured in terms of MH/s (megahashes per second), GH/s (gigahashes per second), and TH/s (terahashes per second). If you want an idea about the number of Bitcoins you can earn, you can check the Cryptocompare calculator.
Mining Bitcoin also includes the release of new Bitcoins into circulation. As of November 2020, there are around 18.5 million Bitcoins in circulation. All these BTCs, except for the ones that were minted from the genesis block or the first block created by the founder Satoshi Nakamoto, are minted by the crypto miners.
The Bitcoin network can still thrive without mining. However, there will be no new Bitcoin in the network without mining. The Bitcoin Protocol mandates that there can be a maximum of 21 million Bitcoins in the network. As the rate of Bitcoin mining has decreased over time, the final Bitcoin will come into circulation around the year 2140.
However, even after the last BTC comes into circulation, the miners will keep earning rewards for verifying transactions and keep the Bitcoin network’s integrity intact.
Besides the short-term payoff in terms of Bitcoin, a miner can also get “voting” power in case of proposed changes in the network protocol. Therefore, you can earn a certain degree of influence on the Bitcoin network’s decision-making on matters such as forking and others.
How much can a Cryptocurrency Miner Earn?
The reward for Bitcoin (BTC) mining is halved every 4-years. Now, let’s see how much Bitcoins you could have earned since 2009, the time when BTC was first mined.
- In 2009, a crypto miner would have earned 50 BTC for mining one block.
- In 2012, the reward rate was halved and a miner would have earned 25 BTC for mining a single block.
- By 2016, the reward rate was halved again to 12.5 BTC for completing a single block.
- In mid-2020, the reward rate was again halved to 6.25 BTC for completing a single block.
With the BTC/USD pair closing at US$19,191.63 on December 7, 2020, you could have earned around US$119,947.69 (US$19,191.63 x 6.25 BTC) for completing a block. This is definitely a decent reward for a miner. You can check the Bitcoin Clock to precisely keep a track of the time when the halving takes place.
What are the Best Cryptos to Mine in 2020-21?
The 5 most profitable cryptocurrencies to mine are:
What are the Other Ways to Earn from Cryptocurrencies (besides Mining)?
You can earn from cryptocurrencies by adopting any or a mix of the following ways:
1. Buy Bitcoin through Crypto Exchange
You can purchase a cryptocurrency or its function through any cryptocurrency exchange such as Coinbase, Binance, Bitfinex, Kraken, Huobi Global, and others.
- Strategy #1: Take a Long Position
Take a long position by buying at the beginning of a rally and selling it at the end of it. You could have around 170% return YTD if you had bought Bitcoin (BTC) at the beginning of the year.
- Strategy #2: Take a Short Position
Always take a short position when the market is falling. You can sell the Bitcoin at a higher price level and buy it at a lower price level (as price drops), helping you to make money when w
- Strategy #3: Buy and Hold
It is the most common, time-tested, and proven strategy for investors to make money from cryptos. Buy Bitcoin (BTC) and hold it until its price increases to a level, as per your preferred return.
- Strategy #4: Automated Trading
Crypto trading bots can be put on autopilot and trade automatically. AI-driven bots give you an edge over other investors as it trades automatically on your behalf and books profit when other investors are sleeping.
Trading Bots (such as NapBots.com) are cloud-based platforms on which you can connect to major exchanges (such as Binance, Bitmex, Bitfinex, OKEX, Kraken, Bitstamp, and Bitpanda). Even a beginner with zero skills can start trading and earning passive income.
While putting your automated trading bot on autopilot, always keep in mind that these bots are AI algorithms. It is not a “Sell it and Forget It” type of trading instrument. To get the best return, you must tweak bots as per the market condition that changes multiple times in a day.
Though the trading bots provide good returns, automated trading doesn’t guarantee profit all the time. It can provide you astonishing returns with hourly strategies. As the crypto market is very volatile, you should expect to see losses from time to time too.
This is an actively managed fund that invests in companies that are developing blockchain technologies. BLOK comes with a 0.70% expense ratio and provides you with good returns.
3. Bitwise 10 Private Index Fund
It is a traditional ETF type of index fund that is based on the Bitwise 10 Large Cap Crypto Index. The minimum investment criteria for this fund is US$25,000.
You have to set up a staking wallet so that you can hold crypto coins in it. You simply have to add or delegate funds to a staking pool to stake. No technical requirements are there for earning passive income through this method.
5. Lending Cryptos
You can make money by lending to peer-to-peer (P2P) lending platforms and consequently earning interest payments. Either earn on the basis of the current market rate or the interest rate set by the platform (which is a fixed rate).
6. Run a Lightning Node
Lock up Bitcoin (BTC) into the payment channels by running Lightning Network, thereby increasing both capacity and liquidity. You earn by collecting the fees of the payments that run through their channels.
7. Affiliate Programs
Participate in the affiliate programs of some cryptocurrency businesses to earn money. Simply refer more users to the platform and make them trade or transact to earn a referral reward for every new user you bring in.
Earn passive income by holding the forked crypto coins at the hard fork date. You can earn a token balance on both cryptocurrencies if two competing chains happen after the hard fork.
Own a wallet address at the time of airdrop. So, look for cryptocurrency exchanges that offer airdrop facilities. However, keep in mind that you have to share your private keys to receive an airdrop.
10. Blockchain-based Content Creation Platforms
Monetize your content through Distributed Ledger Technologies (DLT) based content platforms without including intrusive ads. You can earn a steady source of income once you have created lots of content.
Masternodes are similar to servers on decentralized networks. They are special because these master nodes have certain additional functionalities, which the nodes don’t have to perform. To maintain the stability of a network, special privileges are offered by certain token projects.
If you still need assistance, you can refer to the following step-by-step purchasing guides for the various payment methods: