Cryptocurrency mining: what it is, types, how it is done, how much profitability is obtained and expenses

The term " cryptocurrency mining " is one of the most heard in this growing community. Since, it is about the way in which digital currencies are created; such as Bitcoin (BTC), Dogecoin (DOGE), Ethereum (ETH) or others.

If you are new to this world, it is sure that you are wondering what this technology consists of and how to take advantage of it; since surely you have heard of the great rewards that being a miner can bring. For this reason, today we show you a complete guide on everything you need to know about cryptocurrency mining .

What is cryptocurrency mining?

Simply explained, it can be said that cryptocurrency mining is nothing more than an activity carried out in a token that has the Proof of Work (PoW) protocol, which is used to promote network security .

They are computational jobs that must be carried out by the so-called “cryptocurrency miners” with specialized equipment. For performing this activity and guaranteeing a high HASH rate, the miner is rewarded after a block has been validated on the Blockchain of the digital asset.

Let us remember that the Blockchain or chain of blocks is like an accounting book in which the information of each transaction that is carried out with a certain crypto is stored. And these blocks are made up of operations (transactions) that miners must validate.

This data validation is done using the computational power of the latest generation GPUs or video cards; Although currently, due to the increase in mining difficulty , it is necessary to use specialized equipment that offers a higher HASH rate to obtain more attractive rewards.

Types of cryptocurrency mining and methods to do it

As mentioned, cryptocurrency mining is used to validate the authenticity of transactions and ensure a secure network. Therefore, it can be said that there are no types of mining , since the protocol (PoW) will always be the same.

However, there is another type of protocol known as Proof of Stake or PoS, which can be classified as a different type of mining because it has a similar function to PoW; although it is technically known as staking . In addition, it is also possible to carry out this activity in multiple ways, starting with:

1. Mining in Pools

This is a widely used modality for mining, since it can offer great rewards to the miner . However, there is a great risk when joining a mining pool; like the scam, for example.

This is because a pool is nothing more than a group of miners that come together to guarantee the network greater computing power through the union of their teams.

Clearly they will be able to get higher rewards because the higher the HASH rate, the more likely they are to be incentivized with tokens; that depending on the crypto mined it could become very profitable.

2. Proof of Stake (PoS)

This is a different consensus protocol than PoW or Proof of Work. Since it does not require specialized equipment , it will only request that the user possess the digital asset they wish to mine. Therefore, a high investment will not be required to start generating profits.

If you want to know everything about this type of mining, we suggest you read the cryptocurrency staking article . There we explain in detail what Proof of Stake is, also called cryptocurrency staking.

3. Mining with GPUs

At first we pointed out that cryptocurrency mining must be carried out with specialized equipment today. This is because the mining difficulty has increased considerably, so mining with GPUs or graphics cards is no longer as profitable.

Even so, it is a type of mining that can be used in digital currencies that do not have a high difficulty; such as Ethereum (ETH), Dogecoin (DOGE), Litecoin (LTC), among others.

It basically consists of placing your computer to mine with special software that is downloaded from the official website of the desired currency. To do so, you must have a next-generation graphics card or GPU ; since this way you can offer a higher HASH rate, and therefore, better rewards.

4. Mining with specialized equipment

Going into more detail, we come to the type of mining with specialized equipment; where the AntMiner brand miners mainly stand out . Since, they offer a wide HASH rate to investors, and also guarantee high rewards .

However, these equipments consume a high amount of electrical energy, they also demand a stable and fast Internet speed to validate the computed data. On the other hand, they must be at low temperatures to work best.

The truth can be classified as the most profitable type of mining , but more complex to carry out; fact that is due to the large initial investment that must be made to start.

5. Cloud Mining or cloud mining

Cloud mining or cloud mining consists of paying a subscription on a web page, in which the investor will be granted a certain amount of HASH for a specific period of time. In this way, the user will get rewards that will be equivalent to the computing power he acquired; without the need to pay for the necessary equipment.

It should be noted that it is a high-risk mining mode, since there are currently many pages that are dedicated to stealing and stealing funds from investors with these methods.

Is cryptocurrency mining profitable?

The level of profitability of cryptocurrency mining varies depending on many factors . First of all, you should consider the HASH rate that the equipment you own can offer, followed by the secondary points, such as:
  • Internet price per month.
  • Price of electricity per Kw/h.
  • Number of desired teams and figures you want to win.
  • Taxes to pay.
Taking this into account, it can be determined if it is profitable to invest in cryptocurrency mining equipment. Since, the rewards received will change by the power that your teams have .

On the other hand, in many cases mining has proven to be profitable despite requiring an investment of approximately 6,000 euros to get off to a good start. Since the best mining equipment today can generate up to 30 euros a day; This in 30 days would be approximately 900 euros and in 3 months (or less) the investment will have been recovered.

However, it should be considered that it is possible to have a wide variety of these devices at home. Therefore, the higher the investment, the more profitable cryptocurrency mining will be in the long term .
It is important to note that profitability will also depend on the state of the network at that time, the price of the cryptocurrency in the market and the difficulty to validate a block; In case of mining Bitcoin, these details can be viewed on the portal .

In short, establishing a clear answer is complicated; although considering the high number of miners that are integrated daily and the institutions that practice this work, it can be said that it IS profitable to mine cryptocurrencies .

How does mining and rewards work?

Thanks to the PoW or Proof of Work consensus protocol, it is possible to mine cryptocurrencies and obtain rewards for it. This is because the system grants rewards to the miner for each block added to the blockchain.

It is an incentive that generates new digital currencies as payment for offering computing power. However, in addition to being rewarded for adding a block, the miner also serves as a node and transaction validator ; activity that is also remunerated, and that upon reaching the token issuance limit of a certain crypto, this will be the only benefit obtained by the miners.

Let's give an example with Bitcoin : remembering that it has a limit of 21 million tokens. Considering this, it is important to note that when reaching the limit, the miners will not be rewarded with tokens, but the incentive they will receive will be the commissions of the transactions they validate.

As additional information, it is worth noting that every 4 years a digital phenomenon called Halving occurs . This event halves the number of tokens awarded to miners for each validated block. Therefore, it can be said that with the passage of time it will become more and more difficult to mine, and probably less profitable .

Start mining: what do you need and what should you take into account?

For those who just want to join cryptocurrency mining , it is suggested that they start with the very basics; an Internet plan that covers what is demanded by the teams and a large space that has a low temperature .

In addition to this, it is also important to choose the type of mining that will be carried out; since this will determine the amount of money that must be invested and the time that must be dedicated.

In case of choosing the traditional mode, it is suggested to acquire specialized equipment; previously mentioned as ASICs . Since, these guarantee high performance, since they are optimized to solve the complex mathematical operations that the activity demands.

Once you have chosen the ASIC that is within your budget, you will also need to buy a power supply that offers power to it and start configuring it. It should be noted that you must have a basic notion of computing to carry out cryptocurrency mining; otherwise it is certain that there will be problems that will hinder the activity.

What are the expenses to mine cryptocurrencies?

The main expenses you will have when mining cryptocurrencies are:
  • electricity .
  • Internet .
  • refrigeration .
It goes without saying that these devices consume a high amount of electricity, and that they must also be connected 24 hours a day.

As if that were not enough, they also tend to reach high temperatures and generate quite annoying noise . Due to this, inquiries must be made to the company that supplies electricity to find out the price of Kw/h consumption, in addition to verifying the power consumption in watts of the miners.

The best ASIC type miners can have a power consumption that starts from 2,000 watts.

Is cryptocurrency mining legal?

The issue of legality is a dilemma, since it has been banned in different countries for reasons of "investor security". This activity has been limited in nations such as China or Iran for reasons that go beyond investor protection; In the Asian giant, large mining companies were expelled due to the great pollution they were generating.

While, in Iran it was banned for a while because they were crediting the failures in the electrical systems to the mining groups. However, in other countries, such as Spain, the United States or Canada, it is legal to use and mine bitcoin or other cryptocurrencies.

Although it is still suggested to do DYOR (own research) and read the policies or laws established against the extraction of tokens.

Where can you calculate the profitability of mining?

To know if it is profitable to mine, it is necessary to carry out a series of calculations; always considering the exact figures. However, it is also possible to avoid this process by using the mining profitability calculators found on the Internet. Some of them are:
  • CoinWarz : It has a fairly intuitive interface and an almost immediate loading speed . In addition, it allows you to perform a calculation with various cryptos and establishing only the desired factors.
  • What To Mine : This calculator is a little more complex to use, and this is because every detail of interest can be configured.
  • CryptoCompare : In case you practice pool mining, we suggest using this profitability calculator. Since, in addition to being able to attach the consumptions, the power of HASH and the like, you can also add the commissions of the mining pool .
  • CoinCalculator : If you want to know more than profitability, this website may be useful to you. This is because it offers lists with the most profitable ASICs or hardware to mine and information of great interest. It is certainly an excellent What To Mine competition.

Examples of coins that can be mined

Today there are many cryptocurrencies that use the PoW protocol. Among some of them, the most prominent will always be Bitcoin (BTC), and not only because it is the most expensive on the market, but also because of its high profitability. Even so, it is also possible to practice cryptocurrency mining with other tokens. These are:
  • Litecoin (LTC).
  • Ethereum (ETH): Although they are about to change their protocol to PoS soon.
  • ZCash (ZEC).
  • Ethereum Classic (ETC).
  • Dogecoin (DOGE).
  • Bitcoin Gold (BTG).
  • Among others.

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