People ask me “Why do you love mining cryptocurrency?” The case for mining Bitcoin (or the alt-coins) is simple: if you believe that cryptocurrency's values will continue to rise over time then any cryptocurrency mined today has the potential to be appreciate 10x, 100x, or 1000x in the future. If you've “drunk the Kool-Aid” as we like to say, then you believe this is possible. You don't have to believe that the future is that rosy to get involved with mining—I believe mining is a great way to learn more about crypto—learning by doing.
What is Mining?
The cryptocurrency market has been growing steadily for the past nine years. Miners provide the backbone for the creation and maintenance of Bitcoin and other alt-coins. They perform calculations on a block of transactions to confirm that each transaction is following the rules (no double spending) and is recorded properly. Put another way, with more jargon, they do the cryptographic heavy lifting (hashing) that confirms these transactions on a digital ledger called a “blockchain”. To incentivize miners to do this work, they are paid by the algorithm of the coin and in a sense they work for a non-human employer (a program) which pays its workers on a strict timetable. For example, Bitcoin pays every 10 minutes; zCash pays every 2.5 minutes.
Mining is extremely competitive. In doing this work, only one miner will find the correct solution to the cryptographic problem posed by the algorithm. However, every miner has a chance at finding the solution. So, the stakes are high. The Bitcoin network currently rewards miners 12.5 bitcoins every 10 minutes, generating 1800 bitcoins per day. To increase their chances of winning, miners pool their resources. They do so for the same reason people join an office Lotto pool, each miner has a better chance of winning something, even though they will split the reward with thousands of other miners.
Mining has shifted from lone wolf (solo) mining to pooled mining for this very reason: the pool is guaranteed a winning payout on a semi-regular basis, so miners are incentivized to join pools and contribute regularly to receive a smaller, but regular payout.
There are two primary costs in crypto mining: 1. The initial cost of the mining hardware and software. 2. The ongoing overhead of electricity, maintenance, software royalties, and pool fees. A mining system can be a single gaming PC with a graphics card (GPU) that mines Ethereum, or a home-brewed mining “rig” with up to 18 graphics cards connected a single CPU, or even an “Antminer” ASIC machine, which is a specially programmed device to mine Bitcoin. In these examples, the initial investment runs from $500 to $5000.
Mining is a fun way to participate in the new cryptocurrency revolution. If you have access to a fast computer, you can start by simply running one of the point-and-click applications that mine Monero on PC or Mac, or even mine multiple coins with a PC app called Nicehash.
You can start mining with any computer you own now—even a laptop. Miners are gonna hate that I wrote that. Old time are always warning newbies not to mine on their laptop, that it will overheat and burst into flames. Maybe it will, but this is the “wild west” era of cryptocurrency, and it's a good time to try new things. I'm not recommending mining on your laptop, but it can be done. (My Mac Book Pro mines Monero at 20 hashes/second. Web-based Monero mining is a notable exception.)
When they think of mining most people imagine the prototypical GPU mining rig. This kind of rig became popular with the rise of Ethereum and mining ether became profitable for these systems. These rigs are basically super-powered gaming computers, they usually have 4 to 12 graphic cards in a milk crate or a wooden frame. Enterprising miners build several rigs and set up a rack of them in the garage. This is called a small mining “farm”. The limit to this at-home system is the amount of electrical amps that a home wiring system can deliver. Large enterprises, like Genesis Mining, build mining farms in districts with cheap electricity. These large farms reap a lot of crypto, but the upfront costs and the logistics to build these is high.
There are hundreds of videos on YouTube showing how to build your own mining rig. Getting the custom hardware for putting more than two GPUs on a computer motherboard is the core hassle to building a mining rig. Many of these custom parts have been rushed to market. The failure rate on one of the necessary parts called a “riser board” can be up to 50%. YouTubers sometimes recommend buying a dozen to get 6 that work. The software to run a rig is also specialized and requires managing video drivers, BIOS updates, and other software details. These hassles make the process exciting and fun for geeks, but a bit daunting for newcomers.
Why I love mining cryptocurrency
Cryptocurrency is a fascinating new industry. Mining helps me understand how this new industry works. The payoff in collecting different cryptocurrencies helps me to understand the relative value of each of them. And finally, I will admit, it's fun!