Cryptocurrency mining is the process of verifying and adding new transactions to the blockchain in exchange for the potential reward of a predetermined amount of currency. This competitive process rewards the miner who is the first to solve the complex mathematical problem of deciphering a 64-digit hexadecimal number known as a ‘hash’.
The more mining resources that join a given crypto network, the harder it is to solve the problem first, making it harder to get the mining reward. This is known as the proof-of-work (PoW) consensus mechanism.
Having multiple miners competing in this way helps to secure the blockchain network by creating a decentralised network of independent miners. Cryptocurrency mining was developed by Satoshi Nakamoto when Bitcoin first appeared and is still used for Bitcoin and other proof-of-work crypto projects today.
For Bitcoin, mining has become an energy-intensive process because it now requires a large amount of commercial-grade computer equipment to have a chance to solve the hash and earn Bitcoin.
Which cryptocurrency is profitable to mine?
Bitcoin (BTC)
Bitcoin is the world’s main cryptocurrency. It operates using the SHA256 algorithm. The current reward per bitcoin block mined is 6.25 BTC. The total issue of the world’s main cryptocurrency is limited to 21 million BTC, with more than 19 million BTC already mined. Approximately every 4 years, the blockchain is halving – reducing the block reward by a factor of two. This may cause miners to get less cryptocurrency, but halving causes the asset price to rise.
Bitcoin mining is still profitable. In order to earn $1000 a year, you need 37 TH/s of capacity at a consumption volume of . The difficulty of mining the world’s main cryptocurrency is also constantly changing and has been steadily increasing over the last 10 months.
Monero (XMR)
Due to the fact that Monero has unlimited issuance, the mining complexity grows much slower than that of BTC or ETH. The algorithm is ASIC resistant, so there is no need for high-powered mining equipment. Mining is very easy to set up and run with just a regular video card.
Ethereum Classic (ETC)
Ethereum Classic is a cryptocurrency aimed at maintaining the original Ethereum blockchain. The coin has become much more in-demand since Ethereum switched to PoS. This impressive crypto platform was launched in July 2016. It currently has a market capitalisation of over $4 billion. Recently, this cryptocurrency introduced a coin offering limit of up to 210 million. What to mine after ether!
It ranks 20th on the list of the world’s top cryptocurrencies. Ethereum Classic is a modified version of the Ethereum Ethash mining algorithm called EtcHash, supporting DApps and smart contracts.
It is quite easy to start mining this cryptocurrency – you just need to buy a wallet and a graphics card that supports this cryptocurrency. Also, the block time for this cryptocurrency is shorter than for other cryptocurrencies, at around 13 seconds.
Dogecoin (DOGE)
Dogecoin is a unique cryptocurrency that originally had no purpose. It was developed as a joke. However, the internet picked up on the idea, and eventually Dogecoin even has the support of Ilon Musk. This cryptocurrency runs on the Scrypt algorithm. The issuance of this digital asset is also unlimited, and there are no plans to switch to another algorithm, unlike Ethereum. Therefore, it will always be possible to mine DOGE.
Dogecoin is profitable for mining. In order to earn $1000 per year, a capacity of 1683 MH/s is needed. The power consumption will be 1050 watts. DOGE operates on the Scrypt algorithm. This cryptocurrency has no practical use, but its popularity on the Internet and patronage from Ilon Musk ensures a rise in the price. The currency is unstable, but it can make good money.
Zcash (ZEC)
Zcash is a cryptocurrency aimed at privacy and resistant to ASICs. The Equihash algorithm, developed by Alexander Biryukov and Dmitry Khovratovich, requires a fair amount of RAM. The coin itself has gained a reputation for stability and reliability, so it is considered a good long-term investment.
Kadena (KDA)
Kadena is a very interesting project. It is based on the idea that blockchain can revolutionise the world based on how it interacts and communicates. The main goal of this project is to achieve mass adoption, but to do so, blockchain technology and the ecosystem linking it to the business world must be reimagined from the ground up.
The founders built their own blockchain architecture and created certain tools to make blockchain work for businesses with speed, scale and energy efficiency not previously thought possible.
This project was founded by former employees who were part of JPMorgan’s blockchain development team. Kadena has now raised more than $15 million. Most of this amount has been raised in the form of a SAFT (simple future token agreement). To this amount can be added a grant of around $150,000 that Kadena received from the Interchain Foundation. This foundation is the development team behind the Cosmos network. This $150,000 was received to create a version of Pact compatible with the Tendermint protocol.
Litecoin (LTC)
In 2017, Bitcoin was referred to as ‘digital gold’ and Litecoin as ‘digital silver’. In 5 years, Litecoin has lost ground significantly and user interest has declined. However, on the other hand, it has become a chance for miners. The cryptocurrency remains quite valuable, but the difficulty of mining it has decreased. Therefore, now is a good time to start mining this cryptocurrency.
In order to earn $1000 per year, you need a capacity of 3650 MH/s. At the same time, the power consumption should be at 1000 watts. Litecoin runs on the Scrypt algorithm. This is the former Bitcoin algorithm. Other cryptocurrencies such as Dogecoin also use it. Therefore, several types of cryptocurrencies can be mined on Scrypt-based equipment.
Is it worth doing mining? Are there alternatives?
The profitability of mining depends on many factors. First and foremost is the price of electricity. Electricity is a major expendable resource and its cost is therefore critical in calculating the profitability of mining. The lower the price per kW, the more profitable cryptocurrency mining is. In addition, the cost of purchasing and maintaining the equipment must also be taken into account. If you are planning to mine cryptocurrencies on several devices, you will also need to rent a room. Therefore, before you start, it is better to draw up a business plan. It should detail what costs will be needed, what is the payback period in different scenarios, etc.
Apart from mining, there are alternative ways to invest in cryptocurrencies. For example:
- Buy and hold. You can buy cryptocurrency directly from an exchange and make money on the exchange rate when the value rises.
- Cryptocurrency deposits. Operates on the principle of a bank deposit, the trader earns a profit at a certain rate.
- Steaking. An alternative to mining that is available for many cryptocurrencies. Similar to cryptocurrency deposit, the difference is in the principle of operation. During steaking, the person who has frozen the cryptocurrency in their account is the transaction validator. For this, he receives a profit in the amount of the interest rate.
Cryptoinvestors can choose any way to invest. Of course, more than one avenue can be used at the same time.
Conclusion
Due to the competitive nature of the process, it is difficult for individuals to mine Bitcoin successfully. However, mining small crypto-projects with proof-of-work can be a more successful venture for individuals, albeit using expensive, powerful equipment to help ‘win’ more blocks.
There are also cryptocurrency mining pools, which allow individuals to join a group of other miners and “pool” their computing power together, further increasing their chances of mining a block and receiving a reward. Pools are probably the best way for individuals to mine in popular proof-of-work crypto projects such as Bitcoin.
