Today's Cryptomining Craze Is Just Like the 1800s Gold Rush. Here's How to Stake Your Claim. There are four key aspects to consider.
By Leyes Edited by Amanda Breen
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While anyone can buy cryptocurrencies like Bitcoin and Ethereum, there is a certain thrill to cryptomining. The process can be painstaking and doesn't always guarantee a reward, yet investors and entrepreneurs are intrigued by the process. Similar to the Gold Rush in the 1800s, it's an incredibly exciting time to be jumping into the cryptomining world. It's also more popular than ever, with numbers as high as $50 million worth of crypto being mined in a single day in 2021.
How Bitcoin cryptomining works
Unlike traditional money, it's possible to spend cryptocurrency more than once. For example, when you purchase something with $5 cash, you have to hand over that $5 to the seller. There's no chance of using it twice. With crypto, it is possible to make a copy of the digital token and use that to pay, while keeping the original. To avoid this, we have cryptominers.
For Bitcoin specifically, these miners verify a block (1 MB) of bitcoin transactions to ensure that the same bitcoin hasn't been used twice. In order to be paid, the miners must complete a second step beyond this. The miners must be the first to correctly (or almost correctly) answer a mathematical problem. Using advanced computers, miners try to arrive at a 64-digit hexadecimal number (also known as a hash) that is equal to or less than the target hash. The second step is referred to as proof of work. If a miner isn't the first to arrive at this number, he or she isn't paid out.
Related: Is Bitcoin Really as Bad for the Environment as Some Think?
Is cryptomining worth it in 2021?
Cryptomining can be expensive and resource-intensive. To even consider cryptomining, you'll need to have strong computing power and electricity. The cost of equipment needed can be a major barrier for people to get into cryptomining.
For some people, especially gamers, you may already have this equipment sitting around. For example, Antonio Villas-Boas, reporting for The Informer, just happened to have two ultra-powerful graphics cards lying around which he originally bought for gaming: the GTX 1080 and the GTX 1080Ti. Even with these existing graphics cards, he still spent another $1,600 on further needed equipment: three GTX 1060 graphics cards, a power supply and a cheap processor and motherboard. As Villas-Boas reported, eight months into the journey he still hadn't recouped his costs although he was earning money.
Aside from these costs, there's also the issue of ROI. For Bitcoin, every four years brings another halving. Halving is an event that occurs every 210,000 blocks mined, and it means that the number of bitcoin people are rewarded for mining is reduced by half. In 2009, people received 50 BTC per block; in 2020, that number was just 6.25.
Related: Entrepreneurs Are Accelerating Cryptocurrency Adoption, One Solution at a Time
How to get into cryptomining
- Decide on the coin. There are big differences between mining Bitcoin, Ethereum and all the other cryptocurrencies. Rather than trying to mine multiple coins, choose one to focus on. You'll need to research the mining process for each type of coin, but you'll also want to consider the limitations. For example, with Bitcoin's halving and the increase in miners, the return on investment is much lower than it used to be. These limitations should factor into your decision.
- Gather supplies. Next, get your mining rig set up. A GTX 1060 (six gig) graphics card is recommended. While electricity isn't a supply you gather, you should compare the cost of electricity to the potential profit. Generally, $0.12 per kilowatt per hour or under is most likely to be profitable, but $0.06 is considered ideal for a viable economic enterprise. You'll also need a computer (or a cheap processor and motherboard like Villas-Boas opted for) and a power supply. Finally, you'll need a wallet (similar to an encrypted online bank account) to store your coins in.
- Choose a mining software. Most software can be downloaded and used for free. You'll need to choose the right one for your operating system and the type of crypto you've chosen to mine. For example, NiceHash is considered an "easy button" for cryptomining, but it does take a percentage of your earnings.
- Join a mining pool. For some, joining a mining pool can make cryptomining more accessible by lowering the cost of getting started. Mining pools are groups of miners working together to pool their computing power and profits. Mining pools can lower the initial cost of getting setup, but you do make less as you are sharing with a group of people.
Related: 3 Major Crypto-Mining Challenges and How to Conquer Them
Whether you choose to begin cryptomining or purchase cryptocurrency, the time to invest is now. As soon as June or July, the SEC may approve a U.S. exchange-traded bitcoin fund (ETF). With this type of mainstream acceptance, Bitcoin will be open to a much wider array of investors — a huge milestone for crypto.
