Cryptocurrency mining has its similarities and differences with gold mining. This may be the new equivalent of working as a gold miner, but a crypto mine is very different from a gold mine. There is a whole growing industry dedicated to cryptocurrency mining. Why is that, what is crypto mining and how do you mine it are all good questions to ask when it comes to cryptocurrency mining.
What does cryptocurrency mining mean?
Blockchain is the basis for cryptocurrencies such as Ethereum and Bitcoin. Blockchain is a system for recording transactions on the network. Miners are responsible for adding and verifying transactions for new blocks.
Most crypto networks charge their users a transaction fee. This transaction fee is used to reward miners for verifying transactions on the ledger. In Ethereum, this transaction fee is called gas. You can add different types of transactions to the blockchain. For example, it could be Ethereum trading or NFT minting.
How do you mine cryptocurrency?
Cryptocurrency is mined when a computer processes complex calculations to validate transactions.
The easiest way to start mining cryptocurrency is to install the NiceHash miner on your computer and run it. The NiceHash miner will automatically select the most profitable algorithm for your hardware and start the mining process. Then they convert the mined cryptocurrency into bitcoins and pay out to each person.
What is a cryptocurrency setup?
A cryptocurrency farm is simply a computer set up for mining. There are two common types of cryptocurrency mining hardware. The first is called ASIC, which stands for Application-Specific Integrated Circuit. ASIC is hardware built from the ground up to be mined with a specific algorithm. There are also GPU miners that use a graphics card for mining on a standard PC.
Typical setups for GPU mining farms can range from a single GPU in a standard desktop chassis to eight or more GPUs in a dedicated rackmount chassis.
There are various ways to keep that calm, including air cooling, water cooling, and even immersion cooling. The most common method is air cooling.
Is cryptocurrency mining legal?
Cryptocurrency mining is not banned or illegal in most countries, including the US. However, there are countries where it has been made illegal, especially in China.
While mining and transactions of cryptocurrencies in the US are not illegal. However, users can use it illegally. One such way could be mining without reporting income to the IRS, which means you have to be careful and comply with all laws – many of the rules you must follow under our financial rules that are independent of fiat currency .
How much can you earn on cryptocurrency mining?
Cryptocurrency mining payout largely depends on the power of your mining rig. The current reward is 6.25 BTC per block. Therefore, the current block value is approximately $200,000. It is unlikely that you will win a block individually. This is why many miners prefer to work together in pools. These pools normalize earnings.
The average earnings per day on one ASIC S19 Bitmain is currently around $10. The current GPU payout is around $4 for an Nvidia 3080. Installing with 8 Nvidia 3080s will bring in around $32 per day, adding almost $12,000 per year. It will likely take more than one install to generate a six-figure income.
What is a cryptocurrency mining pool?
Cryptocurrency is increasingly mined in pools. These pools work very similar to lottery pools. A group of miners pools all their computing power and agrees that they will share the proceeds if they receive a block reward.
The reason people join the pool is because the algorithm itself is the winner. So if 50,000 miners try to find the winning hash and one of them finds it, then 49,999 miners get nothing. Therefore, the miners began to unite, using the resources of 10,000 of these miners. The pool now wins about one-fifth of the time. This means that it has frequent payouts. Then, instead of having the winner take the whole system, they usually distribute the winnings equally based on the number of hashes processed by each member of the pool.
Is cryptocurrency mining passive income?
Strictly speaking, cryptocurrency mining is not a passive income because it requires you to maintain the hardware and ensure that the machine is actively mining at optimal levels.
However, cryptocurrency mining is quite passive. Many days will pass without requiring a cryptocurrency miner to do any mining work. Also, compared to something like investing in rental property, if something goes wrong, you can fix it in your own time.
The advantage of repairing your cryptocurrency rig in your spare time and only exiting due to potential downtime profits rather than fines or being forced out of business in some other investments makes cryptocurrencies more passive than some investments.
If you want to be more careless than hosting a rig yourself at home, colocation centers offer full service hosting for ASIC and GPU miners. They will make sure your machine is powered and running for a monthly fee. In addition, many of them will be able to repair the rig for you and bill you for the repair. These co-location advantages allow bitcoin miners to work more passively.
What is a wallet?
A wallet is software or hardware that contains the private and public keys to access your cryptocurrency. This cryptocurrency is stored in the ledger of the blockchain network. If you keep cryptocurrencies in your wallet, it is very similar to how your bank works in fiat currency.
If you keep your cryptocurrency in an account on an exchange, it is more like having a depository account in a bank. The bank is responsible for the safety of your money. Although exchanges are not FDIC insured. So, if you are holding your cryptocurrency on an exchange and it is hacked or otherwise loses all cryptocurrency. It just passed.
This is why people like to keep their cryptocurrency in their wallets. This places the responsibility for the security of the wallet on the owner of the cryptocurrency. This also makes it a more decentralized risk. An exchange with millions of dollars worth of cryptocurrencies on its ledger is a much more attractive target for a hacker than a single person’s balance sheet.
What is a cryptocurrency exchange?
A cryptocurrency exchange is a platform created to facilitate the exchange of various cryptocurrencies and various fiat currencies. A cryptocurrency exchange will have a table or exchange set up for each supporting currency.
In recent years, the cryptocurrency exchange has become a place of large investments in fintech. Some exchanges deal with buying and selling, but others allow their users to bet on cryptocurrencies on their platforms.
Proof-of-Work vs. Proof-of-Stake
Proof of Work cryptocurrencies use the work of miners to verify transactions on their block chain. These are usually very energy intensive processes. The value of the currency on these networks is somewhat related to the price of energy, because it is one of the main raw materials needed to create most of the coin.
Proof of Stake networks are different in that they allow the holders of units of the currency to stake their coin and have a chance to be the ones who validate subsequent blocks to be added to the blockchain. They are then given a reward for completing the check.
What is staking?
Staking is a way to earn income from your existing cryptocurrency. It works by making your cryptocurrency work while verifying transactions. For example, in Proof of Stake networks, a coin holder puts their coins at risk or stakes as a guarantee of transactions that they verify are legitimate. This is usually done by the network, or the exchange you are staking on, handles the nuances of the process.
Some exchanges offer staking rewards that are more effective just by a different lending period. They don’t actually wager in the crypto sense, but simply pay interest for being able to use the coins for a certain period. The borrower pays interest in this currency, but some may pay in bitcoin or monero.
Conclusion
Cryptocurrency mining can be an effective way to make money. However, it is a relatively passive way of generating income. Depending on your mining style, there are many different ways to build a cryptocurrency mining rig.
Making money mining cryptocurrency is something new, as is earning income by making videos on TikTok. This does not make the money earned from it any less accurate. But if you keep all your income in the mined cryptocurrency, you risk what happens when the value drops.
