Mining is a key attribute of most cryptocurrencies. To achieve decentralization of a cryptocurrency the responsibility for managing transactions and keeping a so-called ledger is spread to other computers in the network. Participation in keeping particular cryptocurrencies running is realized through so-called mining and all participants are rewarded by digital coins. If you install and set up special software on your computer you will participate in mining.
The first minable cryptocurrency was Bitcoin. New Bitcoin transactions are grouped into a block. Each block requires a confirmation. When a block is confirmed then it is appended at the end of a chain of blocks. The chain of blocks is called a blockchain. The blockchain is a ledger where all confirmed transaction can be found.
The confirmation of a block requires computer power which is used to resolve a complex cryptography task. Once the task is resolved the block gets confirmed. If you use your computer for block confirmation you will participate in mining. Bitcoin mining is not profitable for individuals nowadays since it requires enormous computer resources. However, you can mine other cryptocurrencies. Mining results in earning digital coins. That is the reward for mining.
The first thing you need to do is a calculation of profitability. You must consider this carefully to avoid losses. In the beginning, you need to invest in hardware. The hardware, let's take in account your computer, will have to run non-stop so you have to consider your bill for electricity. What you need to know to find out whether mining will be profitable for you is a number of digital coins you will earn. For that, you need to measure your hash rate. The hash rate is basically the speed of your computer in which it is able to complete a single computation operation for the particular cryptocurrency. The higher hash rate you have the higher chance you have to mine a block and get a reward. The only way to find the hash rate is to start mining and check it. Either the mining software provides you with the information or you can check it on web pages for a mining pool you use for mining. We will discuss a mining pool later in this article.
If you know the hash rate of your computer per given coin you have to find the corresponding mining calculator. You just insert your hash rate into the calculator and the calculator calculates the amount of digital coin you are able to earn. Then it is just about a conversion of digital coins to fiat money and comparing it with the hardware and electricity costs.
The important aspect is complexity. Complexity basically says how difficult it is to find a hash in a cryptography operation. The calculator usually has the complexity set. If not, you usually can easily find the complexity either from a mining pool or on the web page of a digital coin that you mine. All you need to know is that the complexity rises so you must consider it in your calculation.
Now you know basic theory. Let' s discuss in more detail all the needed equipment.
You need to have a cryptocurrency wallet for the coin you want to mine since the wallet address is an input for a mining software. Mining softwares will send the reward for you mining to the wallet address once the given limit is reached.
The mining software is often simply called a miner. The miner is mostly free. However, some of them mine to the wallet address of the author in one percent of running time or similar. You can find and download many miners from the internet with detailed description on how to configure them. Some of them are as easy as starting them, provide your wallet address and press the run button. More complex ones let you set up a mining pool from which you are going to mine. It is often just an URL. The most complex ones require complicated configuration and profound IT knowledge is needed. You can also download a source code of a miner and compile it on your own computer. This is the best you can do from the point of performance. However, it is not easy to configure all the tools that are needed for the software compilation.
A mining pool is a place where more miners combine their computer resources in order to increase profitability. Thus the whole mining pool has a big hash rate. When more computers are combined, the probability of finding a block is much higher. When a block is found, the reward is split and distributed to all participants based on the computer resources they have provided to mine it. The membership is free but the pool owner often takes some profit for managing it. It is wise to check more mining pools and compare their profits before joining one. The closer a mining pool is to your home the better since during mining huge data is transferred between the pool and your computer. The pool should provide a webpage where you can find yourself at your wallet address and see your hash rate and current mined balance.
Stable Internet connection
To be able to mine you also need a stable internet connection, ideally 2 megabits per second or better.
The most expensive investment is related to the hardware that you use for mining. Do not consider a cell phone or a laptop. The efficiency of these devices is not sufficient to generate sensible income. You can start at least with your desktop computer but do not expect much profit as well. Additionally, you will not be able to use your desktop computer when the miner is running since it takes all the available computer resources and thus other applications seem to be stuck. So, the best you can do is use a dedicated computer. The computer will run constantly which generates a noise. Moreover, the cooler the room is the better since computers generate heat and mining utilizes the computer‘s resources to the maximum. Consider locating your mining computer in a decent ventilated, cool room. The basement is often the best solution.
When considering hardware you should also check which one is the best to mine a particular coin. Some are fine with a computer processing unit (CPU) mining but often graphics processing unit (GPU) mining is more profitable and preferred by people. You can also consider buying the most powerful graphics card. The favorite ones are created by ATI. If you are willing to invest more you can buy a graphics card designed for mining. These graphics cards have an ASIC chip. You can even combine more graphics card together in one rack. With this you will achieve a high hash rate and the profit will also be much bigger. If you consider this solution you definitely must also have a dedicated cool room for it. To build such a device requires either profound IT knowledge or googling in dedicated forums. Fortunately, there are a lot of articles and forums on the internet where you can get the information you need.
The price of cryptocurrencies is always rising. So, it can happen that you will mine a cheap coin that in a few years can be a big one. This is always a bit of a risky business.