As the popularity of cryptocurrencies continues to increase, more and more investors and crypto-fanatics are looking into the process of mining their coins, instead of just purchasing them on an exchange platform.
While many cannot afford to mine on their own due to significant costs in electricity and hardware, many intrepid miners join mining pools to help spread the value as well as the rewards.
But are mining pools still profitable? Let us read on to find out if they are still worth your time, energy, and money.
This article will discuss:
- Cryptocurrency Mining Explained
- What Are Mining Pools?
- Example Of a Popular Mining Pool
- Best Coins To Mine
- Mini Guide to Mine
- If Mining Isn´t For You, What Else Can You Do?
Cryptocurrency Mining Explained
With a fiat currency you go to a bank or ATM, and when it comes to cryptocurrency, many members of the community will just log onto an exchange and purchase their coin of choice with dollars or euros.
There is, however, the third option. For those that want to get more involved in the world of cryptocurrency, there is crypto-mining.
In layman’s terms, mining is the validation of a transaction on the network. Once a transaction has been validated, the individual or “miner” obtains a new token or piece of the cryptocurrency as a reward.
This reward then helps to decrease the cost of transactions by contributing to the processing power of the network.
To mine most popular cryptocurrencies such as Bitcoin and Ethereum, you need some pretty specialised equipment to do this, and this is where it becomes rather expensive.
At the very least, you need a dedicated and powerful computer with a lot of processing power. You also need efficient ways of cooling the equipment to avoid overheating.
This results in extremely high electricity bills, not to mention the cost of specialist and fit-for-purpose hardware.
You cannot just plug in your laptop, log on, and get mining; you need to create a specialist system which is wholly dedicated to mining the cryptocurrency of your choice.
For the average cryptocurrency enthusiast who just has the means to set up a small mining operation, the costs often completely outweigh the benefit, and it can take a lot of money and many years to see any real progress.
For this reason, cryptocurrency miners tend to be professional operations located in either China (where electricity is cheap) or near gas fields and oil sites, so the cost of powering the facility is less.
For those that cannot fund such a venture, there are, however, other options and this is where mining pools come in.
What is a mining pool?
First things first, let us explain exactly what a mining pool is.
When we speak regarding cryptocurrency, a mining pool is where miners pool their resources together to increase their processing power while keeping the costs low.
By combining resources and capabilities, the pool increases the probability of mining a block- a process which would usually take slower miner years.
Blocks are generated more quickly, and the members of the pool receive a portion of the block reward on a regular basis, as opposed to randomly after a particular amount of time.
There are several different types of mining pool such as pay-per-share, proportional, bitcoin pooled mining, pay-per-last-n-shares, and the geometric method.
Bitcoin mining pools mean that the cost of mining individual blocks is much lower and that processing costs are shared among a group of people.
For many, using mining pools are a much more profitable option.
Given the fact that there are so many professional operations that are mining the leading cryptocurrencies, there is little to no chance that the man on the street can ever hope to compete with them, and anyone that tries is likely to find themselves significantly out of pocket.
Something you will also hear about when you are exploring the world of mining pools is a “hash”.
It refers to something known as a cryptographic hash function which are essential parts of crypto protocol and information security.
In short, the hash function is a mathematical process which takes inputted data, performs a specific operation on it, and then returns the output data at a particular size.
An excellent example of this would be storing passwords.
When you create a password-protected account online, the password is passed through a hash function which is then used to run on the word that has been entered, and this is then checked against the data that the server has stored.
These hashes are an integral part of “proof of work” algorithms, and for a miner to successfully “mine” a block, they are required to combine all of the inputs with their input data in a way which results in a hash with a specific number of zeroes.
If you are dead set on mining cryptocurrencies, and you don’t own a lot of specialised ASIC hardware, and a cryptocurrency farm in Inner Mongolia (a place with the lowest electricity prices in the world), then your best bet is to consider joining a mining pool.
Give Me an Example Of a Popular Mining Pool?
Previously known as Bitcoin.cz Mining, Slush Pool is the oldest bitcoin mining pool and the very first known example of a publicly available pool.
Launched in 2010, it operated on a shared strategy that involved an artificially low difficulty method that has since been defined as cheating.
The pool has now changed its way, and it now follows a score-based method where older shares (such as those from the beginning of the round) have a lower value than newer shares.
This helps to demotivate a potential cheat from the practice of switching between various pools in a round.
As balances gather and accumulate on the server, they are sent out when a user-set threshold balance is then reached. In December 2017, they set a fixed fee of 2% for using their services.
Since becoming a provably fair method of mining Bitcoin, Slush Pool have regained their popularity as well as trust from the cryptocurrency community.
Other popular mining pools include:
- AntPool (easy to use, choose your mining reward, yet has smaller pay-outs)
- KanoPool (No registration required, low pool fees, but a very basic website)
- F2Pool (transparent fee structure, supports multiple currencies, but requires a phone to sign up).
BTC.com is also worth a look as it is one of the most well-known brands in the world when it comes to cryptocurrency.
Previous to starting a mining pool back in 2016, they were already well known for launching a Bitcoin wallet as well as a blockchain explorer.
It currently accounts for around 20% of global hash power, and it has mining servers located in Germany and China.
At present, the pool only supports the mining of Bitcoin and Bitcoin Cash, although as other cryptocurrencies increase in popularity, it could be that they offer other alternatives in the future.
What makes them stand out is their unique method of rewarding miners known as FPPS.
This process calculates a standard transaction fee within a specific period and then adds it to the block reward.
This is the distributed whole to the miners. This means that transaction fees are shared which makes the process much more attractive.
The only real criticism of BTC.com is the fact that the website is a bit unreliable and temperamental which can be incredibly frustrating when your investments are on the line.
It also lacks a good getting started guide which can be frustrating for those users that are not mainly au fait with the process of mining.
Thankfully, due to the thriving online community, users can find all of the information that they need, quickly and easily online.
Which Coins Are The Best To Mine?
Well, this depends on the facilities that you have at your disposal, how much you want to invest, and why you have decided to mine.
There are a couple of good comparison sites out there where you can calculate the profitability of mining different coins and then compare it with other cryptocurrencies.
The key is here to do adequate research as there is no one-size-fits-all solution. Let us take a look at some of the most popular mineable coins.
This is one of the best BIG cryptocurrencies to mine, and if you are using an RX 480 that uses 25 megahashes per second, it can offer you around $40 of profit per use, if of course, you don’t count the cost of electricity.
The graphics card consumes 150 watts of power so if you can get your electricity cheap enough, you could be onto something, but still, the profits are not particularly life-changing.
The same card will create about 580 hashes every second for the Monero network, and once you take into account the price of electricity, you will be looking at a similar amount of profit.
While the value of Monero has surged in recent times, it seems to be the case that it is not the most valuable coin out there at the moment and that your efforts may be better spent elsewhere.
While the coin shows promise for the future, profit wise when it comes to mining, you are only looking at around $21 a month.
This is, however, a coin with a lot of potential, and it has won the admiration of none other than Edward Snowden – an interesting point to consider if security and privacy are high on your list.
In our opinion, I would avoid mining Bitcoin for a variety of reasons, and instead, we would focus on a coin such as Ethereum instead.
We are convinced in its longevity, and whilst you may not make a huge amount of profit if you are solo-mining, if you give it a go in an Ethereum based mining pool, you could find yourself onto something.
Your Mini Guide To Mining
First of all, you need to decide which coin is the best for you and then you need to decide which mining pool you will join (read our article on Cryptocurrency Market Predictions For 2018).
You will then need to do some thorough research into what equipment you will need, this is where things can get expensive, but investing in the best quality items will ensure the maximum results in the long run.
As more and more people join the crypto-rush, making sure you have the best possible hardware is an important part of the process because if you want to mine, you are going to have to invest heavily. For a better overview, read our guide to the difference between CPU and GPU mining.
Cryptocurrency mining is not something that you can just start overnight; it requires some significant research and evaluation before you decide on the methods that are preferable to you.
Read articles and guides, join communities and discussion, and make sure you are genuinely informed before you part with your cash or dive in at the deep end.
You also have to set yourself some realistic expectations- unless you are operating a large, mining farm in China, the chances are that you are not going to make your fortune from cryptocurrency mining.
For small-time investors, you are probably better off just purchasing coins through a cryptocurrency exchange rather than paying out for expensive equipment and utility bills for very little profit in return.
If Mining Isn’t For You, What Else Can You Do?
To answer the question that this article originally asked, it would be fair to say that cryptocurrency is not really profitable for your average cryptocurrency investor.
Unless you have a substantial amount of money to invest in equipment, servers, premises, and of course the vast amount of electricity that is required to power such facilities, you are not going to find it profitable.
By far, the easiest, quickest and cheapest way to acquire such coins is through an online exchange.
Whilst mining may sound like fun, if you are expecting to live off the profits, you will be severely disappointed.