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Megan Gatlin
January 1, 2021
The early days of cryptocurrency mining can best be compared with the gold rush. There was a real possibility of getting in on the action and getting rich. Rather than those selling shovels cashing in, this gold rush saw companies behind CPUs raking it in. However, as time went on, this rush seemed to come to an end as mining appeared to get that bit more difficult.
When people realized the potential cryptocurrencies can bring to the world there was an explosion in the number of miners. With the surge of new investment and growth happening in the crypto mining space, people were looking for new opportunities to turn their computers into money-making mining machines. However, as with gold mining, there is much more that goes into crypto mining than first considered.
So, where does that leave would-be miners today? Are the traditional methods of cryptocurrency mining still profitable? Are there any alternative approaches that can be taken? Can anyone get involved? As you will see, there is still plenty to be made during this ‘gold rush’ if you choose your partners wisely.
Before we jump in and look at the profitability of mining crypto, it is worth taking a moment to look at the definition of mining and how it works. For many people, they believe the process is solely linked to the creation/discovery of new coins. Of course, this is a vital function of cryptocurrency mining, but it is not the only one.
Other important roles of mining are linked to validating transactions that take place on a blockchain. This then sees these transactions being added to a distributed ledger. Perhaps the most important role of mining is that it prevents a digital currency from being double-spent.
The digital ledger that exists has the same purpose as a paper-based record of accounts. It serves to show transactions that have taken place. In simple terms, it shows which account has been debited and then goes onto credit another. To ensure that ledgers can’t be manipulated, Bitcoin will only allow verified miners to update transactions. They are then rewarded by new coins being generated.
Any examination of cryptocurrency mining needs to consider proof of work. But what does that mean? There are two consensus mechanisms used by cryptocurrencies one being proof of work and the other proof of stake. Proof of work is the older of these, used by Ethererum 1.0 as well as Bitcoin. Newer cryptos, such as Ethereum 2.0 and Ada, rely on proof of stake instead.
Similar to traditional mining, rather than looking to discover gold or silver, miners have the aim of triggering the release of more crypto. Miners do this by using their machines to look at complex mathematical equations, known as cryptographic hashes. There is almost a competitive aspect, as miners try to be the first to unlock the code and gain the rewards.
As equations become more difficult, and as cryptocurrencies see an increase in scarcity, miners are needing to use more and more advanced machines. For some, the costs involved in the machines, as well as the ongoing energy costs, have meant that it has become harder to make a profit from mining. That is where companies with the necessary computing power come in, and why they are vital to the ongoing profitability of mining.
When debating whether mining cryptocurrency is still profitable, many potential miners wonder who can even get involved.
In the early days of cryptocurrency mining, almost anyone could become a miner. All that you needed was a home computer with a simple CPU chip. This was enough for your everyday person to benefit from mining, on the proviso that they could meet the energy costs involved.
What has happened in recent years is that the equations needing to be solved have become far more complex. A home computer with a CPU chip is no longer enough. Miners now need an application-specific integrated circuit (ASIC) or a specialized GPU. In addition to a reliable internet connection that remains connected at all times. There is also a need to become a member of an online mining pool.
With the setup of a mining rig that is sufficient, often being cost-prohibitive, those looking to mine now choose to partner with companies that already have the correct infrastructure in place.
When considering mining cryptocurrency, and going it alone, you will also need to understand the ways that you can mine. The different approaches will have differing costs implications and will impact the levels of profitability. As we have seen, home computers are not really an option anymore. The speed at which they are able to solve the equations means it can take months to build up even the smallest of profits. The high electrical costs mean that any profit at all is unlikely. So, what are the alternatives? We’ve already mentioned ASIC and GPU, so let’s take a more detailed look at these.
GPU mining works by bringing together GPUs to form a cryptocurrency mining rig. By bringing these together, miners are able to maximize the power of their computers. For GPU mining to work, you need a cooling system and motherboard for the rig.
ASIC miners were designed with one goal in mind: mining cryptocurrency. This means that they are usually more successful than GPUs. The problem here is that they are expensive and can quickly become obsolete.
You may be left wondering if mining is too complex, or too expensive. If that’s the case, you may consider looking into buying crypto over mining it. The reality is that people have made huge profits through buying and trading cryptocurrencies.
Mining cryptocurrency yourself, from home, is now all but impossible. Certainly, to do this and generate anything worthwhile, you are going to need to spend thousands and thousands on getting your set up just right, while also being prepared to upgrade the technology regularly. As we have seen though, crypto cloud mining can do away with these expenses and can make it easier to generate a profit. That is why companies that have developed their infrastructure, and have everything in place, are the future of crypto mining.
In short, yes, cryptocurrency mining is still extremely profitable. By partnering with the right company that has the right setup, the huge computing power required, and the ability to keep its machines up to date, there is plenty of money to be made.
As the mathematical equations that need solving continue to get more and more complex, the need for more computing power will continue to grow. That need can only be met by those companies that have already developed the required experience and that have positioned themselves to deal with the future challenges that mining may present.
