Wednesday, August 10, 2022

How Do I Mine Cryptocurrency

Bitcoin And Cryptocurrency Mining

How Much It Costs To Mine For Cryptocurrency

Buying and hosting your own miner.

For some reason, Iâve always loved commodities.

Iâve always wanted to own a deep sea fishing boat, even though Iâm vegan, and the ports in major cities fascinate me.

So since early 2017 Iâve tried to figure out ways to mine my own cryptocurrency.

And every single time I did the math, it never made sense.

And that led me to wonder, WHY ARE SO MANY PEOPLE MINING CRYPTO.

Letâs do some quick math.

Letâs say I wanted to buy this brand new, sexy, Pandaminer B3 Pro. A super efficient, top of the market miner for Ethereum.

Even the website says itâs hot! ð¥

Okay. So if we scrolled down a bit to the calculator screenshot we can see two key stats that I entered in based on the minerâs specs.

  • Hash Rate – 220MH/s
  • Power Consumption – 1250W +10%
  • So the hash rate is how fast the miner can mine.

    The power consumption is how much power the miner uses.

    Finally, you can check to see how much you pay her KWh. New Zealand is roughly $0.20 NZD or $0.138 USD. Letâs go with the USD price since thatâs the same currency as the Pandaminer.

    Plugging these numbers into a calculator below you get something like this:

    Awesome! So, for every year, we generate $504 in profit!

    Oops, but wait. Didnât the brand new machine with the most effective and latest tech cost us $1,150?

    Okay, so we just need to wait two years and then weâre in revenue city right?

    Nope.

    So from May 2017, the difficulty was 349. Today, two and a bit years later, itâs 2,075.

    How Much Can You Make From Mining Cryptocurrency

    In case youre wondering how much you can make from mining, it depends on how much youre willing to invest. Some people are earning $16 per day by just investing a little bit of computer power into mining cryptocurrency.

    Meanwhile, others are able to earn somewhere upwards of $700 per day! So if youre serious and want to learn how to mine cryptocurrency, it really can be an excellent investment for making money online.

    Does it take any physical labour to mine cryptocurrency? Nope, apart from setting up the computers. Once you get everything up and running you just let your computers do the work. Its actually a very easy way to earn a passive income!

    The best thing about mining is that you dont need to purchase cryptocurrency either to start earning income: The process of mining itself gives you the reward of the currency! Its also a great alternative to having to build a cryptocurrency trading portfolio and watch market graphs all day.

    Trading Cryptocurrency For Another Type Of Cryptocurrency

    Generally, when you dispose of one type of cryptocurrency to acquire another cryptocurrency, the barter transaction rules apply. You have to convert the value of the cryptocurrency you received into Canadian dollars. This transaction is considered a disposition and you have to report it on your income tax return. Report the resulting gain or loss as either business income or a capital gain .

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    Nodes Verify Transactions Are Legitimate

    What is cryptocurrency mining transaction validation? Users create cryptographically secure transactions and broadcast these transactions to the network. When they initiate a transaction, data adds to a block and duplicates across multiple nodes across the network. These nodes act as administrators for the blockchain. Their job is to route out bad actors while verifying transactions through consensus.

    Since the block hash depends on the data from a block, changing even one character in a single transaction would invalidate the reference. This system makes it apparent immediately if data has changed.

    They incentivize the verification process through rewards, usually in the form of cryptocurrency. This incentive for verifying transactions encourages faster mining and quicker transactions as the blockchain develops.

    Cloud Mining From Your Smartphone

    How To Mine Cryptocurrency For Beginners / Cryptocurrency ...

    Cloud mining involves the use of powerful hardware to mine cryptocurrencies. You can read more about this on the BitCoin Wiki. There are a number of cloud mining companies who rent out Hash Power in their facilities so you can mine without buying expensive equipment. The MinerGate app allows you to start cloud mining via its data center. Only Bitcoin and Monero are currently supported.

    To get started select BTC or XMR from the dropdown menu on the main page and then select Buy cloud mining. Use the slider to choose the amount of Hash Power you want to purchase. Then select Buy using XMR.

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    Index Funds & Buy And Hold

    Yes, yes, yes. This is where Iâve found the most success.

    In this section Iâm going to bring across a lot of learnings that I experienced in the real world.

    Just like buying and selling stocks, itâs super hard to pick stocks. And itâs also very common to buy and sell at the worst time.

    So how do investors try to solve this?

    Two main things:

    Index Funds

    Letâs start with index funds.

    An index fund is a type of mutual fund with a portfolio constructed to match or track the components of a financial , such as the Standard & Poor’s 500 Index . An index mutual fund is said to provide broad market exposure, low operating expenses and low portfolio turnover. These funds follow their benchmark index no matter the state of the markets.

    Index funds are generally considered ideal core portfolio holdings for retirement accounts, such as individual retirement accounts and 401 accounts. Legendary investor Warren Buffett has recommended index funds as a haven for savings for the sunset years of life. Rather than picking out individual stocks for investment, he has said, it makes more sense for the average investor to buy all of the S& P 500 companies at the low cost an index fund offers.

    So instead of investing your money into one stock which you think will go well, youâre investing in the top 500 companies in the S& P 500âs case.

    This reduces your risk a lot.

    This is super simplified but essentially the thought process behind it.

    So how does this relate to crypto?

    NOW.

    Buying And Setting Up The Hardware

    There are several shops that sell ASICs to retail customers, while some manufacturers also allow direct purchases. Though they are more difficult to source than common graphics cards, it is still possible for anyone to buy an ASIC at an acceptable price. It is worth noting that buying mining equipment from shops or manufacturers shipping from foreign countries may result in hefty import dues.

    Depending on the manufacturer or the shop, ASICs may be offered without a power supply unit, which will then need to be purchased separately. Some ASIC manufacturers sell their own units, but it is also possible to use PSUs built for servers or gaming computers, though they are likely to require special modifications.

    ASICs need to be connected to the internet via an ethernet cable, and they can only be configured through a web browser by connecting to the local IP address, similar to a home router.

    Before carrying on, it is necessary to set up an account with a mining pool of choice, which will then provide detailed information on how to connect to its servers. From the ASICs web panel, you need to insert the pools connection endpoints and account information. The miner will then begin working and generating Bitcoin.

    Mining through an established pool is strongly advised, as you will be able to generate constant returns by pooling your hardware with others. While your device may not always find the correct hash to create a block, your mining contribution will still be rewarded.

    Also Check: How To Build Your Own Blockchain

    Reporting As Either Income Or Capital Gain

    Generally, if disposing of cryptocurrency is part of a business, the profits you make on the disposition or sale are considered business income and not a capital gain. Buying a cryptocurrency with the intention of selling it for a profit may be treated as business income, even if its an isolated incident, because it could be considered an adventure or concern in the nature of trade.

    If the sale of a cryptocurrency does not constitute carrying on a business, and the amount it sells for is more than the original purchase price or its adjusted cost base, then the taxpayer has realized a capital gain.

    Capital gains from the sale of cryptocurrency are generally included in income for the year, but only half of the capital gain is subject to tax. This is called the taxable capital gain. Any capital losses resulting from the sale can only be offset against capital gains you cannot use them to reduce income from other sources, such as employment income. You can carry forward your capital losses if you do not have any capital gains against which to offset those losses for the year or any of the preceding three years.

    For more information on capital gains, see Guide T4037, Capital Gains.

    Learn About The Process

    The ULTIMATE GUIDE For Mining Cryptocurrency With Your PC

    Not every digital currency can be mined, and the process for one mining operation may vary significantly from that of another. One of the first steps that you’ll need to take if you’re interested in being a cryptocurrency miner is to learn about the different cryptocurrencies that are available to be mined and decide how and what you would like to mine. Some of the biggest cryptocurrencies in the world, including bitcoin, are uncovered through a mining process. However, bitcoin mining operations may be significantly less lucrative now than they might have been several years ago this is owing to the dramatic increase in the number of miners, the increased difficulty of the mining process over time, and other related factors.

    Learning about the process of mining and determining which coins or tokens you’ll aim to mine is also useful because it will give you a sense of the kinds of equipment pieces you may need to track down. This is another way in which cryptocurrency mining can be dramatically different depending upon the area in which you focus. Some cryptocurrencies require powerful graphics hardware to mine, and overwhelming demand for this equipment has caused the cost and effort associated with setting up a rig to skyrocket. Others may be more accessible in terms of the equipment that you need. Taking the time to carefully consider how you’ll mine is worth your while.

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    Check That You Have The Required Hardware

    Computers

    Depending on your cryptocurrency of choice, it might be in your best interest to invest in a high power, high performance computer. This computer is going to need to run 24/7 constantly working towards processing transactions.

    This may mean that you need to have its resources 100% dedicated to mining, and that mining on a personal computer may not be an option.

    However, keep in mind that this might not always be true as some cryptocurrencies may be designed to run more efficiently and be more compatible to run on your personal computer at home. You will have to look into what type of cryptocurrency you want to mine and see which technical requirements this will entail.

    Electricity

    One of the things youll quickly learn about mining cryptocurrency is that it takes constant, steady electricity so you can continue mining uninterrupted. For miners, this will be a consistent overhead cost that youll have to address and take into account.

    If you live in a country where reliable electricity is cheap and readily available, mining can be a great investment option at a possibly reasonable cost!

    Software

    Every miner will need to install special cryptocurrency mining software so the computers process the correct algorithms for the mining process. For example, if youre looking at making an income with Bitcoin, software that is associated with Bitcoin will not be compatible with Ethereum mining software and vice versa. So, make sure you have the proper software tools!

    Terms That Are Usually Used In Cryptocurrency Mining

    1. Blockchain- This term is used for numerous technologies which provide control across a large number of individual actors for security reasons.

    2. Miners: They are the particular nodes whose role is to verify unconfirmed blocks in the Blockchain by verifying the hashes. Once the miner validates the block, it is attached to the Blockchain.

    3. Hashing: This is the process of compressing data into an irreversible jumble of bits. Every set of data would possess a unique hash, and if you wish to change the data, you would have to compute a new hash.

    4. Decentralized: Something that cannot be controlled by a single, central entity or a group.

    5. Blocks: They are the individual section that includes each overall Blockchain. Every block comprises a list of transactions that are 6. completed. Once the blocks are confirmed after that, you cannot modify them.

    6. Nodes: These are the tools that subsist within the Blockchain.

    7. Transactions: The mining process starts with transactions, as it is the trade of cryptocurrencies between two parties. All the transactions get bundled and become a file that gets added to an unconfirmed block.

    8. Nonces: It is a crypto-speak which states a number that is used just once. It can also be said to be a random or non-repeating value. Nonce gets added to hash in every blockchain block, and it is that distinct number that the miners are working for.

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    Considerations And Risks Of Bitcoin Mining

    In addition to the financial risk of not turning a profit, there are technical risks involved in managing high-power devices such as ASICs.

    Proper ventilation is required to avoid the mining equipment burning out components due to overheating. The entirety of the miners electricity consumption is dissipated into its environment as heat, and one ASIC is likely to be the single-most powerful appliance in your home or office.

    That also means you need to carefully consider the limits of your electrical grid when Bitcoin mining. Your homes electricity network is rated up to a maximum level of power, and each socket has its own rating too. Exceeding those limits could easily result in either frequent outages or electrical fires. Consult an expert to determine whether your electrical setup is safe for mining.

    Regular maintenance against dust and other environmental factors is also required to keep the mining devices healthy. While failures are relatively rare, ASICs can go out of commission earlier than expected without proper maintenance.

    While single ASICs may fail, the largest threat to their profitability is them becoming obsolete. More efficient miners will eventually crowd out older devices.

    Historic generations of miners like the Bitmain S9, released around 2016, lasted approximately four years before becoming unprofitable under any electricity price configuration . However, the speed of advances in computing technology is largely unpredictable.

    Can I Use My Personal Computer To Mine Cryptocurrency

    How cryptocurrency works for dummies

    It depends. If you have a powerful custom-built gaming PC with good quality GPUs, then yes. However, if you have a cheap laptop with 4 GB RAM and a crappy GPU, then no. You may even end up destroying your computer.

    It also depends on what cryptocurrency you want to mine. If youre looking to mine Bitcoin, for example, then your personal computer will yield less than a dollar worth of BTC tokens in an entire year! On the other hand, if you select a less resource-intensive cryptocurrency like Electroneum, you could accumulate a decent number of coins in a relatively shorter period.

    Mining cryptocurrencies like Bitcoin using a personal computer was possible and quite profitable back in 2009 when the difficulty level was minuscule and confirming one block netted miners 50 BTC. Thats no longer possible today. Not only are the hash problems astronomically more complex, but the block reward was reduced to 6.25 BTC in 2020. It will halve again in 2024.

    The only way anyone could profitably mine Bitcoin or other cryptocurrencies that use the SHA-256 hashing algorithm is by building a powerful mining rig, or more realistically, join a mining pool. The same goes for Ethereum and many of the cryptocurrencies that are in the top 20 based on market capitalisation.

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    Joining A Cryptocurrency Mining Pool

    Cryptocurrency mining is lucrative, but the process is quite complex. Bitcoin, for example, is set up in such a way that as more miners attempt to verify transactions, the more difficult the mining level becomes.

    Joining a mining pool is a much better option than going at it alone. Yes, youll have to share the rewards, but the payouts will be more regular and your overall investment will be smaller. Lets look at the advantages and disadvantages of using mining pools.

    Pros

    • Its a smaller investment in terms of hardware, power consumption and overall maintenance.
    • Higher likelihood of getting a reward, even if you have to share it with other miners.
    • You dont have to worry about ASIC hardware issues.
    • You can invest in multiple cryptocurrencies at once instead of limiting yourself to one option.

    Cons

    • Smaller income because you have to share the block rewards with a number of people.
    • Pools can suffer interruptions because of outages and other reasons.
    • Most mining pools charge fees.

    Day Trading / Technical Analysis

    I wanted to speak briefly on this.

    A lot of people are getting into day trading, or technical analysis.

    This is essentially where you look super micro at a specific chart and attempt to trade on what that chart has done in the past and predict what itâs going to do in the future.

    Okay, youâve seen the graph⦠what should we do now? Buy or sell?

    There are two fundamental flaws of this.

    First of all, it assumes humans are rational.

    WE ARE NOT.

    The crash of Bitcoin in 2017 is the perfect example of this. If we were all rational human beings, we wouldnât freak out that the price has gone down by $500. We would all hold because that way, it wouldnât drop any more.

    But, we really think to ourselves, what happens if I donât sell, and everyone else does. Then Iâm screwed! Iâm going to sell it all.

    And then you get a crash that wipes off more than half the value of the crypto industry.

    Even though you might want to trade because usually you think when thereâs two peaks in a row, it means the price is going to go down, please donât assume itâs going to go down. Sometimes it will, and sometimes it wonât.

    After studying finance and investment analysis for 4 years, the one takeaway I walked away with was that Iâm silly if I think I can predict the market.

    The second fundamental flaw is that we forget that the person with the most information will usually win.

    And that person is rarely us.

    Who do you think won?

    Yeap, the monkeys still wonâ¦

    Yeap.

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