Like precious metals before, the first way to get crypto was to mine it. But Bitcoin (BTC) and Ether (ETH) aren’t hidden in the ground — they are your rewards for helping to dig up solutions to difficult problems within a digital network. Mining requires the biggest upfront investment, but it has arguably the highest payoff potential in terms of ROI.
How It Works
Decentralized cryptocurrency exists as a network of connected computers. Each computer serves as a verification hub for the transaction ledger, which eliminates the need for a central ledger. Ideally, no individual has the ability to change the transactions after they have been verified. This idea forms the basis of blockchain, the technology underlying Bitcoin and many other cryptocurrencies.
Mining cryptocurrency means verifying transactions for the network. Your computer is one of many bank tellers writing down buys and sells and comparing your notes with other tellers. If your notes match with everyone else’s, the transaction is valid. By “proving your work” against everyone else’s work, the ledger validates itself and resists false transactions.
For this reason, traditional crypto mining is also known as the “proof of work” (PoW) validation model.
Equipment You Need
If you want to participate in a PoW network, you will spend some significant cash on computing power. You will need more power than any consumer-grade computer can provide. The bigger the network, the more computing power you need to compete for the work that needs to be proven. These hubs also use a considerable amount of electricity, which you will need to factor in your crypto mining costs.
Mining experts estimate that you would spend between $12,525 and $15,062 to mine 1 BTC on your own. This includes the cost of hardware, crypto mining software and electricity. If you don’t have that much to spend, you can join a mining pool. Mining pools are just like carpools — a way to get a group to a destination more efficiently.
You can purchase plug-and-play mining rigs or build them piecemeal. There are 3 major types of mining rigs: those powered through a central processing unit (CPU), graphics processing unit (GPU) and the application specific integrated circuit (ASIC).
- CPU: Inexpensive and simple, the CPU is the most accessible rig type for crypto mining. Weekend warriors often modify their home computers to mine crypto straight from their current setup. Nonetheless, the CPU type is losing popularity because of its high electricity costs and lower ROI. But if you just want to download a few software programs and mine, this is your weapon of choice.
- GPU: The powerful graphics cards in modern computer setups are actually better at mining crypto than most CPUs. They are more expensive, too, as many gamers will attest. You will be investing in plenty of cooling fans because mining crypto will take your GPU hardware to its limit.
- ASIC: The application-specific integrated circuit (ASIC) is designed specifically to mine crypto. The ASIC is scarce because of its popularity, but it is extremely powerful — a dedicated ASIC can solve BTC problems 100,000 faster than any CPU. If you are willing to spend the money here, you will have an edge on other miners. Since they are specific to mining, however, they cannot be used for anything else after their lifespan is done. Many coins are actively trying to discourage the use of ASICs because of their enormous power.