What Is Helium Mining? An absolute beginner’s guide

Helium mining and the Helium network are one of the easiest crypto projects to understand.

It is easy to become discouraged when trying to understand the world of crypto and blockchains.

Just when you think you have grasped the basics, people will start discussing another token that requires you to fire up your brain to form new neural pathways.

Helium stands apart from bitcoin and Ethereum in that it addresses an issue that is not related to finance. It also has real world application and wide adoption outside the crypto community.

Read on for a simple explanation of what Helium mining means.

This will be the smoothest way to form those new neural connections.

what is helium crypto
Helium crypto homepage

What is Helium mining?

In a nutshell, Helium is building a low powered wireless network for sensors. And by being a part of that network you can be a miner and earn HNT.

Huh? Wireless whaties?

Don’t worry, I had the same reaction.

First let’s understand wireless stuff.

1/15. What do Telecoms companies do?

All the large carriers such as AT&T, Verizon, Vodafone etc. operate cellular networks.

These initially carried voice so people could talk to each other on their cell phones.

Over time they improved in order to be able to carry data: internet browsing, video watching, VoIP (the protocol used by Skype, Whatsapp etc. when you talk).

The wireless broadband that these carriers provide is known as LTE (which stands for…actually who cares).

In most countries you get 3g or 4g LTE and now efforts are being made to offer 5g. There are lots of technical acronyms in the telco industry but the above terms are pretty mainstream.

In order to build their networks, carriers need a lot of upfront capital.

They need this for infrastructure such as towers and so on but they also need it to win spectrum.

2/15. What’s spectrum?

This is my definition so it might not be 100% technically correct. But it works conceptually.

There is a range, a spectrum, of radio wave frequencies that we can use to offer various wireless services from radio to TV to cellular networks.

In order for one not to interfere with the other, governments allocate bands of spectrum to different uses.

They then auctions bands to different companies.

This is why you can have millions of radio stations on the internet but usually only 100s on the radio.

Telcos often need to pay in the billions of dollars in order to license spectrum to offer their services.

So this industry, so far, has been all about the big players: big upfront capital investment, big operating expenses, big lobbying and so on

3/15. More things you should know about wireless networks

Cellular networks are not the only way to transmit data.

You are also familiar with the wireless internet your router offer you at home. And you are also familiar with Bluetooth.

You use the wireless internet to work and entertain yourself and you use Bluetooth to listen to music on your headphones or hook up your watch to your phone.

Great! Why am I telling you all this?

4/15. Enter the internet of things

infographic showing internet-of-things examples
The internet of things

When you hear the internet of things you think “oh yeah man, I know what that is: It’s my amazon Alexa speaker that I can use to turn on the lights at home.”

stick figure drawing of person thinking
“Ooh Yeah! I’ve got this!…”

Or you may think it’s the fridge, the oven, the burglar alarm, the baby camera that now connect to your phone or router.

You are right. But it is more than that.

There are many sensors outside your house that are being used to monitor things.

These require very low power; maybe a couple of triple A batteries every 10 years. These might monitor temperatures or location for example.

Think of a fish logistics company that wants to monitor the temperature in containers transporting fish.

They want to know if and for how long any of that fish was subjected to an unsafe temperature.

But what about consumer products you may ask?

One of the most famous consumer products is the tile app. I bought one for my sister.

Basically it is a little plastic square that contains a chip. You can put it on a keychain.

Then, when you lose your keys you can make the tile ring because it is connected to your phone via Bluetooth.

image of tile app device
The tile device

What if you left it somewhere out of Bluetooth range?

For example, what if you left it down-town in that cafe you were sitting at.

In that case, other tile users might spot it as their Bluetooth captures it while they walk past and send its location on a map that you can check.

The problem here is that is relies on a network of Bluetooth users. You need to build a massive network of Tile users and they have to have their Bluetooth switched on.

Tile would ideally benefit from an always-on long-range Bluetooth network that had 100% coverage. Hint, hint…

So we see that low powered sensors already exist and their application and usage is going to expand exponentially in the future.

There are multiple industrial uses from insurance companies that want to monitor leaks to manufacturers that want to know the location of their product that it’s just bound to expand.

Now these sensors only require to send small packets of data and they do this infrequently.

Traditional carriers have not been able to service them because the fees they would charge are just two small and the upfront capital investment too high.

5/15. How does Helium mining solve the problem?

You know how Bluetooth is short range for simple uses in your house.

Well Helium offers something similar but it is long range, anywhere between 1 -60 miles, for simple uses outside the house such as sensors sending data.

And Helium achieves this by outsourcing the work to you and me.

Anyone can purchase a hotspot device that hooks up to your internet router and then emits its own signal in its area though a little antenna that comes with it.

If there are things to block the signal, like city skyscrapers, the range might be lower but then, in a city, there are always many others offering hotspots as well.

On the other hand, if there is nothing to block the waves you emit, then they could travel for tens of miles.

6/15. What is a Helium mining hotspot?

A Helium hotspot looks similar to any other networking device.

It connects to internet on one side. Then on the other side it uses a wireless protocol network called Long-Fi which can reach tens of miles away from the hotspot.

The range can easily reach up to 40- 50 miles away if there is nothing to obstruct it. In worst cases like Manhattan you can maybe get a mile.

The hotspot device looks like any wi-fi router you find in homes.

image of cluster of Helium hotspots.
Helium hotspot devices. Source: helium.com

My first question was: “ok how safe is this thing? Am I going to get cancer from the radiation it emits?”

My fears were soon assuaged after realizing that the signal it emits is the same as a wi-fi router so really nothing to worry about there.

graph depicting electromagnetic spectrum
A hotspot operates 2.4-5GHz so similar to a wi-fi router. Source: timesnext.com

In terms of data the hotspot can only transfer about 1000 bits per second which is similar to the speeds you used to get in the 90s with dial-up modems.

You cannot use it to transport voice or video so its only real use if for telemetry such as environmental conditions, gps location etc.

While devices like this did exist before Helium developed its hotspot, it was only either companies using more complex versions of them or hobbyists building their own.

How Helium stood out by building for the user

The team at Helium focused very heavily on the user experience.

Unlike the rest of the crypto world where arguably user interfaces are terrible, Helium has streamlined the process so that when you hook up your hotspot it is effortless and intuitive.

All the blockchain processes such as mining Helium Network Tokens (HNT) happen in the backend.

As a hotspot owner you don’t really need to do anything.

screenshot of the helium hotspot app
The steps to set up your hotspot are simple and the user interface is intuitive to use. Source: play.google.com

Compare the above user experience to that of Curve Finance, one of the most popular decentralized exchanges for stablecoins, and you will understand what I mean.

screenshot of the curve finance homepage
The homepage of curve finance is a stark contrast to Helium’s sleek design. Source: Curve.fi

In terms if electricity consumption a hotspot is like a lightbulb and in terms of bandwidth consumption, at 5Kbs / second, it is not noticeable.

5Kbs / second is about 200 times less that what is required to stream a movie.

The devices come with an antenna that you just screw in and point to the right direction. Some enthusiasts experiment with alternatives but that isn’t really necessary.

Helium hotspot device and antenna
The hotspot comes with an antenna which works great. Source: YouTube ad about Helium

What are some of the hotspot use cases?

  • Boring things such as leak detection are massively important for insurance companies. Insurance companies have started making the deployment of sensors a part of their contract wether at home or in industries in order to monitor leaks in toilets, pipes etc.
  • Cold chain and logistics: Answering questions such as “has food been cool all the way through?” or “where the is the package currently?”
  • Consumer apps such as Tile and Tabs
  • Tracking: Lime uses the Helium network for tracking lost scooters.
  • Nestlé uses it to monitor customers’ water-cooler levels as part of its beverage delivery service, ReadyRefresh.
  • Pet tracking and mousetraps. Yes! Mousetraps!
  • Smart city infrastructure: imagine bins that notify the council when they are full, fire sensors in your local forest or park, traffic sensors and intelligent traffic lights
  • You can find further Helium uses and ecosystem partners on the helium website.

Beyond hotspot devices: Helium Tabs

Remember the Tile app and its restrictions due to bluetooth?

Helium offers a similar device called Tabs which works the same way except it uses the Helium network instead of Bluetooth.

The tab sends infrequent location information that talks to the hotspot which in turn connects to internet.

A device like this would need a new battery every 10 years.

7/15. Helium mining explained: HNT tokens as incentives

The whole reward and incentive structure is built using a blockchain and token structure.

In return for purchasing a hotspot machine and hooking it up to your router you receive HNT, Helium’s native token, every time some device uses your hotspot to send and receive data.

Since HNT is trade-able on exchanges it holds value wether you perceive that value in US dollars or Euros or Bitcoin or HNT itself.

This way Helium does not need to have high upfront capital investment.

The spectrum that it operates on is public. Governments retain a range that is public for anyone to use for free.

So it’s a win-win situation whereby sensor operators can leverage a network that the people are incentivized to offer.

They actually call it “The People’s Network”.

Screenshot of the helium homepage
Helium calls its network “The People’s Network”. Source: Helium.com

There are actually two ways to earn HNT

  1. Through mining: the helium blockchain uses a consensus mechanism called proof-of-coverage. We’ll get in the technical details of this later. But essentially your hotspot device participates in this validation process in return for rewards. The more your hotspot participates in the proof-of-coverage process the more HNT you earn.
  2. Device traffic: if you are in an area where sensors are sending data through you, the sensor operator pays your in HNT. As consumption grows, your hotspot is like a miniature cell tower operator. Anything that your antenna captures will pay you to get access to the internet.

So how much money can you make with mining Helium?

It really depends on the location.

You don’t want to be in the middle of nowhere but you also don’t want to be in a city where there are already loads of hotspots.

For those of you with summer houses on the outskirts of large cities it sounds like you might benefit the most.

The economics and ROI really vary though. Typical HNT returns over a week translate into anywhere between a few bucks to $100 USD.

But then there is also the price speculation you need to account for as HNT has appreciated more than 400% over the last year.

Timeline graph showing HNT price
HNT price has gone from les than $5 in March ’21 to around $23 in March 2022. Source: coinmarketcap.com

8/15. Who founded Helium?

Amir Haleem founded Helium in 2013 with Shawn Fanning (yes, the Napster guy) and Sean Casey.

Portraits of Helium's founders
From left to right: Shan Fanning, Sean Casey and Amir Haleem. Source: Medium.com

After doing a degree in Artificial Intelligence in the 90s, Amir worked in the gaming industry.

At one point he claims he was the best player in the world in the Quake video game series.

While building video games (for those in the know he helped build Battlefield 1942), he met with Napster cofounder Shawn Fanning and together they came upon with the idea of building a wireless network for sensors.

At the time, Bitcoin and blockchains were fairly new concepts that few people understood.

Ethereum had barely been released. In trying to figure out what would be the best mechanism to achieve his goals he concluded that the decentralized nature of blockchains might just be the way to go.

This is probably the right way to go about issues that you want to solve in the world: First, define the problem and then decide how you will solve it. With the current blockchain hype it feels like everyone is trying to identify what problem blockchains could solve rather than the other way around.

In contrast, Helium had tried a bunch of alternative solutions before deciding to use blockchains.

Everyone want to be part of the blockchain revolution. Source. Marketoonist.com

9/15. Helium’s iterations and how it came to be

In a podcast Amir describes how a friend of his was trying to build a baby monitoring device.

At the time the only solution was to hook the device up to Bluetooth which of course if you were more than a few feet away would not work.

Enter LoRaWAN.

LoRaWhat?

Around that time a new protocol was being developed that took advantage of the spectrum that TV stations had abandoned after they went digital.

The new protocol aimed to use this new “white space” to offer a way for battery-operated devices to connect in a wireless network over a long distance.

The name of this technology is LoRaWAN (pronounced laura-when).

This sounded perfect for Amir’s use case.

First iteration

Helium originally acquired a small company that offered something similar to LoRaWAN.

They built a hotspot machine that was a complicated device but then they could not find a way to get people to buy it and install it in their house.

No one one is going to do this purely out of the kindness of their heart.

There were some companies such as Target and Ring that were aligned with the vision of building out this network but this was not enough to scale nation-wide.

Second iteration

In their next iteration the Helium team tried to verticalize their service like some of their competitors were doing at the time.

They decided to focus on a specific location.

For example, they could set up the network and sensors and everything for hotels, restaurants, hospitals etc.

But, while this model had worked for their competition, Amir says it was not really in the DNA of Helium.

Helium wanted to be a platform company with everything being open source and scalable.

Final iteration

At around that time people were starting to get their head around Bitcoin and blockchains.

Ethereum and its smart contracts platform had also been released.

A Helium engineer wrote a whitepaper on how Helium could use a blockchain and there was no looking back from then on: Helium and crypto became entangled.

In terms of the technology Helium eventually decided to use LoRaWAN.

While they did consider something that was better customized to their needs, they realized that they would not be able to scale if they tried to own each and every step in the supply chain.

LoRaWAN was already growing. “Latching on to a bigger system is better. If you build from scratch it is much harder” Amir claimed in a podcast.

The Helium blockchain explained

The Helium blockchain was built from scratch to serve the needs of Helium.

Its wireless hub and spoke model is fairly straightforward and all the complexity is hidden on the blockchain side.

So let’s explore this further

How the Helium blockchain works: proof-of-coverage

Helium decided to develop it’s own blockchain rather than rely on a layer 1 networks such as Ethereum to mint it HNT token.

Just like Bitcoin uses a proof-of-work algorithm and Ethereum (will) use a proof-of-stake mechanism, Helium uses a proof-of-coverage algorithm which it deploys to verify the existence of hotspot devices.

Proof-of-coverage was inspired by Filecoin which wants to be a dropbox for the blockchain era: Everyone can offer space on their laptop to offer a decentralized distributed file management system.

Filecoin wants you to prove you are storing the file over time and can retrieve it if someone needs it.

In a similar fashion, Helium wants you to prove that you indeed do have a hotspot and that it is still there.

This is how proof-of-coverage and Helium mining work

A challenger hotspot creates a challenge packet that is like a layered onion.

So let’s say this challenger sits in Florida and sends its challenge to 7 hotspots that claim to be in San Francisco.

The challenger knows the public key address of those 7 hotspots. But the challenge it sets needs to solved sequentially.

It sends a message to the public key of hotspot 1 over the internet.

Hotspot 1 uses its private key to decrypt the message.

Hotspot 1 has proved to the challenger that is exists because you can only decrypt the message to the public key if you hold the private key.

Now hotspot 1 relays the second layer of the challenge to hotspot 2. But this time the message relays over radio frequency.

If hotspot 2 is where it is supposed to be it will find and decrypt the message and send back the answer to the challenger over the internet.

The system is secure in that no hotspot knows which will be selected for the next challenge.

There is no way to manipulate anything because no one can predict what is going to happen.

Both the challenger and challengee get rewarded in HNT for participating in the proof-of-coverage process.

Chicken and egg: how do you incentivize people to do Helium mining to start with?

When you first set up a hotspot it goes into beacon mode: it’s new and it will send a single layer proof-of-coverage packet.

Nearby hotspots will witness that packet and will inform it which hotposts it should be able to hear in subsequent challenges.

So basically your hotspot is invisible until other hotspots hear you.

For this reason you will often find people setting up 2 or 3 hotspots at the same time if they are in the middle of nowhere. The hotspots that earn the most though tend to be the ones where there are other hotspots.

On the other hand, when you are in a new area you are highly likely to participate in a challenge.

In big cities the probability of participating in a challenge is low.

In a new region, the system rewards you for creating good coverage in that area.

Transition of Helium mining to proof-of-stake

In the summer of 2021 Helium transitioned to a proof-of-stake mechanism.

Proof-of-coverage is still used to monitor and know that the hotspots are where they say they are but all the block building and consensus stuff now happens through a proof-of-stake process.

This means there are validators who verify transactions and it also means that you can stake your HNT to earn staking rewards.

If you want to completely geek out you can read up on the helium proof-of-stake process here.

How many people are mining Helium today?

Today there are more than 600,000 Helium hotspot devices around the world. They operate in more than 40,000 locations across 163 countries and counting.

Map of Helium hotspot coverage
Helium is present world-wide. Source: explorer.helium.com

11/15. Helium Security and Privacy concerns

While no system can guarantee 100% security, the data that flows through hotspots is encrypted.

It is also hard to think of why someone would want to decrypt that data.

In any case, the data is just passing through the hotspot to end up on some server somewhere.

From a security perspective you only know the password to your router.

People are sending data through but you don’t know what that data is and who the senders are.

So you can be certain that you will get paid for the service but you don’t know anything about the data that is being sent.

Even if someone stole the device there is nothing they could do with it since you own the device on the blockchain.

The worst thing they could do is deactivate it. They wouldn’t be able to remove the earnings or compromise the data in any way.

12/15. How is HNT different from other cryptocurrencies

Helium stands apart from other crypto projects for a few reasons.

Firstly, it has received investment by more mainstream non-crypto VC funds.

For example, in its series C Helium raised $54Mn from Google Ventures, Khosla Ventures and so on. These are very mainstream funds that don’t specialize in crypto.

Don’t get me wrong: Helium has also received investment from the likes of Multicoin Capital. But you get the picture.

Secondly, Helium is intentionally ignoring the crypto community.

You don’t find speculative “we’re going to make it! Let’s pump this thing” type of tweets about Helium on Twitter.

And this is intentional. Helium does not want its HNT token to become a speculative asset.

On the contrary, it wants its price to approximately reflect the utility that the Helium network is providing.

The other reason for not engaging with the crypto community is the helium network needs to appeal to a wider demographic of techies and hobbyists who will help them scale geographically.

This is why they decided to focus so much on the user experience.

On the demand side, rather than engineers writing dapps they have companies such as Nestle and Lime.

13/15. Helium mining and HNT Risks

In terms of risks there is always the tech side of things: something breaks down or doesn’t work etc.

However, Helium crypto uses a robust coding language as well as known and existing components to build its infrastructure so this risk is minimized.

There is also a legal risk as Helium is riding off the backs of people’s wifi routers.

It is not clear wether you are legally allowed to use your router and sublease it to the Helium network.

If telcos decided to pull the plug, or more likely try to get a cut this could change things for Helium. So far none of them have complained.

Competition: there isn’t really any. There is a wireless network called NB-IoT that is a competitor to LoRaWAN.

Some cellular networks offer NB-IoT but customers have not really materialized.

Also the technology is more complicated as it uses the same spectrum as LTE does.

There is also some bureaucracy that comes with its use hence so far it hasn’t really taken off.

Finally, there is also the risk that SEC will define HNT as a security.

It is not clear what the tax implications would be in this case for hotspot owners.

14/15. HNT tokenomics

Helium has a fixed supply of 223,000,000 HNT that will be fully distributed by the end of 2070.

They initially issued 5Mn HNT per month and in August 2021 they halved it to 2.5Mn per month.

The next halving will happen in 2 years.

Like with any coin as supply tapers off the price of HNT is expected to rise.

A second factor putting upward pressure on the price of HNT is that HNT is burnt every time a sensor needs to transfer data.

Sensors that want to remit data need to buy Helium crypto data credits.

And you can only purchase a data credit in HNT.

Actually you can also purchase data credit with a credit card but still in the backend Helium burns the equivalent value in HNT.

This means that as micropayments from sensors accumulate it puts downward pressure on HNT inflation.

Important to note is that out of the total HNT supply, 35% goes to miners and investors.

HNT is released to them at 1% per year so that everyone is aligned with the long term sustainability of the project.

15/15. What’s next for Helium

You will have seen from the map that coverage has expanded significantly around the world and this coverage will only increase over time.

A major factor that contributed to this is that there are now multiple manufacturers offering hotspot devices at a range of prices and quality.

The next area that Helium wants to focus on is building 5g coverage.

This is a whole different ball game in terms of technology and spectrum but the principle remains the same.

The 5g technology is much more susceptible to climatic conditions such as humidity and hence it is very hard for telcos to offer this.

The way they decided to get around this is by calling it a different name like 5gE.

But this is not really 5g. 5g would let you stream high resolution movies instantly.

Helium and its crypto model offers a good paradigm around how such a technology could potentially scale.

You can already order 5g hotspots on their site.

Wrapping up Helium mining

When asked what his one minute elevator pitch on Helium is Amir says he has two:

  1. We need a different type of network for low powered things that measure radiation, particulates in the air, humidity, if your is food safe and so on. Cellular networks offer 80 times more power that these sensors need. Helium comes in to fill the space
  2. Helium is a community, people-built network that much like Uber and Airbnb uses existing power, internet and and real estate to benefit everyone.

The Helium pricing model is 10 times lower that what a traditional Telco could offer, requires less power and its cryto-economic model is an enabler that ensures the network is here for the long term.

By mining Helium with hotspots you are not joining a network but are instead powering it.

And that’s about all you need to know about Helium mining folks. Please share if you enjoyed this one. If you want to read about another non-finance related coin check out CLM Coin.

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