Mining Altcoins sounds like a good way to earn passive income without needing to make the massive upfront investment that you need for Bitcoin mining. But where do you start and how do you go about it? In this comprehensive guide, I will walk you through all you need to know about how to mine altcoins and the best practices you need to follow. I will tell you about how to choose the right mining equipment, what you need to know about mining software and wallets, and how to select the most profitable altcoins to mine. Additionally, we’ll explore the benefits of joining mining pools, optimizing mining operations, and managing costs effectively.
Now before we start, there are two types of mining activities you need to be aware of:
Proof-of-Work and Proof-of-Stake mining.
It is important that you understand the differences between the two because they will greatly affect your potential to earn a return on your investment.
Proof-of-Work mining explained
Proof-of-Work mining is a methodology that the first blockchains used to validate transactions. For example, the Bitcoin network uses a Proof-of-Work consensus mechanism.
You see a blockchain is simply a database of transactions. The database might say something like:
“Kate has 3 Bitcoins and sent John 2 Bitcoins. Michele sent Pavitra 0.1 bitcoin and so on.”
This is similar to how your bank has a database saying your transferred $80 to the grocery store owner to pay for your groceries.
Except with a bank, it is the bank that is the ultimate defender of the truth. The bank acts like a central intermediary that clears all transactions.
With a blockchain, however, there is no central intermediary.
Hence, an alternative way was necessary for everyone to agree on what transactions have occurred. This alternative way is known as Proof of Work.
Proof-of-Work to the rescue
With Proof of Work, anyone can participate in the validation of transactions. To add a block of transactions to the blockchain network participant known as miners have to solve a cryptographic puzzle which gets more challenging over time. To solve the cryptographic puzzle a miner needs computing power which in turn requires electricity. And because the mining equipment tends to overheat you also need electricity to power fans.
As the mining difficulty increases you need a higher hash rate and therefore more power. This is why many have started to look into mining altcoins as an alternative to mining Bitcoin.
In return for doing all this work, individual miners are rewarded in cryptocurrency. For example, the Bitcoin network offers block rewards in new Bitcoin.
But Bitcoin isn’t the only blockchain network to use Proof of Work. Altcoins such as Monero, Ethereum Classic, Bitcoin Cash, and Dogecoin are just a few examples of Altcoins that you can mine using a Proof-of-Work consensus mechanism.
I will tell you more about them shortly but let me briefly explain the second way to mine altcoins.
Most geeks admire the Proof-of-Work consensus mechanism for its simplicity in aligning incentives. Pow ensures everyone agrees on a common truth. From there on it gets very philosophical and political.
But there is a major practical problemo with Proof of Work:
It guzzles up a lot of electricity.
And this was making very bad PR for crypto despite 57% of the energy coming from renewables.
So a new method was concocted which is called Proof-of-Stake.
In a Proof-of-Stake consensus mechanism, validators raise their hands to be the ones to add a block of transactions to the blockchains.
To be able to raise your hand you need to stake some of the native cryptocurrency of the blockchain. For example, to participate as a validator for Ethereum you need to stake ETH.
Now, the more you ETH stake the more likely you will get selected to add the new block. If you do add a block you are rewarded with more ETH. However, if you try to do dodgy stuff then you lose your stake. Your crypto is at stake so to speak.
As you can see, once again, incentives are aligned so that you do not try to cheat the system. The more you stake the higher the chance you have to win new coins, the more you have to lose, and the more trustworthy you become.
How you earn money by mining with Proof of Stake
Now the cool thing is that as an individual you can give your stakeable crypto to a validator and they will give you a cut of the block reward in return. So, for example, if you have ETH you can lend it to a validator and earn 3.5% in ETH as an annual yield.
Pretty cool huh?
When people talk about mining they are usually referring to Proof-of-Work. So let’s take a closer look at how to mine altcoins with Proof-of-Work. At the end of this article, I will point you to some resources on how to earn a yield on your crypto if you don’t want to invest in expensive equipment and geek out with the whole mining thing.
How to mine Altcoins
Bitcoin mining is hard. It requires a large upfront investment and because the cryptographic puzzles are hard it is not entirely clear that you will be able to solve the puzzle frequently and cover the cost of electricity.
An alternative way to earn a passive crypto income is to mine altcoins.
An altcoin, short for “alternative coin,” is any cryptocurrency that is not Bitcoin. If you want to get technical an altcoin is the native coin of any blockchain that is not the Bitcoin blockchain. So ETH is an altcoin but the ERC-20 coins minted on top of the Ethereum Network are tokens.
There are more than 300 altcoins that use Proof-of-Work. Here are the top 20 by market cap.
|Top 20 Altcoins by Market Cap|
|Bitcoin Cash (BCH)|
|Ethereum Classic (ETC)|
|Bitcoin SV (BSV)|
|Conflux Network (CFX)|
|Bitcoin Gold (BTG)|
|Nervos Network (CKB)|
So how do you decide which altcoin to mine?
#1. Choosing the Right Altcoin for Mining
There are several factors to consider when selecting a cryptocurrency to mine, such as market demand, profitability, mining difficulty, and the algorithm used.
Factors to Consider
- Market Demand: Before diving into mining a particular altcoin, make sure you assess its market demand. Look for cryptocurrencies that have a strong user base and active community support.
- Profitability: The profitability of mining an altcoin depends on various factors like block rewards, transaction fees, and the value of the cryptocurrency itself. You must visit the respective coin’s website to understand these in detail.
- Mining Difficulty: Each cryptocurrency has its own mining difficulty level, which determines how hard it is to solve complex mathematical problems required for block validation. Lower mining difficulty implies higher chances of successfully mining blocks and earning rewards.
#2. The 3 Most Popular Altcoins for Mining
Several altcoins have gained popularity among cryptocurrency miners due to their potential mining rewards and mining profitability, as well as their broader adoption within the crypto community.
- Litecoin: Often referred to as “the silver to Bitcoin’s gold,” Litecoin offers faster block generation times and lower transaction fees compared to Bitcoin. Its relatively low mining difficulty makes it an attractive choice for beginner miners.
- Monero: Known for its focus on privacy and anonymity, Monero has gained traction among users who prioritize confidentiality in their transactions. Monero’s algorithm is designed to be resistant to specialized ASIC hardware, making it accessible for CPU or GPU miners. This might be a good one to mine if you don’t want to make an expensive upfront investment in mining machines.
- Dogecoin: As one of the largest cryptocurrencies by market capitalization, many miners opt to mine for Dogecoin. When you mine Dogecoin you are also mining Litecoin. You can mine Dogecoin with either a GPU or an ASIC mining machine.
- Ethereum: Ethereum used to be a Proof-of-Work blockchain but now has transitioned to a Proof-of-Stake consensus mechanism. This means that you don’t need any upfront investment apart from the purchase of ETH to participate in the staking process.
#3. Researching Specific Requirements
Before deciding on which altcoin to mine, you need to be aware of the following dimensions of mining.
Different cryptocurrencies may require specific mining hardware, such as ASIC miners or GPUs. Ensure that you have the necessary hardware to efficiently mine your chosen altcoin.
Apart from the mining machine itself, you are going to need access to electricity, preferably cheap electricity. If you have more than one machine, you will need shelves to store your miners and fans to cool them. Most often you will need a mining container that can fit 20-30 miners. (Check out Bitcoin mining container prices here) If you don’t want to avoid the hassle of DIY then you can rent space with a mining hosting provider. This way you only purchase the machines and send them to a hosting provider where you rent the space and pay for electricity.
Joining a mining pool can increase your chances of earning consistent rewards by combining hashing power with other miners. The likelihood of you solving the puzzle by solo mining with one mining rig is quite low. If you join a pool however you increase your chances of your pool solving the puzzle and share the reward. This is a clever way to smoothen your income flow. If you are going to start off at home or with a small container then you should consider joining a pool. For example, check out my article explaining what a Dogecoin mining pool is.
If you don’t possess the required hardware or want to avoid the hassle of setting up and maintaining equipment, cloud mining services offer an alternative. These services allow you to rent hashing power from remote data centers. The benefit of cloud mining is that you just need to invest capital and the cloud mining provider takes care of the rest. However, you need to be extremely careful because there are loads of scams out there. It is hard to prove that your money has indeed been used to purchase mining machines.
You also need to understand a thing or two about miners.
Altcoin Mining with CPU, GPUs, and ASICs
There is more than one way to mine altcoins. The machine you use depends on the altcoin that you plant to mine. As a general rule, ASICs are the most efficient and most expensive machines to mine with. Next in line are GPUs and finally more accessible but least efficient are CPUs i.e. your personal computer.
While CPU mining is less profitable nowadays due to advancements in technology, GPU mining remains a viable option for certain altcoins.
CPU mining involves using your computer’s processor to perform the complex calculations required for mining. In the early days of cryptocurrency, this method was widely used as it allowed individuals to mine coins using their existing computers. However, as cryptocurrencies gained popularity and their algorithms became more complex, CPUs proved to be less efficient compared to GPUs.
While CPU mining may not yield significant profits in the bitcoin some altcoins are specifically designed to be mined using CPUs. For example:
can all be mined with a CPU miner.
GPU mining takes advantage of the powerful computing capabilities of graphics cards to mine altcoins. Graphics cards have hundreds or even thousands of cores that can handle parallel processing tasks effectively. This makes them much more efficient than CPUs.
GPUs from manufacturers like NVIDIA have become particularly popular among cryptocurrency miners due to their high processing power. These GPUs provide a significant boost in performance for crypto mining, compared to CPUs, allowing miners to maximize their computing power while minimizing energy consumption. This makes them ideal for use in cryptocurrency mining pools and crypto mining farms.
Many altcoins, including popular cryptocurrencies like Ethereum Classic and Monero, heavily rely on GPU miners for their crypto mining. GPU miners contribute their computing power to secure the network and validate transactions for these crypto coins like bitcoin.
Note: there is a newer technology that is being adopted by crypto miners called field-programmable gate arrays (FPGA). These machines can be more efficient than ASICs and consume less electricity. However, they require more technical knowledge as you have to fiddle with both the software and digital circuit design to set them up correctly.
For more on the above check out Bitcoin mining CPU vs GPU.
Step-by-Step Guide to Mining Cryptocurrency
Set up a digital wallet to store your mined coins securely.
To begin mining altcoins, the first step is to set up a digital crypto wallet where you can safely store your newly mined coins. There are various types of wallets available. You will need an online wallet to accept the rewards and from there you can use a hardware wallet if you want to increase your security.
Choose between joining a mining pool or solo mining based on your resources and preferences.
Once you have set up your digital wallet for Bitcoin and crypto, the next decision is whether to join a mining pool or engage in solo mining. I recommend you join a mining pool no matter your mining set up as this will ensure a more predictable income flow.
Install suitable mining software, configure it correctly, and start the mining process.
Next, install appropriate mining software onto your chosen mining device. The software ensures smooth communication between your hardware and the crypto blockchain network.
Popular options for crypto mining software include CGMiner, EasyMiner, and BitMinter. Once installed, configure the software by entering relevant details such as pool information or selecting algorithms for solo mining crypto. Double-check that all settings are properly configured before commencing the actual mining process.
Start Mining Altcoins
With everything set up correctly, it’s time to start the actual process of mining altcoins and crypto. Launch the installed software and let it connect with either your chosen pool or directly with the blockchain network if you opted for solo mining. The software will utilize your computer’s processing power to solve complex mathematical problems, contributing to the verification and validation of transactions on the network. As a reward for your efforts, you will receive altcoins as block rewards for mining Bitcoin and crypto.
Considerations for Successful Mining
While mining altcoins can be lucrative, it’s essential to consider the following.
Firstly, keep an eye on the price of the altcoin you are mining as it directly impacts your profitability in the crypto market.
You are going to need to create a spreadsheet to calculate the cost of your inputs and outputs. I would recommend you do not remain exposed to price fluctuations. At the very least make sure you sell enough of the reward so as to cover your monthly fees such as your hosting or energy costs.
- Set up a digital wallet for secure storage of your mined coins.
- Choose between joining a mining pool or solo mining
- Install suitable mining software and configure it correctly.
- Start the mining process by launching the crypto software and connecting with either a pool or blockchain network.
- Consider altcoin prices and electricity costs when determining profitability.
Q: Is altcoin mining profitable?
Altcoin mining, including bitcoin and crypto, can be profitable if approached strategically. It requires careful consideration of factors such as electricity costs, equipment expenses, market demand for specific altcoins, and overall network difficulty levels.
Q: How long does it take to mine an altcoin?
The time it takes to mine a bitcoin or crypto altcoin varies depending on factors such as the mining algorithm, network difficulty, and your hardware’s processing power. It can range from minutes to hours or even longer.
Q: Can I mine altcoins with my laptop?
While some less demanding altcoins may be mineable with a laptop’s CPU or GPU, it is generally more efficient to use dedicated mining rigs or powerful ASICs for optimal results in Bitcoin mining.
Q: Do I need to join a mining pool?
Joining a mining pool is recommended for most miners, especially those with limited resources. By pooling resources with a group of miners you increase the chances of earning rewards
Q: Are there any risks involved in altcoin mining?
Altcoin mining, including bitcoin, involves certain risks such as hardware failure, fluctuating cryptocurrency prices, regulatory changes, and potential security vulnerabilities. It is essential to stay informed and mitigate these risks effectively.
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