Key Takeaways
- Blockchains like Bitcoin rely on crypto mining to validate the network.
- Different blockchains, such as Bitcoin, Litecoin, and Dogecoin, offer different mining rewards to miners.
- The most successful miners use high-power computing hardware like GPUs and ASICs.
What Is Crypto Mining?
For proof-of-work blockchains, mining refers to creating new blocks and validating transactions. Mining also mints brand-new tokens that enter circulation.
Mining is necessary for creating new blocks on a blockchain. It also generates new tokens of a cryptocurrency. You can think of crypto mining as a collectivized US Mint. Mining is central to making the components that keep the entire financial system going. In doing so, mining keeps the blockchain secure.
Sounds boring — so why are so many people interested in doing it? Because you can make money mining. But it’s not for the faint of heart. It requires deep pockets, advanced computing equipment, and enough brainpower to keep the lights on at Milk Road HQ for a year. (More on that in “Who Should Crypto Mine?”)
What The Heck Is Proof Of Work?
Proof of work (PoW) is a consensus mechanism that validates blockchain transactions and ensures all activity on a blockchain is not fraudulent. PoW requires “miners” to solve complex mathematical problems in order to validate a block of transactions and add it to the blockchain. The first miner to solve this mathematical problem gets to add the next block and receives a reward. Proof of work secures the network in such a way that it becomes more difficult to exploit as more blocks are added.
How Does Mining Really Work?
The mathematical problems that miners solve are essentially low-probability guessing games. The network generates a long number string called the “target hash.” Miners compete to be the first ones to guess a value less than or equal to this number. This is a totally random process, so it’s usually those who can guess the fastest (i.e., miners who have the most computing power) who end up guessing correctly and winning the rights to mine the block.
The Bitcoin network is set up to generate a new block approximately every 10 minutes. However, the more miners there are in the network, the faster the target hash is guessed. This means blocks can theoretically be ready faster than the 10-minute target. To combat this, the Bitcoin network constantly adjusts the difficulty of guessing the target hash so that, no matter how many miners there are, the network will mine a new block, on average, every 10 minutes.
Many proof-of-work systems are set up to reduce the rewards given over time. Bitcoin, for example, cuts miner rewards in half approximately every four years. The current Bitcoin reward for successfully mining a block is 6.25 BTC. The next “halving” is slated for 2024 when rewards will fall to 3.125 BTC per mined block.
Pros And Cons Of Crypto Mining
Pros
- A great (if expensive) way to generate passive income
- Allows you to direct the future of Bitcoin and other cryptocurrencies because miners
- get voting power over the blockchain protocols they help validate
Cons
- Very expensive; it takes at least thousands of dollars of investment to make it worthwhile
- Diminishing returns over time because new hardware is always coming out, and blockchains are always recruiting more miners
- For the environmentally conscious, an extremely energy-intensive process
Who Should Crypto Mine?
“I can make money while also helping to run the blockchain at the same time? Sounds like a great deal! Where do I sign up?”
Hold on there, cowboy, not so fast.
Crypto miningused to be really profitable, yes. … But, nowadays, if you want to actually make money rather than just inflate your power bill, you’ll need some serious computing power. Today, mining is not really worth it unless you’re investing at least a few thousand dollars in specialized mining computers (called ASICs, which we cover below).
You can technically mine with consumer-level processing equipment that costs a few hundred bucks, but don’t expect to make more than a dollar or two a day. Miners who rake in the really big bucks run large computer data centers that cost hundreds of thousands or even millions of dollars.
The crypto mine shafts are not for the timid. Don’t say we didn’t warn you.
How Do I Mine Crypto?
In the early days of cryptocurrency mining, you could use everyday at-home computers to mine crypto by generating hash guesses. In fact, it is believed that Satoshi Nakamoto, the pseudonymous creator of Bitcoin, may have mined the first 1,125,150 Bitcoins himself.
Cryptocurrencies are much bigger today, however. The competition to win the reward for mining the next block on big blockchains like Bitcoin and Litecoin is fierce. It’s highly unlikely that using your office laptop to mine for Bitcoin will do anything other than run up your power bill. Instead, miners today have specialized equipment that gives them a leg-up on the competition and gives them a fighting chance of making some money.
Mining Using A Graphical Processing Unit (GPU)
The most accessible option for beginners is to mine using graphical processing units (GPUs). A GPU is a standard piece of computer hardware that is used to generate on-screen graphics. For video games, 3D modeling, and other visually intensive tasks, you can buy a dedicated graphics card that provides the necessary power.
GPUs also happen to be a good way to mine cryptocurrencies. Popular all-purpose graphics cards from manufacturers Nvidia and AMD are traditionally the go-to options for beginners looking to build a mining rig. Below are several of the most popular GPUs for mining, with the expected mining rewards broken down by day for each.
Keep in mind that, given the cost of these graphics cards, it may be years before you receive enough mining rewards to recoup your investment.
| AMD Radeon RX 570 8GB | $350 | $0.85 | 418 |
|---|---|---|---|
| Nvidia GeForce RTX 3060 | $700 | $1.62 | 439 |
| Nvidia GeForce RTX 3070 | $1,000 | $2.10 | 516 |
| Nvidia GeForce RTX 3080 Ti LHR | $1,800 | $2.49 | 754 |
Mining Using An Application-Specific-Integrated-Circuit ASIC
An application-specific-integrated-circuit (ASIC) miner is a specialized computer built exclusively to mine cryptocurrency. Most of the time, ASICs are specifically built to mine a single cryptocurrency (such as Bitcoin or Monero), and they cannot be used for anything else. ASICs are the most effective way to mine cryptocurrencies.
Below are some of the most popular mining ASICs.
| Antminer S19 Pro | $3,195 | $8.59 | 371 |
|---|---|---|---|
| Antminer K7 | $5,000 | $23.85 | 210 |
| Antminer KA3 | $11,390 | $56.44 | 201 |
Crypto Mining Software
Getting a GPU or an ASIC is only the first step in crypto mining. These hardware devices also require software applications to perform their mining function. Mining software comes in all shapes and sizes. Applications vary by the types of cryptocurrency and hardware it supports, as well as by price and usability.
Below are some of the most popular mining software options.
| NiceHash | Bitcoin | GPU ASIC CPU | 2% of earnings | High — simple user interface with one-click auto setup | Beginner Bitcoin miners |
|---|---|---|---|---|---|
| EasyMiner | BitcoinLitecoin | GPU ASIC | Free | High — simple user interface | Beginner Litecoin miners |
| CGMiner | BitcoinDogecoinLitecoin | GPU ASIC CPU FPGA | Free | Low — command line interface only | Experienced miners |
| BFGMiner | Bitcoin | ASIC FPGA | Low — command line interface only | Free | Advanced miners |
Joining A Mining Pool
Whether you’re mining using a GPU or an ASIC, you will almost certainly want to join a mining pool in order to get the most out of your mining.
Mining pools are a simple concept — rather than mining Bitcoin (or any other crypto) in isolation and waiting for the day you guess a hash correctly, you can join forces with hundreds or thousands of other miners. Together, you will guess hashes much more often. You split the rewards among everyone in the pool in proportion to how much processing power each of you contributed with your rigs.
When you join a mining pool and contribute your hashing power to it, you will start earning a small amount of crypto immediately. This amount is proportional to how much power you contributed, so you’ll earn more if you’re running a "spec’d out" ASIC versus a small GPU.
Some of the most popular mining pools include:
Cloud Mining
If you’re not interested in purchasing and setting up thousands of dollars in physical hardware, you can still earn from crypto mining by using cloud mining.
Cloud mining is where you pay to rent existing mining hardware. This hardware usually belongs to individuals or companies with large mining rigs that rent their processing power out. The earnings you gain from these services are yours to keep.
Some of the largest cloud mining pools are:
Investing In Mining Stocks
There is also a clever way to earn from crypto mining that doesn’t require you to do any mining at all.
Instead of investing in mining hardware, you can invest in the companies that run large mining operations themselves. Through this strategy, you can theoretically benefit from the pure demand for mining rather than have to do any mining yourself. Stock market investments come with their own risks, so do your research before investing in any company.
Top Crypto Mining Companies
Riot Blockchain
Riot Blockchain is a publicly-traded Bitcoin miner with over 100,000 Antminer ASICs. It was formed in 2017 when Bioptix, an ailing biotech firm, pivoted to blockchain under a new leadership team.
During the crypto market bull run in 2021, Riot reported over $200 million in revenue and held nearly 7,000 BTC, making it one of the biggest miners on record. However, the market slump in 2022 caused the company’s revenue to drop significantly. In January 2023, Riot replaced its CEO and many executives and announced that it was dropping the ‘blockchain’ from its name to become Riot Platforms.
Marathon Digital Holdings
Marathon Digital Holdings is another publicly-traded cryptocurrency miner. It focuses on mining BTC and by November 2022 claimed to be the second largest holder of the token. As of January 2023, Marathon reported having 8,090 BTC on its balance sheet. However, things have not been completely smooth for the company; it deposited over $50 million with Compute North, a now-bankrupt bitcoin miner, and said it expects to recoup less than half of the amount.
Hut 8 Mining
Hut 8 Mining is one the largest BTC miners in North America. It had amassed over 9,000 Bitcoin at the end of 2022, a 65% increase over the previous year. In February 2023, it struck a deal to merge with another major cryptocurrency miner,US Bitcoin Corp, to become a more formidable miner with over 800 MW of mining infrastructure.
Which Cryptocurrencies Can You Mine?
All proof-of-work blockchains, such as Bitcoin, Dogecoin, Litecoin, Monero, Zcash, and many others, can be mined. Each offers different mining rewards and tradeoffs.
Every blockchain that uses the proof of work consensus mechanism needs miners in order to run. Each of these blockchains provides miner rewards, as discussed above. Below we compare and contrast some of the most popular proof of work blockchains.
Beyond the five listed below, there are many more cryptocurrencies that you can mine. The website whattomine.com keeps track of these cryptocurrencies and helps you determine what crypto is currently most profitable to mine.
Definitions
- Block Rewards: The amount of crypto awarded to the miners that build each block.
- New Blocks Generated: How often each new block is generated.
- Mining Difficulty: A standardized measure of the processing power required to mine a new block. Mining difficulty specifies the number of hashes a computer must produce in order to mine a new block.
| Bitcoin | 6.25 BTC | $140,000 | Every 10 minutes | 38,001,758,333,364 |
|---|---|---|---|---|
| Dogecoin | 10,000 DOGE | $870 | Every minute | 10,388,033 |
| Litecoin | 12.5 LTC | $1,125 | Every 2.5 minutes | 23,290,833 |
| Monero | 0.6 XMR | $105 | Every 2 minutes | 310,364,336,126 |
| Zcash | 3.125 ZEC | $135 | Every 75 seconds | 95,592,414 |
Bitcoin
Bitcoin is the original cryptocurrency and the blockchain that pioneered the proof of work consensus mechanism. Today, successfully mining a Bitcoin block will yield miners 6.25 BTC (which will go down to 3.125 BTC after the next halving in early 2024). Bitcoin also has one of the largest hash difficulties, however, due to the large number of miners on the blockchain.
Dogecoin
The meme-coin-turned-internet-sensation, Dogecoin, is a proof-of-work blockchain first introduced in 2013. Unlike Bitcoin, Dogecoin mines new blocks every minute, but the reward is significantly lower — netting miners around $870 at 2023 prices. Fortunately, the mining difficulty for Dogecoin is low compared to other top coins, so it can be a good place to start for miners with small rigs.
Litecoin
Litecoin is a fork of Bitcoin created in 2011 as an attempt to tackle some of the scaling challenges of Bitcoin. Compared to Bitcoin, Litecoin generates a block four times as often and has a mining difficulty that’s thousands of times less. Of course, the mining reward is significantly smaller, as well.
Monero
Monero is a proof-of-work blockchain launched in 2014. On Monero, no transactions are publicly visible, and the wallet addresses of all senders and recipients are completely obscured. This makes the cryptocurrency the ultimate tool for private transacting. Mining Monero is not as profitable as it used to be, however, so it’s recommended only for miners with large rigs and extra processing power.
Zcash
Zcash is another privacy-first blockchain that aims to be the safest way to send money. The codebase of Zcash is largely based on that of Bitcoin, but it features lower fees and the option for anonymous transactions. Zcash has a lower mining difficulty than most leading blockchains, which may make it a good choice for new miners.
How Much Can You Make Mining Crypto?
How much you make from mining primarily depends on how much you have invested in mining equipment. If you buy a $500 graphics card and use it to contribute to a mining pool, you will most likely earn a few dollars a week. On the other hand, if you invest thousands of dollars and buy an army of ASICs, you can begin to earn thousands of dollars per month.
Keep in mind that the prices of crypto are always fluctuating, though, so you may end up mining coins that are not worth as much as you thought they would be. In addition, new mining equipment comes out every month, and your competition will be buying the latest and greatest to out-hash you.
Crypto-Mining Calculators
There are many crypto-mining calculators available to help you estimate the profit you can expect from a mining operation. They compare factors such as the prices for hardware, electricity, and the cryptocurrency you are mining.
Two of these calculators are the NiceHash calculator and the ASIC Miner Value calculator.
You can also use the whattomine.com website to keep track of the most profitable cryptocurrencies to mine (they’re not always the popular ones like Bitcoin and Litecoin).
Legal And Tax Implications Of Crypto Mining
Crypto mining is a nice way to earn passive income. However, it comes with tax implications and legal restrictions in some countries. Crypto mining is illegal in countries such as China and has recently been restricted due to environmental concerns in New York state.
Crypto earned from mining is considered income in the US. This means you will have to pay an income tax on any crypto you earn as a result of mining. Plus, if you hold on to this crypto and it appreciates in price, you will incur a capital gains tax when you sell your holdings.
Mining Tax Example
- Let’s say you mine some Bitcoin through a mining pool for six months and earn$2,000 of Bitcoin.
- You sell your Bitcoin after another six months, at which point it has appreciated to$2,500.
- You will be liable for income tax on the initial$2,000 and for capital gains tax on the$500 in appreciation.
Frequently Asked Questions
The Bitcoin network generates a new block every 10 minutes. Each time a new block is generated, a reward of 6.25 BTC is awarded to the miner that generated the new block. So, from the standpoint of the network, 6.25 Bitcoins are created every 10 minutes.
From the standpoint of any given miner, however, even advanced ASIC miners will usually take months or even years to generate a single Bitcoin. The difficulty of the network generally increases over time. As more miners come in, generating Bitcoin profitably becomes even more difficult.
In most countries, crypto mining is legal, yes.
Crypto mining and cryptocurrencies as a whole are banned in the following countries: Algeria, Bangladesh, Bolivia, China, Colombia, Egypt, Indonesia, Ghana, Iran, India, Iraq, Kosovo, Mexico, Nepal, North Macedonia, Russia, Turkey, and Vietnam.
You have several options when it comes to mining crypto.
Theoretically, you could mine crypto on any computer that you have lying around. It’s unlikely that you will earn anything, however, unless you mine crypto using GPU or ASIC hardware. Purchasing these rigs can be expensive, so for beginners, cloud mining is one effective option.
In September 2022, Ethereum switched to a proof-of-stake consensus mechanism, which means Ethereum is no longer in need of miners.
There are many different crypto-mining programs out there. The best option depends on your personal circumstances.
Programs like CGMiner and BFGMiner are free and provide lots of customizability, but they can be difficult to operate and are best suited for experienced miners. Programs like EasyMiner and NiceHash have friendly user interfaces and automatic setups, but they can come at a price and provide limited customizability.
Each blockchain is set up to mine new blocks at different intervals.
Bitcoin, for example, creates a new block approximately every 10 minutes. Dogecoin, on the other hand, mines a new block every minute.
From the standpoint of a miner, it may take a long time to guess the hash function necessary to be selected as the builder of the next block. Even with advanced hardware, it may take months or even years to mine a single block.
Crypto mining software exists for desktop computers and mining machines.
You cannot mine crypto using a mobile app on a smartphone — and you wouldn’t want to since crypto mining is a very resource-intensive task.
In a blockchain, miners broadcast transactions to other miners for validation. These transactions are then batched into “blocks” and added to the blockchain. To add a block to the blockchain, miners must go through a computationally intensive process to guess the correct “hash” (which is just a really long number) and get the rights to build the next block.
Crypto mining does not damage your computer.
While crypto mining is computationally intensive, as long as you are using legitimate mining software that does not contain malware and does not overclock your hardware components, your computer should not be damaged in any way.
You cannot mine crypto on your phone.
Crypto mining requires significant hardware power that phones do not have. In fact, most consumer-grade desktop computers do not have the computational power necessary to profitably mine crypto.
Your best bet is to purchase hardware designed specifically for crypto mining or to use a cloud mining solution such as Ecos.
