Crypto mining was a term coined in 2009 when Bitcoin was first introduced. Since then, online investors have set up rigs and started mining farms around the world to cash in on the ‘digital gold’. This tutorial explains what crypto liquidity mining is and how it works. We also discuss the best software available and provide a guide for beginners to get started from home.
Crypto Mining Explained
Crypto mining is the process by which new cryptocurrency coins are entered into circulation. This is not mining in the traditional sense, where equipment and tools are used to remove materials from the Earth.
Instead, individuals or companies from New York to Japan use high-powered machines, such as computers and PCs, to solve complex mathematical equations and validate transactions to earn a monetary reward.
Crypto mining does not only validate the transactions of others on the blockchain network, it also yields coins in the crypto they mined. For example, a Bitcoin miner would earn BTC every time they successfully mined the coin.
How Crypto Mining Works
When someone sends a coin to a business or person, it is called a transaction, and that must be verified. With traditional transfers of money, banks and receipts verify the transaction. With cryptocurrency, miners verify any transactions to ensure individuals cannot make copies of their Bitcoins and spend them more than once.
Miners clump transactions into blocks and add them to a public record called the blockchain. One block is 1MB of transactions, and nodes (connected computers) maintain a record of these blocks.
Before a verified block can be added to the blockchain, crypto miners must solve a complex computational maths problem known as “proof of work”.
Crypto miners will attempt to produce a 64-digit hexadecimal number, known as a hash, that is equal or near enough to the target hash for that block.
A computer guesses solutions at a rate of hash per second (h/s) until it arrives at the correct solution. The individual, business or company that verifies the 1MB block and arrives at the solution first wins the block and is rewarded with tokens.
The process of crypto mining requires a very large number of kilowatt-hours (kWh) worth of power consumption and will therefore incur high electricity costs.
Moreover, there is a large impact on global warming, so some companies in the UK and abroad are looking to use green, renewable energy sources to power their mining systems in a bid to reduce their environmental impact.
Not all cryptocurrencies require mining as part of their verification system. Mining stands as a proof of work of the node, ensuring that it has a monetary investment in the system and stands to gain from its proper operation, thus verifying honestly.
Proof of stake systems, on the other hand, simply require that verifiers stake some of their coins into the network to ensure they are invested.
How To Make Money Crypto Mining
Crypto mining is not a cheap enterprise to get into and will require a powerful and effective rig. These often cost thousands of dollars, making the crypto mining market inaccessible to many. That being said, the investment can get paid back in the long run, as the efficiency and performance of the hardware can make a big difference to your profits.
There are many rigs for sale in the UK and around the world; the simplest comparison point is the hash power, in h/s. This represents the number of 256-bit numbers the rig can compute every second. Some rigs on the market can achieve rates of up to 110.0 TH/s.
To make money with crypto mining, two conditions need to be met. The first is a matter of effort and the second is a matter of luck. The effort relates to verifying 1MB worth of transactions, the relatively easy part. The difficulty lies in being the first person or company to arrive at the correct hash number. Only the first person wins the block and only the winner is rewarded with tokens.
If you are lucky enough to win a block, you might be wondering how much you will make. The profitability of mining crypto depends on the value of the token being mined. Popular tokens such as Bitcoin are worth more but are difficult to mine and require a lot more computing power. As a result, amateur mining of popular tokens is unlikely to be profitable, unless you are part of a specialized company or mining pool.
An easier route for new enthusiasts or beginners would be to mine lesser-known coins. These are less rewarding but can offer potential opportunities.
Crypto Mining Scams
One thing you should be aware of before considering crypto mining is the risk of cybercrime. With profits at stake for popular tokens, there has been an increase in scams involving fake mining equipment, software hacking and fraudulent mining websites.
One notable scam is cryptojacking, where cybercriminals install malware onto a miner’s hardware. This allows them to mine crypto without the owner’s knowledge, and without having to pay a penny in upfront and ongoing costs. Like any other form of hacking, this could happen through a phishing email or a malicious internet download.
Another risk is fake websites claiming to be mining pools or cloud mining platforms. Some may also sell scam mining coins. These operate by luring users into phony websites which claim to offer big rewards or competitive pricing on membership fees. In reality, cybercriminals exploit the user’s hash power, pocketing profits and fees for themselves.
Finally, with hardware vendors often fetching up to tens of thousands of dollars on crypto mining rigs, it’s no wonder that retailer scams have emerged. Many fake retailers simply take the customer’s data and funds, either sending incorrect or damaged hardware or sending nothing at all.
How To Avoid Crypto Mining Scams
The best way to avoid a scam is to look out for any red flags, or things that don’t feel quite right.
- Conduct a background check: Whether you’re signing up for a crypto mining site or purchasing hardware, it’s worth doing a background check on the company before providing any of your details. Look to see if the company is transparent about its business operations and fees.
- Be aware of suspicious links: If the company emails you, never click on a link or attachment until you are certain the company is legitimate. Another telltale sign of a scam, whether in a website, app or email, is spelling and grammatical errors.
- Check customer reviews: With that said, some websites can look genuine on the surface, so researching the company outside of the actual website is also sensible. For example, you could try a quick Google search to see if the company has been flagged as a scam. It’s also worth looking at review websites to see what the company’s reputation is according to customers.
- Check your devices: If you have already purchased crypto mining hardware, keep an eye on its performance and run regular antivirus checks. Cryptojacking can cause devices to crash or overheat. This includes mobile phones, if you have opted for a crypto-mining app.
Pros Of Crypto Mining
- Users with less computing power can join mining pools
- High-performance equipment is available
- Lots of cryptocurrencies can be mined
- Make money without buying coins
- Help crypto to grow
Cons Of Crypto Mining
- Environmental impact
- Component of luck
- Electricity costs
- Hardware costs
- Risk of scams
How To Start Crypto Mining
This step-by-step guide is designed to help newcomers get started, much like a crypto mining for dummies tutorial. The guide explains what hardware you will need, the best software providers and other ways you can earn crypto.
Buy Appropriate Computer Hardware
Technically, any computing device can mine crypto, there are even apps for Android and iPhone devices, but computing power is an important factor for profitability. Due to low processing power, average computers are unable to efficiently mine blocks for major cryptocurrencies such as Bitcoin and Ethereum. It is worthwhile investing in a mining rig with more power. Graphical Processing Units (GPUs) and Application-Specific Integrated Circuits (ASICs) are the front runners in crypto mining.
Crypto mining rigs release a lot of heat as they work, so it is important to cool the system down efficiently. Placing electric cooling fans and air fans next to the hardware can help solve this problem. Additionally, opening windows or turning on air-conditioning can help mitigate the issue.
Find A Crypto Wallet
You will need to open an account with a cryptocurrency exchange such as Coinbase. This is where you will receive and store the rewards you earn from mining. From there you can trade, HODL or sell your cryptocurrency, as desired.
Download Mining Software
Choosing the right software is vital to your mining experience. Here, three of the more popular crypto mining programs are explored and reviewed. Before downloading anything, make sure to check that the websites are legitimate.
CGMiner has been around for over six years and is coded in C, which ensures it is compatible with almost any operating system. This crypto-mining software supports multiple mining pools and devices, functioning via a simple command-line interface. Although it is designed for use with dedicated mining hardware, i.e. ASICs, GPUs can also be used.
MultiMiner is good for beginners with a helpful ‘getting started’ wizard that takes you through the process of entering your pool information, giving helpful tips and clarifying new terms. The software automatically scans for crypto mining devices and lists details such as the pool used, profitability and average hash power in a simple table. The program also displays your projected daily profit with your mining rig.
Easyminer is another free program that is designed with an easy-to-use interface to make mining a lot simpler. The dashboard allows you to configure mining pools, amend network settings and view your wallet. The settings feature can be used to enable ASIC hardware, such as Antminer.
This program can mine using CPUs, ASICs and GPUs simultaneously, making it particularly efficient. Bitcoin and Litecoin are both mined by default, though there is no easy way to stop either of these from being mined if you are only interested in one.
If solo mining with heavy hardware doesn’t appeal to you, joining a mining pool could be a viable option. Mining pools are groups of miners who contribute to the mining process together and share block rewards.
The benefit is combined computing power and therefore faster group hash rates. Also, since you don’t necessarily need to build a multi-GPU mining rig to participate, the initial setup and cost can be more accessible.
With that said, it’s still advised to invest in decent equipment if you hope to stand a good chance.
To get started, you need to find a pool to join. Some important factors to consider include pool size, fees and payment cycles. KuCoin, for example, offers a pool for Bitcoin and Litecoin, with 2% mining fees and daily payouts.
Another option is to sign up with a cloud miner. This involves paying a third party to mine crypto on your behalf, using its own hardware. Users will typically pay a monthly fee to use the hardware and will get a share of the reward if a block is mined.
Cloud mining is better for those who want to earn without draining their own resources. The best part is you don’t need any special equipment. The downside is you are often locked into a contract where you are expected to pay electricity and service fees.
Popular exchanges such as StormGain, for example, offer cloud mining with a loyalty program related to your trading volume; the higher your trading volume, the faster you can mine.
Alternatively, you could try your hand at crypto trading via derivatives such as leveraged CFDs or perpetual contracts. These allow you to gain exposure to the price of a crypto asset, without an expiry date or having to own the underlying asset. FXCC, for example, offers leveraged CFDs on Bitcoin, Ethereum and other leading tokens.
Traditional crypto futures are also available, where the contract has an expiry, and physical or financial settlement is required. You can trade crypto futures at popular brands such as Kraken and KuCoin, with taker fees as low as 0.01% and 0.06%, respectively.
The benefit of crypto trading is that many of these platforms are easier ways to access the market, allowing you to buy, sell, trade and mine all in one platform. With that said, crypto exchanges have a concerning track record with several high-profile firms going under due to mismanagement and fraudulent activities. As a result, carefully check the credentials of any exchanges or use more reputable crypto brokers.
Final Word On Crypto Mining
Crypto mining allows users to earn potential rewards whilst also giving back to the crypto community. Mining crypto can cost a lot in upfront and ongoing fees, and many of the popular tokens are now very difficult to mine solo. However, joining a crypto pool or cloud mining platform could be a more accessible route.
Alternatively, you can gain exposure to the price of crypto assets via derivatives trading, which is often available at more established traditional brokers.
Is Crypto Mining Legal In The UK?
Crypto mining is legal in the UK. You are free to mine as long as you are not stealing electricity or computing power from other people.
Is Crypto Mining Profitable In The UK?
This depends on the computing power you have available, the software you use and the coin you choose to mine. While Bitcoin is unlikely to be profitable for the average user, other coins such as Ethereum, Zcash, and Dogecoin are still accessible, as they require less computing power.
Is Crypto Mining Safe?
Crypto mining comes with risks, including scams like cryptojacking. These can target users by infecting your computer and illegally mining without your knowledge. In addition, some mining websites and hardware retailers can be fake. To protect against this, ensure you only visit trusted websites and make sure you have an antivirus program installed on your computer.
Is Crypto Mining Bad For The Environment?
The high rate of energy consumption can be bad for the environment, due to the sources of electricity. Today, renewable energies can be used to reduce the environmental impact of mining crypto.
Does Crypto Mining Damage Your GPU?
There is no simple answer. If your setup is being run 24/7, it can be bad for the GPU and its lifespan, due to excess heat from other components. However, it does not necessarily put any more stress on your GPU than playing demanding video games, for example.
Can I Start Crypto Mining With My Laptop Or Mobile Phone?
The short answer – yes. Your laptop will be able to run the software required for crypto mining and there are iPhone and Android apps to do the same. However, the computing power on both laptops and mobiles tends to be so low that the money you make will be small, if you make anything at all.
Will I Pay Tax On The Money I Make Mining Crypto?
Yes, you may be required to pay income tax on any profit made mining crypto in the UK or abroad, if you are earning over the limit set by your government. How much you pay will depend on the amount of profit earned and your income from jobs or other sources. There are calculators available to tell you how much you need to pay.
What Is A Crypto Mining Farm?
A farm is a large-scale crypto mining operation with very high computing power and a significant number of GPUs and ASICs. These farms are capable of incredibly high hash-per-second outputs.