Cryptocurrency news has been hot of
late, thanks in no small part to the skyrocketing prices of Bitcoin and
Ethereum, the two largest cryptocurrencies right now. Litecoin and other
cryptocurrencies are also up in value, and given the prices on graphics cards
that are supposed to be useful for gaming,
some of you will inevitably
wonder: should I get into the mining business?That's a big, open-ended question, and the answer depends on many factors. I'm not going to try and cover every aspect, because Google is your friend, but let's quickly go over the basics of what you would need to get started, and I'll include some rough estimates of how much money you can make at the end.
Blockchains and the block reward
The core of mining is the idea of
block rewards. For most coins, these are given to the person/group that finds a
valid solution to the cryptographic hashing algorithm. This solution is a
mathematical calculation that uses the results of previous block solutions, so
there's no way to pre-calculate answers for a future block without knowing the
solution to the previous block. This history of block solutions and
transactions constitutes the blockchain, a sort of public ledger.
What is a block, though? A single
block contains cryptographic signatures for the block and the transactions
within the block. The transactions are collected from the network, typically
with a small fee attached, which also becomes part of the block reward. There's
a difficulty value attached to the solution for a block as well, which can
scale up/down over time, the goal being to keep the rate of generation of new
blocks relatively constant.
For Bitcoin, the target is to
generate a block solution every 10 minutes on average. For Ethereum, block
solutions should come every 16 seconds. That's obviously a huge difference in
approach, and the shorter block time is one reason some people favor Ethereum
(though there are others I won't get into). Simplistically, the number solution
has to be less than some value, and with 256-bit numbers that gives a huge
range of possibilities. The solution includes the wallet address for the
solving system, which then receives all the transaction fees along with the
block reward, and the block gets written to the blockchain of all participating
systems.
Think of it as panning for gold in a stream—you
might get lucky and find a huge gold nugget, you might end up with lots of
flakes of dust, or you might find nothing. If the stream is in a good location,
you make money more quickly. The difference is that with cryptocurrencies, the
'good location' aspect is replaced by 'good hardware.
Setting
up the software
There are many options for
cryptocurrency mining. Some algorithms can still be run more or less
'effectively' on CPUs (eg, Cryptonight), others work best on GPUs (Ethereum,
Zcash, Vertcoin), and still others are the domain of custom ASICs (Bitcoin,
Litecoin). But besides having the hardware, there are other steps to take to
get started with mining.
In the early days of Bitcoin and
some other cryptocurrencies, you could effectively solo-mine the algorithms.
That meant downloading (or even compiling) the wallet for a particular coin and
the correct mining software. Then configure the mining software to join the
cryptocurrency network of your choosing, and dedicate your CPU/GPU/ASIC to the
task of running calculations. The hope was to find a valid block solution
before anyone else. Each time a block is found, the calculations restart, so
having hardware that can search potential solutions more quickly is beneficial.
These days, a lot of people forego
running the wallet software. It takes up disk space, network bandwidth, and
isn't even required for mining. Just downloading the full Bitcoin blockchain currently
requires over 45GB of disk space, and it can take a while to get synced up.
There are websites that take care of that part of things, assuming you trust
the host.
In theory, over time the law of
averages comes into play. If you provide one percent of the total computational
power for a coin, you should typically find one percent of all blocks. But as
Bitcoin and its descendants increased in popularity, difficulty shot up, and
eventually solo-mining became an impractical endeavor. When you're only able to
provide 0.00001 percent of the mining power, and that value keeps decreasing
over time, your chance of finding a valid block solution becomes effectively
zero. Enter the mining pools.
Join
our mining guild!
If solo mining is like solo gaming
in an MMO, block rewards have become the domain of large mining guilds, called
mining pools. For blockchain security reasons, you don't want any single
group—a mining pool or an individual—to control more than 50 percent of the
computational power (hashrate) for the coin network, but for mining purposes,
being in a bigger pool is almost always better.
The reason is that, unlike block
rewards where everything goes to the winning system, mining pools work together
and distribute the rewards among all participants, usually based on a
percentage of the mining pool hashrate. Your hardware gets smaller portions of
work from the pool, and submits those as shares of work. Even if you only
contribute 0.00001 percent of the hashrate, you still get that percentage of
every block the pool solves.
To give a specific example, suppose
a coin has a total network hashrate of 1Phash/s (peta-hash), but you only
provide 0.1Ghash/s. Your chance of mining a block solo is about as good as your
chance of winning the lottery. If you join a pool that does 25 percent of the
network hashrate, the pool should find 25 percent of blocks, and you'll end up
with 0.00004 percent of the block rewards. If a block is worth 50 coins, that's
0.0002 coins from each block the pool finds—often minus a small (1-3)
percentage for the pool operators. That might sound like a pittance, but when
coins are worth hundreds or even thousands of dollars, it can add up quickly.
There are many places that will
provide calculators for cryptocurrencies, so you can see how much you could
potentially earn from mining. But ultimately, you'll want to join a mining
pool. As a side note, I'd recommend using a new email address for such
purposes, and then I'd create a unique password for every pool you
happen to join—because cryptocurrency thefts are far too common if you're lax
with passwords. #experience
If you want to actually collect a
coin, like Ethereum, you'll need to take the additional steps of downloading
the Ethereum client, syncing up to the blockchain, and setting up the mining
pool to pay out to your wallet. It's possible to have pools deposit directly to
a wallet address at a cryptocurrency exchange, but again, there are risks there
and long-term I wouldn't recommend storing things on someone else's
servers/drives.
If all this sounds time consuming, it can be—and
the people who are really into cryptocurrency often do this as a full-time job.
And the real money often ends up in the hands of the pool operators and
exchanges, but I digress.Doing the actual mining
You've got your hardware, you've
joined a mining pool, and you're ready to rock the cryptocurrency world. All
that's needed now is to download the appropriate software, give it the correct
settings for your hardware and the pool, and then away you go. Sort of.
Most pools will provide basic
instructions on how to get set up for mining, including where to download the
software. But all software isn't created equal, and even things like drivers,
firmware revisions, and memory clockspeeds can affect your mining speed. So if
you're serious about mining, get friendly with scouring places like
Bitcointalk, Github, and other forums.
The easiest way to mine a coin is to
just point all your mining rigs at the appropriate pool and load up the
necessary software. The problem is that the 'best' coin for mining is often a
fleeting, ethereal thing—Ethereum's real value came because other market forces
pushed it from $5-$10 per ETH up to $200+ per ETH during the past several
months. Prior to that, it was only one of many coins that were potentially
profitable to mine. But switching between coins can take a lot of time, so
there's other software that will help offload some of that complexity.
One popular solution is Nicehash,
which will lease hashing power to others that will pay for it in Bitcoin. In
effect, it transfers the job of figuring out which coin/algorithm to mine to
others, though again there are fees involved and the going rates on Nicehash
are lower than mining coins directly. The benefit is that you don't end up holding
a bunch of some coin that has become worthless.
A more complex solution is to set up
multi-algorithm mining software on your own. To do this, you would typically
have accounts for all the coins you're interested in mining, and then create
rules to determine which coin is best at any given time. Sites like WhatToMine can help figure out what the currently best
paying option is, but naturally others would be seeing the same data.
Bottom
line—what's it cost and what can you gain?
The thing you need to know with
cryptocurrency mining is that beyond the initial cost of the hardware, power
and hardware longevity are ongoing concerns. The lower your power costs, the
easier it is to make mining a profitable endeavor. Conversely, if you live in
an area with relatively expensive power costs, mining can seem like a terrible
idea.
When many people think about
cryptocurrency mining, the first thought is to look at Bitcoin itself. Now the
domain of custom ASICs (Application Specific Integrated Circuits), Bitcoin
isn't worth mining using GPUs. Where a fast CPU can do perhaps 40MH/s and a
good GPU might even hit 1GH/s or more, the fastest ASICs like the Antminer S9
can do 14TH/s. But the Antminer S9 costs $2,100 or more, and still uses around
1350W of power (so you need to add your own 1500W PSU)—and you'll net about $8
per day.
Can you do better with mining using
graphics cards? As you might have guessed given the current prices of RX
570/580 and GTX 1060/1070, the answer is yes, though not necessarily at the
currently inflated GPU prices. But let's start with a basic system cost. You'll
need a cheap CPU, motherboard with six PCIe slots, 4GB DDR4 RAM
(maybe 8GB if you want), budget hard drive, six PCIe riser adapters, and 1350W 80 Plus Platinum PSU. For the case, you're usually best off building a mining
rig using wire shelving and zip ties or something similar. Add all of that up and
it will cost around $560 (with 4GB RAM).
The sticking point is the graphics
cards. If you could buy RX 580 at the original MSRP of $230 for the 8GB card,
$200 for the 4GB model, or $170 each for the RX 570 4GB—yeah, those are the
actual launch prices!—that would be $1,380, $1,200, or $1,020. With prices
skyrocketing on the RX cards, GTX 1070 became the next logical target, with
prices increasing from $350 per 1070 a few months ago to $450+ per card today.
I've got good news for gamers, as I've put
together a table showing expected returns using various forms of mining, using
current graphics card and ASIC prices. Some of these (like the Antminer L3+)
are difficult to find or are still pre-order, but you can sometimes pay a
significantly higher price to get one. Here's what things currently look like:
Is there still money to be made as a
cryptocurrency miner? I think a lot of this goes back to what happened with
Ethereum this past year, with the value going from under $10 per ETH to a peak
of nearly $400 per ETH. Selling all the coins you mine can earn money, but if
you had the foresight to mine and hold ETH and sold near the peak value, you
literally just hit the jackpot. Or if you prefer mining slang, you hit the
motherload.
Ethereum prices have since dropped
down to $200 (give or take), but there's this hope that eventually another
bubble will occur, driving prices up into the thousands of dollars per ETH.
Sound like fantasy land? Tell that to all the Bitcoin miners and investors who
got in for hundreds of dollars per BTC. But without a price spike—and with the
potential for the price to drop instead of going up—the above table is
something of an optimistic view of the cryptocurrency market.
Price volatility combined with
increasing difficulty could radically change things over the span of months.
Instead of 200-400 days to recover your hardware investment, it might take
several years. Or it could go the other way and take 3-6 months. I wouldn't
count on most GPUs surviving 24/7 mining for several years, however.
The bottom line is that at current
GPU prices, which remain supply constrained, it's no longer a 'safe' investment
to put tons of money into new mining rigs. So the bubble has burst and things
should be settling down again.
Perhaps even better (for gamers),
early estimates of mining performance using the Vega Frontier Edition suggest
it won't be substantially faster than current AMD cards, and with higher power
draw it won't be particularly attractive either. But be warned that software
optimizations could shake things up. If someone figures out a way to get twice
the performance out of a Vega card, it could become the new mining wunderkind.
Should you quit gaming and start mining, then? I
wouldn't recommend it—because if you haven't gotten started already, you're
already behind the bubble and may end up taking a loss. Besides, playing games
is more fun, and doesn't serve to heat up your bedroom/home/office. That unfortunately
won't stop miners from continuing to buy graphics cards, so long as they see a
potential profit in it.
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