Cryptocurrencies, over the last 10 years, have gained widespread acceptance and a massive following. Once regarded as a mystery, it is commonplace to see people with crypto wallets and apps, saving and trading these digital currencies. Because of this the topic of mining cryptocurrencies is becoming more mainstream.
But it does not end there. We have come to the realization that cryptos are not just bought and traded on their trading platform, but they can be mined (minted) as well. It is simply the process of generating new cryptos by processing and verifying data blocks on the blockchain.
We recently wrote a comprehensive article about crypto mining and how you can reduce costs which you can read up on.
If you are thinking about mining cryptocurrency, there are some factors you should put into consideration. We explore them below:
One of the significant factors to consider for mining cryptocurrencies is your hashrate (also called the hash power). It is the speed or computational power at which a crypto-miner operates and mines these currencies through the Proof of Work (PoW) blockchain. In the mining operation, speed is very essential.
Crypto mining involves many mathematical algorithms (hash function) that convert raw data into intricate sets of puzzles involving letters and numbers. Each hash generated is random and unique. Miners are tasked to solve these puzzles, enabling them to build a unit of cryptocurrency and include it in the blockchain.
Now, the quicker the hash rate, the faster puzzles are completed, which qualifies the miners as recipients of freshly minted coins. It is a constant battle between miners to complete a block of currency before anyone else. You can check the current hash rates (in terahashes) being generated per second here.
This brings us to the next factor:
When it comes to cryptocurrencies, mining gear is hugely responsible for the hash rate produced. In the earlier cryptos and crypto mining years, people could use their home computers and laptops to mint new currencies. Even the computations needed to complete a block were quicker.
The story is different now. With more people venturing into crypto mining, competition is stiff. It is even impossible to mine Bitcoin using the average computer or CPU. These days, more miners are investing in graphics processing units (GPUs) to get the job of mining done faster.
Depending on their performance and usage, the cost of mining gears can range between $500 to $5,000 for personal rigs. Industrial mining rigs can cost around $20,000. You should consider the gear you want to buy and how much performance you want to get out of it.
This is the elephant in the room. You cannot downplay the role of energy consumption for crypto mining. Mining, in this case, requires a lot of computational power and energy usage. Mining rigs work around the clock to solve puzzles faster, utilizing more and more power.
Because mining consumes a lot of energy, miners are looking for locations that offer cheap energy rates. According to the Global Energy Institutes data, states like Texas, Utah, Nevada, Arkansas, and Louisiana offer some of the best rates per kilowatt-hour off renewable energy. From all indications, these states are ripe for miners looking for where they can enjoy an uninterrupted power supply while paying considerable tariffs and tax incentives for it.
You can click here for energy rates and save expenses.
Another essential factor to consider when it comes to mining cryptocurrencies is your location. Digital currencies are still decentralized, unregulated entities and will likely remain so for a long time. And so, while it is a lucrative business for miners, it is illegal in most parts of the world.
According to a market survey, China has produced the highest bitcoin hash rates for the past 10 years. All that is about to change, as the government has issued a ban on cryptocurrency operations. This means a lot of miners over there will be jumping ship to the nearest safe haven.
The US Securities and Exchange Commission (SEC) has already informed Congress that the agency will not ban crypto operations. This development means America is poised to become the country with the highest hash rate produced in the nearest future.
The question about crypto mining in recent times has always been about its effect on the environment. This is because mining rigs require uninterrupted energy to function efficiently, and power plants work to make this energy available for consumption. The conversation has always been whether power plants are making use of fossil fuels to generate energy.
Fossil fuel – one of the major sources of power in the US and other parts of the world – produces Carbon Dioxide, which percolates the atmosphere, resulting in the Greenhouse effect. As of 2020, only 20% of energy generation is renewable. It is essential to practice responsible mining by investing in energy-saving mining gears to reduce your carbon footprints.
Is crypto mining lucrative? Definitely, but before you venture into digital minting, you should put these factors at the back of your mind.