With more people recognizing the utility of crypto and regulations changing around the world, Canada has become an increasingly attractive country for mining cryptocurrencies. Based on data collected by the University of Cambridge, Canada was recently ranked as the 4th largest Bitcoin mining country by average monthly hashrate share. The cold climate and abundance of electricity have created a great opportunity for miners locally and abroad to start mining crypto across Canada.
But before getting started, you might already be wondering: What is a hashrate? What is mining? How do you do it? And what is the best crypto to mine? This quick guide to cryptocurrency mining will dig into these questions and more.
One of the main benefits of using cryptocurrency is its ability to offer secure and transparent transactions. Mining is a practice that allows for cryptocurrencies to be created and exchanged on a decentralized network without the need of a third party. It is the process of validating transactions so that they can be recorded on a distributed public ledger called a blockchain. This ensures that all the transactions being recorded are legitimate, prevents users from double spending, and supports the overall security of the network.
Mining also allows for new coins to be brought into circulation through a process called minting. This factor serves as an incentive for miners, or mining nodes, to spend their time and money towards mining crypto. When they are successful in validating a transaction, they can be compensated with newly minted coins, which often allows them to profit from their work.
Any verified node that is connected to a cryptocurrency’s network can mine crypto. However, only a few people make the decision to become miners. Mining consumes large amounts of electricity and comes with a certain set of risks. Although, with the right tools and the right amount of research, mining crypto can become very rewarding.
Many cryptocurrencies such as Bitcoin and Ethereum use a consensus protocol called Proof-of-Work. It requires miners to validate transactions by racing to solve a complex mathematical puzzle generated by the network. The solution represents a 64-digit hexadecimal number known as a hash that the other miners must verify to reach consensus. The first miner to successfully generate a target hash wins in adding a block to the blockchain and gets rewarded with a set amount of that cryptocurrency. This method ensures the security of the network by confirming that each recorded transaction has been verified and has not been tampered with. For more details on this topic, check out our article on Proof of Work vs Proof of Stake.
Mining can be done using any computing device that carries the required software for a given cryptocurrency and has enough power, including personal computers. However, you are more likely to drive profit from mining if you are using a device with higher computing power. The amount of computing power required to validate a block is called a hashrate. It represents the measure of the number of mathematical calculations that can be performed every second. A device with a high hashrate can mine more rapidly and more efficiently, making it more likely to earn a reward. With this in mind, there are different approaches to mining crypto, dependent on the tools and resources available to you.
Using an Application Specific Integrated Circuits (ASIC) miner is widely perceived as the most profitable and effective way to mine crypto. It uses a computing device or hardware that is designed for the sole purpose of mining a specific cryptocurrency. Because of its specialized functionality, ASIC rigs are the most powerful devices in terms of hashrate and are generally considered easy to use. The downside is that they can only be used to mine one type of cryptocurrency. Not to mention, many members within the crypto space are critical of ASICs because of how they create an unfair advantage for miners using other devices.
Central Processing Units (CPU) and Graphics Processing Units (GPU) are some of the more common options for mining crypto. CPUs are essentially the brain of a desktop computer, and they are the original devices used for mining. They continue to be popular because they are widely accessible for the average person, which makes it easy for a new miner to get started. That being said, depending on the cryptocurrency, CPUs can be very slow, and the cost of the electricity bill can exceed the value of the reward. Several years ago, CPUs were used to mine Bitcoin and other popular cryptocurrencies. Although today, it is becoming increasingly unlikely, if not impossible, to generate profit using this method.
GPUs are somewhat of the standard nowadays, replacing the popularity of CPUs. GPU mining uses the graphics card of a gaming computer to solve mathematical problems and verify transactions. Although they can be relatively big investments upfront, they have a higher processing speed, which gives them a greater efficiency. They can perform a significant number of mathematical computations quickly because they are supported by many Arithmetic Logic Units (ALU). The combination of these factors make them a practical tool for mining crypto.
For a less technical and more hands-free approach, cloud mining is another method to consider. Rather than purchasing your own rig, which can be expensive and run up your electricity bill, there is an option to outsource the work of mining to a third party using their own device. Following this method, a customer would be entitled to a certain portion of the mining reward for a predetermined fee. The risk of this method is that there is no guarantee of profit and customers have limited control over the mining process. Not to mention, people considering this method must be wary of scams when doing their research to find a cloud mining service.
In terms of mining crypto yourself, there is also the option to do it alone or as part of a mining pool. Of course, the benefit of going solo is the ability to claim the entire reward. But mining by yourself can come with more risk and more costs. Miners tend to have less hash power when working independently, which reduces the chances of claiming the reward, depending on the network difficulty.
On the other hand, joining a mining pool with other verified nodes within the network can help facilitate the work of mining for a lesser cost than mining alone. Many cryptocurrencies already have existing mining pools that miners can join as long as they have the right equipment. Some mining pools are larger than others, which will have an impact on the individual profit, but the risks are generally a lot less.
Each cryptocurrency has its own mining protocols and uses different amounts of computing power to process transactions. This is important to consider when choosing which cryptocurrency to mine, as the decision will ultimately come down to what you are willing to spend and what resources are available to you.
Another factor to consider is that many cryptocurrencies have a maximum supply. In the case of Bitcoin, there can only be 21 million coins in circulation, and the reward for mining crypto halves roughly every four years. This means that if you were to mine Bitcoin today, the reward could only be 6.25 BTC and after a few years, it will decrease again to 3.125 BTC. For Bitcoin, this small amount still holds a significant value, but this is may not be the case for every cryptocurrency. In order to profit, the value of the reward must exceed the cost of mining.
So, to answer the question, the best cryptocurrency to mine will be the one with the most profitability given the chosen mining method and the computing power of available devices. As with any venture in crypto, it is essential to assess what you are able to invest and do your own research for the best results. Although, the fastest and easiest way to own a cryptocurrency is simply to buy it.