How to Make Money Mining Coins
Creating Bitcoin takes a huge amount of electricity, often generated by fossil fuels. This real-world cost is one of the reasons it’s difficult to mine cryptocurrency profitably. Another is the currency’s extreme volatility. You could invest a lot of money in computer hardware for mining only to see its value plummet.
Cryptocurrency mining involves vast, decentralized networks of computers that verify and secure blockchains — the digital ledgers that document cryptocurrency transactions. In exchange for using their computing power to verify the transactions, computers on these networks are rewarded with new coins. The most popular cryptocurrency is Bitcoin, which currently trades for about $23,600 a coin.
Bitcoin mining verifies blockchain records by solving complex cryptographic hash puzzles. Each time a puzzle is solved, the transaction is added to the blockchain ledger. Adding these verified groups of transactions to the blockchain ensures they cannot be copied or double-spent. Mining a single Bitcoin requires more computing power than the entire country of the Netherlands or the Philippines. That’s why it’s important to only mine with the best possible equipment and set it up in a well-ventilated area where it can be kept cool.
It’s also a good idea to choose the right software for your computer. Most cryptocurrencies are designed to work with specific miners, and you can find recommendations on the best software on each currency’s website. Once you have the proper hardware and software, it’s important to protect your investment by setting up a cryptocurrency wallet where you can store your earnings. You can download a free cryptocurrency wallet from most cryptocurrencies’ websites.
The next step is to start mining. A computer with a high-end graphics card is best, but even older computers can be used for mining. The key is to use a program that doesn’t waste too much of your CPU’s processing power, and to find the most efficient way to set up your mining hardware. Most miners join a mining pool, which increases their odds of earning block rewards.
As with investing in any kind of financial asset, your return on investment depends on how much you’re able to sell the cryptocurrencies you mine at a higher price than you bought them for. If you’re unable to sell them at a profit, you’ll be taxed on the difference as ordinary income. For more information, check out Bankrate’s cryptocurrency tax guide.
Despite its enormous carbon footprint, Bitcoin mining is central to the cryptocurrency’s security. The massive, distributed network of computers that verify transactions is what gives Bitcoin its real-world value.