How to Evaluate the Profitability of a Mining Coin
Cryptocurrency mining is how transactions are verified and added to the blockchain. It’s also what allows Bitcoin miners to earn rewards for their efforts — in the form of new cryptocurrency. Miners compete to solve a complex mathematical puzzle by guessing 64-digit hexadecimal numbers, known as a hash. The miner that spits out the correct guess first is rewarded with a piece of the digital currency pie. The more computer power that goes into solving the hash, the higher the chance of winning. But even the most powerful computers struggle to break the bank as upfront equipment and electricity costs quickly add up.
In addition to the hardware cost, ongoing expenses include electricity and maintenance. A single mining rig can use as much energy as half a million PlayStation 3 devices, according to the Congressional Research Service. That’s why it’s important to evaluate the profitability of a particular coin before investing in mining equipment and software.
Market volatility significantly impacts mining profitability. A sudden drop in coin prices can make a previously profitable operation unprofitable. This is why it’s important to diversify mining across multiple coins and to consider the potential for future appreciation when deciding which ones to invest in.
Regulations vary by region, but many jurisdictions require miners to report their earnings as taxable income. Some may require miners to comply with securities laws or anti-money laundering (AML) regulations, depending on the size of their operations. Other regulations address environmental impact and the risk of security breaches.
The best cryptocurrency for mining varies by market conditions and hardware availability. Bitcoin has long been the most popular option, but its popularity makes it increasingly difficult to mine profitably. Other alternatives, such as Litecoin (LTC), Ravencoin (RVN), Vertcoin (VTC), ZCash (ZEC), and Monero (XMR) offer better returns on investment.
Aside from mining profitability, it’s important to select a coin with a good community and long-term prospects. This is especially true for Proof-of-Work (PoW) cryptocurrencies, which consume substantial amounts of energy. In addition, PoW-based currencies are vulnerable to 51% attacks, which can compromise the network’s integrity.
The team behind the Electroneum cryptocurrency is particularly focused on ensuring that it is one of the easiest coins to start mining. By making it possible for anyone with a mobile phone to begin mining, they hope to enable millions of people in developing countries to partake in the crypto economy without needing traditional banking services. To help make this happen, they’ve integrated the mining functionality into the default wallet app for mobile phones and created an in-built, free-to-use mining software that can be downloaded directly to a phone. It’s an innovative approach that’s already starting to bear fruit: Electroneum is currently the most popular cryptocurrency to mine and its value has been rising steadily. It’s also one of the most decentralized cryptocurrencies, with no central authority in charge of its development or security.