The Best Way to Make Money in the Cryptocurrency Mining Business
Cryptocurrency mining has become a lucrative business for many people, thanks to the rewards they get from solving complex math problems. The problem: The computers used for mining consume vast amounts of electricity, which leads to expensive electric bills and huge carbon footprints. The best way to make money in this venture, experts say, is by using efficient hardware and a reliable mining pool. That will lower electricity costs and allow miners to turn a profit.
Bitcoin is a popular form of cryptocurrency, but there are other digital currencies that can be mined. Each cryptocurrency has its own process for generating new coins. Some are more difficult to mine than others, and the reward can be different depending on how much computing power is needed. The most common reward is a fraction of the current bitcoin value. However, the value of cryptocurrency is volatile, so even if you mine a large amount of it, you can still end up underwater if the price plummets.
The mining process is crucial for cryptocurrencies because it helps to verify and add transactions to a decentralized ledger called a blockchain. Individual transactions are recorded as blocks that are added to the blockchain and then verified by peers on the network. This is a vital function because it prevents coins from being copied, counterfeited or double-spent. The verification is accomplished through a process called mining, which involves computers making guesses at the blockchain’s transaction history. Each successful guess is added to the blockchain and rewarded with bitcoins.
As more and more transactions occur on the blockchain, the number of guesses needed to find a block increases exponentially. That is why it is critical that miners use the most efficient machines available, and join a mining pool to share resources, says Jagdeep Sidhu, president of the nonprofit cryptocurrency advocacy organization Syscoin Foundation. Mining requires so much computing power that the operations are referred to as “data centers.” The largest of these are called mining farms and often occupy entire warehouses filled with thousands of servers focused exclusively on bitcoin or other cryptocurrencies.
The massive energy required to run these data centers makes mining a costly operation, even for the most efficient miner with low electricity costs. That has created a strong incentive for the industry to locate in areas with low utility rates and access to renewable energy sources like wind or solar power, which are more cost-effective than conventional fossil fuels.
The high energy costs and the volatility of cryptocurrency prices have made mining a risky proposition for many individuals. In addition, the special computers and equipment used in mining require aluminum, copper, iron, silicon and other materials that can have environmental and health impacts, according to Christina Cogdell, a professor of cultural history at the University of California, Davis. Most of this e-waste is shipped to middle- and low-income countries where it ends up in informal sectors that harm the environment and human health, researchers have found (Reuters, 2021). This has contributed to growing public concern about the sustainability of Bitcoin and other cryptocurrencies.