It's a question many are asking. During the pandemic, we've read many news stories about people investing in cryptocurrencies on exchanges and markets. While the landscape has certainly changed, there's still some possibility of making a profit through mining if we don't want to risk it with brokers.
It's important to understand that, as things stand, cryptocurrency mining is now a medium- to long-term investment, not a short-term one. Major cryptocurrencies have fallen considerably in value due to events like the FTX crash, but at least the two main ones, Bitcoin and Ethereum, are still trading at over a thousand dollars per unit. Furthermore, a revaluation cycle is expected in the coming years once the bubble and volatile markets have subsided and those who truly contribute to and benefit from blockchain and cryptocurrency technology have settled down.
Table of Contents
What is the difference between mining Ethereum and mining Bitcoin?
There's a big difference between mining these two cryptocurrencies, aside from their value . There's a huge and crucial difference in their mining processes, which radically changes how they're mined and what strategy and preparations you need to have for mining Bitcoin, or any other cryptocurrency that uses a Proof of Work algorithm; and Ethereum, or any other cryptocurrency that uses Proof of Stake.
Let's go to a very simple explanation
- Proof of Work: Putting a cryptocurrency mining team to use its components to solve algorithms with which to add blocks to the chain of blocks that record member transactions.
- Proof of Stake: You put your own tokens at stake to guarantee that the transactions that are made in the blockchain are safe.
It should be said that they have in common that the distribution of work is not totally equitable, except for something more approximate in the Proof of Stake. Proof of Work is still a race to solve complex algorithms set up by the blockchain, whereby a core team may outperform a dedicated farm in Siberia and mine an entire block before them.
How to mine in Proof of Work explained in a simple way
Let's give an example that you want to mine Bitcoin in the comfort of your apartment, that you have a room that you can put a mining rig in and it is well ventilated. You will have to get the materials that are most effective for cryptocurrency mining, with graphics cards offering the best results due to their hashing power. You'll need to get a dedicated crypto mining motherboard, like the low-end ones that allow you to run room-sized operations and leave room for a graphics card and only have one RAM slot.
But Bitcoin isn't the only cryptocurrency mining algorithm that uses Proof of Work, and not all of them benefit from graphics cards. There's the Chia cryptocurrency, which uses storage capacity and speed , thus benefiting more from SSDs. However, due to constant high usage, it can render them unusable in just over a month, making the constant replacement of hardware a problem. Then there was Raptoreum, a cryptocurrency whose algorithm benefited more from the L2 and L3 caches of a CPU, making high-end AMD Ryzen and Threadripper CPUs highly sought after.
Once you have chosen the cryptocurrency you want to mine, prepare the rig with the motherboards, graphics cards, storage, power supplies and RAM modules that you need; connect to the blockchain and download the right software to start mining. Keep in mind that the equipment will be in constant operation, sometimes exceeding its natural limits, so you will have to make sure that the mining rig is well ventilated and take care that dust does not enter which could damage the components. It is very possible that the electricity cost will rise, so you will have to take it into account when calculating how much profitability you will get.
How to mine in Proof of Stake
Now let's take the example of Ethereum. Since it is mined with Proof of Stake, one advantage is that you won't have to spend a large initial sum on material that may not be easy to come by, and that doesn't mean a huge increase in energy consumption.
Proof of Stake, at least as Ethereum has it, implies having to spend a certain initial amount of tokens, first to sign the contract to join the group of users who can put their Ethereum tokens at stake to guarantee transactions, and then buy another amount of Etehreum that guarantees that the transactions are, in fact, legitimate.
In favor of this is that you can simply buy the amount of Ethereum that is requested, and start trading, almost instantly, without having to set up any large mining operation. Also, with Ethreum now at a relative low, the barrier to entry has fallen even further.
Proof of Stake is now considered the safest mining option for the future. Regulatory bodies are expected to begin limiting cryptocurrencies based on Proof of Work for environmental reasons . This leaves Proof of Stake as a cryptocurrency mining method that is resilient to environmental regulations.
Is it profitable to mine cryptocurrencies in 2022?
It is a difficult question to answer. Between electricity prices, and drastic drops in the value of cryptocurrencies, there are many large-scale miners who have left because they are not as profitable. A positive point being a large scale miner is that the lower investment implies less risk, and that the material you use can be more easily liquidated or reused.
Currently, cryptocurrency mining should be viewed as a medium- to long-term activity . Five years ago, there was another instance of cryptocurrency revaluation followed by a crash, so today's miners expect profitability to materialize within the next cycle. This is what has deterred large investment circles, which were seeking a quick and consistent return.
