Cryptocurrency industry has given an opportunity to the world to make money through various means. Simultaneously, mining digital currency is another way that rewards miners in crypto for validating transactions on the blockchain. Notably, such an idea of mining has helped many to make fortunes.
There are many algorithms known as the consensus mechanism that allows a user to mine digital assets. Some of these popular consensus mechanisms include Proof-of-Work (PoW), Proof-of-Stake (PoS), and Delegated Proof-of-Time (DPoS).
Although there are different algorithms, no doubt cryptocurrency mining is immensely profitable. However, this article will focus on the Proof-of-Work mechanism and learn about some of the most popular cryptocurrencies based on the same mechanism as mine.
Proof-of-Work-based cryptocurrency mining
"The concept of PoW was originally introduced by Cynthia Dwork and Moni Naor in 1993 but got its official term in 1999 by Markus Jakobsson and Ari Juels 1999."
PoW-based consensus mechanism describes a system that requires a feasible amount of computational power to validate transactions on the blockchain. The concept was subsequently adopted by the most pseudonymous creator of the Bitcoin whitepaper to secure the first cryptocurrency using the SHA-256 cryptographic hashing algorithm.
Cryptocurrencies are underpinned by a kind of distributed ledger technology known as blockchain technology. All the transaction data of digital assets are arranged in sequential blocks and added to a blockchain. This helps to prevent double-spending issues and tampering with the network. Tampering is detected through hashes, a long string of numbers that serve as the Proof-of-Work. Even a tiny change to any data will give a totally unrecognized hash. Generating these hashes for a set of transactions would be trivial for any modern computer. Hence, the blockchain sets a certain difficulty level to turn the process into work.
The entire process is then translated into cryptographic calculations that need to be made in order to confirm a transaction. For each confirmation, the blockchain rewards in crypto. Hence, to attract more rewards, miners are competing with each other as to who will solve the correct problem first. Notably, the miners' crypto reward will completely depend on the network on which they are solving the complex cryptographic transactions.
Once a particular miner solves the right problem, all other miner nodes are notified about it. This helps all the miners to proceed to the next mining block while ensuring that there are no double-spending issues on the blockchain.
What is a cryptocurrency mining pool?
Acquiring cryptocurrency mining rigs is not possible for everyone. Hence, miners join to form a group, a pool, where they combine their computational power over a network to strengthen the probability of finding a block.
Mining Pools help individuals to contribute their processing power and put whatever effort they can to find a block first. As the pool successfully finds a block, they receive a reward in the form of the associated crypto. Later the rewards are distributed among all the contributors as per their proportion of each individual processing power or work relative to the whole group.
Is mining profitable for everyone?
The profitability of cryptocurrency mining depends on a few important factors. These include efficient hardware, cheap electricity, a reliable mining pool, and a transaction fee when we cash out the rewards.
It is significant that before starting the mining operations, individuals should note how much profit their machines generate and what is the energy cost in the region they are operating. If a miner is somewhere operating their operation where the price of electricity is too high, then making gains through such operations would become too challenging.
If electricity charges are low in the region a miner will operate, then another thing to focus on is whether they will operate solo or join some mining pool. Notably, the hardware price varies from manufacturer to manufacturer and depends largely on how low the energy use is for the machine with more computational power. Noting the profitability a machine can generate while determining its price per terahash, we can determine whether the operation will be profitable for us.
However, not everyone would be able to invest in mining rigs and think of continuing these operations using their home computers. For them, the best option is to join a mining pool and contribute their computational power to get some share if the pool finds a block.
If someone opts to join a mining pool, they need to comprehend what amount of hashes the pool is already generating. The more computational power a pool will generate, the more it will have chances of making gains. According to Thomas Heller, Global Business Director at F2Pool:
"Choosing the right mining pool is very important, as you will receive your mined bitcoin sent from the pool payouts every day. It's important to choose a reliable, transparent pool that offers the right suite of tools and services to help you optimize your mining operation."
Lastly, a good miner should also have some trading knowledge so that the person or organization knows at what price they should sell their rewards. An individual short time miner would probably sell their coins on a retail exchange platform like Coinbase and Binance, where fees are sometimes low and high. So it is essential to know when the time is right to sell. However, organizations will have a deal with OTC desks to sell their rewards for little to no fees.
Best of Proof-of-Work cryptocurrency to start mining
Today there are thousands of PoW-based cryptocurrency projects available in the scenario. However, not all the coins are worth having great growth potential. Hence we have sorted the list and found seven profitable cryptos:
#1~ Bitcoin - First and popular PoW-based cryptocurrency
Bitcoin is the first cryptocurrency project that was established in 2009. The pseudonymous creator of BTC whitepaper, Satoshi Nakamoto, introduced the Proof-of-Work mechanism as a solution to the double-spending issue. Although this coin introduced the consensus mechanism to the world, the mining difficulty on the network has surged significantly with time.
According to data from MiningPoolStats, the current network hashrate miners are combining on the network is more than 232 EH/s.
#2~ Ethereum - Inflationary cryptocurrency
Unlike the Bitcoin project, Ether was originally established to be the inflationary cryptocurrency project with an infinite supply. Hence, the supply of the crypto coin will grow every year through block rewards that were paid to miners.
When the network first launched in 2015, ETH prices were below a dollar. At the time of mining, the cryptocurrency was not a get-rich scheme. With the steady increment in the price of the coin, mining ETH have become more lucrative. Moreover, the coin attracted tech-savvy people who understood the network's potential and were skilled enough to run their nodes.
Nevertheless, Ethereum mining is certainly an interesting option for individuals with access to unused GPU processing power. This coin can be a secondary income for anyone.
#3~ Ethereum Classic - Open source computing platform
As the Ethereum network is near to its transition to the Ethereum 2.0 network, miners of Ether would soon shift to Ethereum Classic. Unlike the Ether project, the Ethereum Classic cryptocurrency has a capped supply of only 210,700,000 ETC. Furthermore, unlike the Bitcoin network, which sees block rewards cut in half every 21,000 blocks, the ETC protocol allows for a 20% reduction in rewards that too after 5 million blocks.
"There's no one-size-fits-all trick to crypto mining, but as our research has shown, there are tips that can help you get it right. To mine Ethereum Classic more efficiently and to earn regular profits from doing so, you need to do two things: invest in a good mining rig and then join a reputable Ethereum Classic mining pool."
#4~ Monero - The privacy-focused cryptocurrency
Monero is a privacy-focused cryptocurrency project and a very profitable cryptocurrency to mine as an individual. Because of the algorithms XMR uses, anyone with their normal CPU can mine the cryptocurrency. It is witnessed that the blockchain is continuing to grow, and the XMR difficulty increases and decreases over time-based on the total computing power.
Based on the current mining difficulty, a Monero mining hashrate of only 42k H/s can mine 1 XMR in 142.2 days. If the difficulty decreases in between, the miners can mine the crypto coin within a shorter duration. Although the profitability of the cryptocurrency can change quickly, it is still a very profitable cryptocurrency to mine.
#5~ ZCash - Another privacy-oriented cryptocurrency
Thanks to the zk-SNARKs concept, that has made ZCash (ZEC) more popular since its establishment. For individual miners who are looking to mine with their GPUs, ZEC could be the best option to generate some profits. Users do not require any hardware other than an Nvidia GPU to mine the ZEC cryptocurrency. Notably, a GPU is the only option that is capable of mining the coin with the Equihash algorithm. With less investment, ZCash is the most profitable coin to make some profits.
#6~ Litecoin - the Close second to Bitcoin
Since its establishment, Litecoin has been dubbed the Silver to Bitcoin's Gold. Having the right setup makes Litecoin one of the most profitable cryptocurrencies to mine. However, the cryptocurrency is not profitable for GPU miners. Mining LTC is a lot like mining the king cryptocurrency, yet there are a few key distinguishing points. According to some reports, it would take about 45 days to mine an LTC coin following the current difficulty.
#7~ Bitcoin Cash - Similar to Litecoin
Bitcoin Cash is a fork of the king cryptocurrencies network. Yet, BCH mining is more profitable than the most prominent cryptocurrency. However, to win the BCH mining race, one will have to upgrade their hardware from time to time. Notably, mining the crypto coin would be a little unprofitable for about 2-3 days.
For miners, the choice between Bitcoin and Bitcoin Cash becomes slightly more difficult. Many either support a network for its potential, but most of them are supporting the most profitable network.