Cryptocurrency Mining For Dummies

Peter Kent is a longtime technology author who also created the online course Crypto Clear: Bitcoin & Cryptocurrency Made Simple. Tyler Bain is a professional engineer who specializes on the electrical grid. He is also a Certified Bitcoin Professional who focuses on system resiliency and mining mechanics.

Introduction 1

About This Book 1

Foolish Assumptions 2

Icons Used in This Book 2

Beyond the Book 3

Where to Go from Here 3

Part 1: Discovering the Basics of Cryptocurrency 5

Chapter 1: Cryptocurrency Explained 7

A Short History of Digital Dollars 7

First, take the Internet 8

Add credit card confusion 8

Add a dash of David Chaum 9

Result? DigiCash, E-Gold, Millicent, Cybercash, and More 9

The Bitcoin whitepaper 10

Bitcoin: The first blockchain app 11

Who (or what) is Satoshi Nakamoto? 11

What’s the Blockchain? 12

Blockchain around the world — the blockchain network 13

Hashing: “Fingerprinting” blocks 13

Blockchain is “immutable” 14

Where’s the Money? 16

What’s the Crypto in Cryptocurrency? 17

Public Key Encryption Magic 19

Messages to the blockchain 21

Signing messages with the private key 21

The blockchain address — your money’s home 22

Sending a transaction message 22

Unraveling the message 23

The Basic Components of Cryptocurrency 24

What’s in a wallet? 25

Private keys create public keys 25

Public keys create blockchain addresses 25

The private key controls the address 26

Where Does Crypto Come From? The Crypto Mines (Sometimes) 26

Chapter 2: Understanding Cryptocurrency Mining 29

Understanding Decentralized Currencies 29

Exploring the Role of the Crypto Miner 31

Making Cryptocurrency Trustworthy 32

The Byzantine Generals 33

Looking at the Cryptocurrency Miner 35

Making the Crypto World Go ’Round 37

Chapter 3: Building Blocks: The Transaction’s Journey to the Blockchain 39

The Cryptocurrency Network 40

Submitting Transactions 43

Looking at transaction fees 44

Change address 45

Verifying the transaction 46

Competing for bitcoin, the ten-minute contest 47

Winning the Bitcoin 49

Chapter 4: Exploring the Different Forms of Mining 51

Proof of Work Algorithms 51

Proof of Work applications 53

Proof of Work examples 54

Upsides 56

Downsides 56

Proof of Stake Algorithms 57

Proof of Stake explained 58

Proof of Stake selections 60

PoS example cryptocurrencies 61

Upsides 61

Downsides 62

Hybrid Proof of Stake/Proof of Work 63

Hybrids explained 63

Hybridized examples 65

Upsides 66

Downsides 66

Delegated Proof of Stake (dPoS) 67

Delegated Byzantine Fault Tolerance (dBFT) 67

Proof of Burn (PoB) 68

And MORE 69

Part 2: The Evolution of Cryptocurrency Mining 71

Chapter 5: The Evolution of Mining 73

Proof of Work Mining Evolution 74

CPU mining 74

Adoption of GPUs 74

Rise of the FPGAs 75

Dominance and efficiency of ASICs 75

The Days of Solo Mining 77

Pool Mining 78

What is a mining pool? 78

Choosing a pool 79

Pros and cons of pool mining 80

Cloud Mining 81

Pool mining versus cloud mining 81

Pros and cons of cloud mining 82

Chapter 6: The Future of Cryptocurrency Mining 83

Incentivization of Energy Exploration 83

Recovery of otherwise wasted resources 84

Continued Computational Efficiency Improvements 85

Doing more with less 86

Approaching the limits of physics 86

Corporate and Nation State Participation 87

Nation states 87

Corporations 89

Future speculation 89

The Mythical Miner Death Spiral 90

Block difficulty 90

Block difficulty adjustment algorithm 91

Miners of last resort 93

Part 3: Becoming a Cryptocurrency Miner 95

Chapter 7: Mining Made Simple: Finding and Preparing a Pool Account 97

Understanding How Pool Mining Works 98

Choosing a Pool 99

Pools that are good starting points 100

A few of the largest pools 101

Incentives and rewards 103

Pool ideology 105

Pool reputation 106

Pool fees 107

Pool percentage of the total network 108

Setting Up a Pool Account 110

Server choice 110

Mining equipment pool settings 111

Payout addresses 112

Payout thresholds 112

Researching Mining Pools 113

Cloud Mining 114

Working with Honeyminer 115

Chapter 8: Picking a Cryptocurrency to Mine 121

Determining Your Goal 122

Mineable? PoW? PoS? 124

Researching Cryptocurrencies 125

Mining profitability comparison sites 125

Algorithms and cryptocurrencies 129

The cryptocurrency’s details page 136

Mining-profit calculators 138

The cryptocurrency’s home page 139

GitHub 140

The cryptocurrency’s Wikipedia page 141

Mining forums 142

Going Deep 142

Longevity of a cryptocurrency 142

Hash rate and cryptocurrency security 143

Community support 144

Decentralization is a Good Thing 146

It’s an Iterative Process 150

Chapter 9: Gathering Your Mining Gear 151

Selecting the Correct Computational Mining Hardware 151

Specified hash rate 152

Specified power consumption 154

Equipment cost and other considerations 159

Length of time your hardware will be viable 160

Mining Equipment Manufacturers 162

ASIC rig producers 162

GPU rig producers 163

A Wallet to Store and Protect Your Private Keys 163

Types of wallets 164

Securing and backing up your wallet 166

Where to Mine? Selecting a Viable Location 167

Vet your home for cryptocurrency mining 167

Communication requirements 168

Power source thoughts 169

Data centers and other dedicated commercial locations 173

Chapter 10: Setting Up Your Mining Hardware 175

ASIC Mining Rigs 175

Racks 176

Power supply 177

PDUs 179

Network and Ethernet connection 179

A computer to control your rig 180

GPU Mining Rigs 183

Getting your GPU rig online 183

Building your own GPU miner 184

CPU Mining 195

Mining Software 196

Pool mining 196

Solo mining 200

Part 4: The Economics of Mining 203

Chapter 11: Running the Numbers: Is it Worth It? 205

Factors That Determine Mining Profitability 206

Cost of equipment 206

Hash rate of your equipment 208

Mining rig efficiency 211

Cost of maintenance 214

Cost of facilities 215

Cost of electricity 215

Total network hash rate 218

Information about your pool 219

Block earnings 219

Cryptocurrency conversion rate 220

Calculating Your ROI 220

Your block earnings 221

Your expenses 225

Calculating ROI 225

Knowing the unknowns 226

Online profitability calculators 227

Historical estimates 228

Chapter 12: Reducing Negatives and Gaining an Edge 231

Profitability Through Efficiency 232

Upgrading ageing equipment 232

Mining different cryptocurrencies 232

Using exhaust heat 233

Reducing electricity bills 234

Knowledge is Power 236

Why current events are important 237

The “fork wars” 238

Your forking decisions 241

Here Today, Gone Tomorrow 245

Evaluating Your Mining Resources 247

Increasing mining competition 247

Increasing block difficulty 247

Diminishing returns due to halving events 248

Chapter 13: Running Your Cryptocurrency Business 251

What to Do with Your Mined Cryptocurrency 252

Convert your cryptocurrency 252

Buying equipment and paying bills 252

Paying with crypto when you can’t pay with crypto 253

Expand or upgrade your mining operation 255

But don’t forget the tax 255

Hodling your cryptocurrency 256

Invest your cryptocurrency 257

Donate your cryptocurrency to charity 257

Gift your cryptocurrency 258

Determining When to Sell 259

Cryptocurrency market indicators 259

Where to sell: Cryptocurrency exchanges 262

Dollar Cost Averaging 264

Dollar cost averaging your purchases 265

Cost averaging your exits 266

Custodial exchange risk 267

Tax and Your Mining Business 267

But you’re mining, not investing 269

It gets complicated 270

Scaling Up? 271

Do not overextend 271

Milestones to meet before you reinvest 272

Planning your expansion 274

Part 5: The Parts of Ten 275

Chapter 14: Ten or So Tips for When the Market Dips 277

Have a Plan 278

How Long Can You Last? 279

Learn from Market History 281

Don’t Panic! (Keep Calm and Carry On?) 284

Buy the Dip 285

Look for the Advantages 286

Anticipate the Market Recovery 287

Learn From Your First Dip 287

Consider Market Volatility 288

Switch to Another Cryptocurrency 291

Stop Mining! 291

These are simple calculations 293

Stop or go? 294

Chapter 15: Ten Ways to Boost ROI 297

Doing Your Homework 297

Timing Your Entry 298

Playing the Markets 299

Identifying Low Hash Rate Alternative Cryptocurrencies 299

Mining the Start of a Chain 300

Starting Small 302

Scaling Choices 303

Finding Cheap Electricity 303

Cooling Efficiently 305

Scoring Hardware Deals 306

Chapter 16: Ten Types of Cryptocurrency Resources 307

Cryptocurrency Market Trackers 308

Mining Profitability Estimation Tools 308

Cryptocurrency Reddit Pages 308

Blockchain Explorers 309

Data Visualizations 310

Cryptocurrency Data and Statistics 311

Cryptocurrency Wiki’s 311

Lopp.net Resources 312

Cypherpunk Manifesto 312

Cryptocurrency White Papers 312

The Satoshi Nakamoto Institute 313

Chapter 17: Ten Criticisms of Cryptocurrencies and Mining 315

Energy Consumption 316

Wasted Processing 319

Scalability, Transaction Speed, and Throughput 321

Coin Distribution Fairness 323

Market Bubbles and Volatility 323

Centralization 324

Scams and Rip-offs 325

Hardware Price Inflation and Scarcity 326

Fire Hazards 326

Neighbor Complaints 327

Index 329