With Ethereum’s transition to PoS this year, we look at how mining could evolve in 2022
- Are all coins equal?
- What is crypto mining?
- Different types of mining
- Bitcoin mining – best crypto to mine 2022
- Financially draining
- Ethereum 2.0
- Less profitable
- Which altcoins are best to mine?
- Does ‘the best coin to mine’ even exist?
- Risk factors
As the crypto industry has ballooned, so too has cryptocurrency mining. With new altcoins emerging, and original coins such as ethereum (ETH) and bitcoin (BTC) rising to jaw-dropping values, crypto enthusiasts have plenty of options.
See more: Which crypto is worth mining
Be they individuals looking to earn some extra income by mining an up-and-coming altcoin, or large companies dedicated to mining bitcoin, tens of thousands of people across the world have become involved in the industry.
And it’s hardly surprising. Mining forms the very backbone of blockchain technology. Without mining, there is no way that blocks can be validated. Without a decentralised peer-to-peer system for validating blocks, transactions can’t be processed.
Are all coins equal?
So yes, in short – mining is integral and it’s only becoming more important as uptake of crypto ekes into the mainstream.
With crypto enthusiasts predicting that the future of the internet will be structured on blockchain technology, and decentralised finance (DeFi) set to challenge traditional financial systems, the need for miners will only grow.
But are all coins equal? Should miners spin the wheel and choose any coin?
Probably not. There are now more than 15,000 coins in existence and some have a value close to zero, while many have no real utility function. Being scrupulous when it comes to choosing what is profitable to mine and what is not is key.
So which coins are profitable to mine? Which is the best cryptocurrency to mine in 2022? What is the easiest crypto to mine? Is bitcoin still up there? How will the crypto mining landscape alter as a result of ethereum’s transition to proof-of-stake? Will new altcoins emerge to steal the limelight?
Before we try to answer these questions, let’s recap what exactly mining is, and the different types of mining.
What is crypto mining?
Crypto mining is the process through which distributed nodes on a blockchain validate transactions.
Specialised computers, commonly known as mining rigs or ASICs, validate transactions in return for a mining reward.
Other nodes on the network then use software to verify that the block and the transactions added to the new block are valid and correct.
Different types of mining
When Bitcoin first emerged, there was only one kind of consensus mechanism for mining: proof-of-work. As the market has matured, a host of different consensus mechanisms have developed.
From proof-of-stake to proof-of-believability, miners, based on their resources, technological aptitude and objectives have a wide range of options to choose from. With Bitcoin, individuals could, when it first emerged, mine the crypto with their home computer, using a humble central processing unit or CPU. Those days are long gone.
Let’s take a closer look at Bitcoin.
Bitcoin mining – best crypto to mine 2022
Nowadays, new bitcoins are generated by large companies with vast mining pools spread across far-flung corners of the globe, with huge amounts of capital to put down on expensive equipment.
In order to have enough computational power, bitcoin miners aggregate their resources to mine for digital gold. And it is digital gold. Miners are rewarded with 6.25 coins per block they verify. With each BTC coming in at around $48,000, the compensation is far from negligible. On top of this, miners also receive fees contained in that block of transactions.
It’s worth remembering, however, that bitcoin mining is becoming increasingly inaccessible to get involved with as a lone ranger.
Firstly, you need plenty of capital to put down. According to research undertaken in May 2021 by Miner Daily, the cost of mining one BTC is between $7,000-$11,000.
Secondly you need access to vast amounts of power. The cost to the environment is considerable. The crypto uses more annual electricity than the whole of Finland. That’s precisely why most mining companies are in places like Russia and now increasingly the US, where it’s possible to get access to cheap power.
Thus, the process of mining bitcoin is financially draining both from an energy and a hardware expense perspective, meaning most individuals do not have the resources to enter the game.
And with the puzzles getting more complex (requiring more energy and even more computational power) and the amount miners are being rewarded with being halving every four years, it’s becoming even less accessible.
However, if you are still keen to get in on the action, joining a BTC mining pool might be a good option. Poolin, based in China, is an example of a public pool.
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Slush pool is another option. This company is responsible for mining 5% of Bitcoin blocks. With pools, profit is concentrated towards the owner of the mining pool, but it does create a way that people with less access to resources can earn rewards.
Fortunately, with so many other cryptos on the market, that are not nearly as environmentally damaging, there are plenty of other contenders for the best cryptocurrency to mine.
The first that comes to mind is ethereum.
Ethereum has, for a long time, been up there as one of the best cryptocurrencies to mine. With a market cap of $458.7bn, ethereum is the second biggest crypto after bitcoin and has proven to be here to stay thanks to the explosion of NFTs and DeFi. Far from a speculative currency, there is a lot driving the value of ethereum.
In early August, the Ethereum network made some changes to its mining rewards system and fee structure. The new system, named EIP-1559, reduced fees but due to the increasing value of ethereum, miners’ rewards did not, in fact, reduce markedly.
However, the network’s transition from proof-of-work to proof-of-stake in 2022, dubbed ETH 2.0, will dramatically alter the way miners interact with the system. This in turn may impact the profitability of mining ethereum.
This transition has been divided into three updates: Beacon Chain, the Merge and finally, Shard Chains. While the first stage – the proof-of-stake process – is already live, the second stage – which will see Beacon Chain merge with the ethereum mainnet – has been postponed several times. The new approximation for when the Merge will take place is now looking to be early or mid 2022.
When the transition is complete, there will be big changes to the system. Let’s find out what it will look like.
For starters, mining for ethereum with GPUs will end. Miners will instead hold ‘stakes’ and their value will be bound to what they hold in the network.
With proof of work, the computational power of network participants is pitched against other miners as they race to crack cryptographic puzzles. Being the first to solve one of these puzzles earns the miner the right to process a transaction block.
PoS, however, ends mining completely. Instead, the system rewards participants based on the value they have tied up in the network. Because there are no puzzles to crack, there is no need for GPUs. Under proof of stake, miners no longer receive mining rewards.
According to some analysts, transition to Ethereum 2.0 will have a deflationary impact on the crypto.
If the ‘burn rate’, for example, surpasses new coin issuance, then price of Ethereum will go up.
Furthermore, with proof of stake, users need to stake their ETH in order to play. This will reduce the liquidity of the crypto, as there will be less in circulation.
Some users on the network will no doubt be against the transition. Indeed, because individuals will require 32 ETH to become a full validator, equivalent to $120,000, the transition may have a centralising effect on the network.
Thus, while a couple of years ago, ethereum was one of the most profitable cryptos to mine, it is now probably not worth buying expensive GPUs and joining mining pools, with the Merge imminent.
If, however, you already have the necessary equipment, mining Ethereum will continue to be profitable until the transition occurs. Miners are currently rewarded with 3 ETH per block, valued at around $3,800 per coin.
To determine the profitability of mining ethereum or any other coin, it’s worth visiting whattomine, a website that displays the most profitable coins for you to mine, after calculating local electricity prices and GPU costs.
As mentioned previously, however, there are plenty of other profitable coins aside from bitcoin and ethereum.
Ravencoin is a good example…
Ravencoin was launched in 2018 and currently boasts a market cap of $846.69m. It was launched as a fork on the Bitcoin blockchain. Developed to improve the transfer of assets from one party to another more effectively, Ravencoin has performed very well over the last year, rising more than 500% in value.
But how do you mine Ravencoin?
Ravencoin can be mined on GPU mining machines, but can’t be mined with ASICs or GPU cards. Like Bitcoin, Ravencoin has a proof-of-work consensus mechanism. RVN coins are, like BTC, capped at 21 million. For each block created (approximately every minute) the block reward is 5,000 RVN. Not only can users gain high rewards, they can also withdraw Ravencoin through an impressive range of exchanges.
It’s worth bearing in mind that Ravencoin halving is due to take place in January 2022. This will have a deflationary impact on the coin, reducing the amount in circulation and cutting down profits that miners can receive.
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Interestingly, it will also happen in tandem with Ethereum’s transition to Ethereum 2.0.
What impact will Ethereum 2.0 have on coins like RVN?
Miners with GPU hardware may well begin to flock to the bigger altcoins like ravencoin, monaco, vertcoin, grin, monero, zcash, bitcoin gold, haven, litecoin and aeternity.
Well, with Ethereum out of the mining game, many miners will be keen to make use of their equipment elsewhere. With more miners competing, altcoin puzzles may become more difficult, making it more expensive to mine.
As well as driving up the cost of mining, it could also, taking into account the effort-value principle, drive up the value of the altcoins, too.
But what altcoins, aside from Ravencoin, are the most profitable?
This all depends on your objectives.
Which altcoins are best to mine?
Monero (XMR) is great for beginners because it can be mined using a CPU. It also doesn’t use too much power and is quick, too – one monero can be mined every 24 seconds.
Bitcoin Gold is another great option if you are an individual miner. A fork off Bitcoin, BTG was developed to create a new coin with similar qualities to bitcoin but one that allowed small miners to gain greater access. In short, to create a more decentralised alternative to the increasing centralisation of the BTC mining process.
BTG uses a so-called proof-of-work algorithm called Equihash to make sure that miners using expensive hardware like ASICs do not gain precedent over smaller miners with fewer resources at their disposal.
Miners are rewarded 6.25 BTG per block they mine and the coin is also listed on many exchanges, making it easy to withdraw into other cryptocurrencies.
Does ‘the best coin to mine’ even exist?
As you have probably gauged from this article, making a definitive judgement as to what the best crypto to mine in 2022 is difficult, as it is subjective.
For some, the best coin will be the most profitable crypto to mine, while for others, the easiest crypto to mine is the one to go for. It is completely dependent on your resources, hardware, amount of time you want to put aside to dedicate to it, preferred way of working and technological proficiency. It also depends on your geography as well as your access to power.
While ethereum and bitcoin continue to be the most profitable (at least for the time being) for most people, especially beginners, they are not that suitable.
Thankfully there are a host of other altcoins which may, once Ethereum transitions to proof-of-stake, begin to rise in value.
Saying all this, it is key when thinking about which coin to mine, to bear in mind a couple of factors.
Firstly, it is important not to invest capital in equipment that will no longer be useful in a short period of time, or alternatively, that you are not technically astute enough to handle.
It is also worth noting that there are substantial costs, even with altcoins. Yes, equipment is one cost, but so is the cost of electricity.
The risk of being hacked is also an important consideration. There have, for, example, been cases where hackers have got into mining pools and emptied miners’ wallets.
While on the topic of mining pools, it’s important before joining one to do thorough research. Some mining pools are disorganised and deceptive. Understand exactly how much the organisers are entitled to so they don’t skim any extra.
Finally, and perhaps most importantly, any new miner to the game must remain aware that crypto is highly volatile. Take the current bearish rally affecting crypto. As of 29 December, BTC had lost more than 21.5% of its value over the past 60 days, while ethereum had lost 12.1% in the same period, according to CoinMarketCap.
Investing in very expensive hardware or making changes to your means of income is unwise unless you have fully considered all the risks involved.