Mining is a kind of cryptocurrency mining that can be earned by loading your computer with a specific task. But many believe that making money from mining is already a thing of the past, and now the trend is forging or exchange trading in general. We figured out how mining works, why it is needed and how much you can earn from it in 2022. And most importantly, how the state treats him. Experts from the world of cryptocurrencies also shared their opinions with our readers.
What is mining
First, let’s look at what cryptocurrency is, because that’s where it all started. It is called differently: digital money, electronic coin, artificial currency, payment instrument, virtual gold.
But the essence is the same: cryptocurrency has its own value, is equal to real money, has an official exchange rate, although it exists only on the Internet. Unlike the usual rubles, dollars or euros, cryptocurrency is not issued in the form of coins or banknotes, but exists and is distributed only online.
It has its advantages over national currencies:
- transactions are well protected thanks to cryptographic encodings;
- the wallet containing the cryptocurrency cannot be blocked;
- You can use virtual coins from any country;
- transparent cryptocurrency movement system, while anonymous;
- complete economic and political independence.
Cryptocurrency is stored in a special wallet with a unique address and can be used for exchange or sale at any time. To do this, you can use various web resources: cryptocurrency exchanges, online exchangers, private advertisements.
Thanks to blockchain technology, users can receive data on the movement of cryptocurrency, i.e. information about transfers, addresses of wallets where the virtual coin is stored, and other data. The system is absolutely transparent and safe. All data is stored on computers that are connected to the system using special equipment.
Blockchain can be thought of as an endless list where all actions with cryptocurrency are recorded. And every owner of digital money has a copy of this list.
The first cryptocurrency is Bitcoin. I think you've heard this name at least once. Initially, it could not be purchased for real money. The only way to become the owner of bitcoins was mining.
This is the extraction of virtual currency using a powerful computer. In simple terms, mining is the use of a computer program to obtain virtual money.
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This very program creates complex problems, called cryptographic ones, which only particularly powerful computers can solve, spending a lot of time on it. For each decision, it issues bitcoins or other types of cryptocurrencies.
The more users install this program on their PC, the more complex the tasks become and the more time it takes to solve them. This happens because the system has a limit on the amount of cryptocurrency issued. There is a fixed amount, and you will not be able to get more than this indicator.
All users who mine cryptocurrency are called miners. The more of them appear, the more powerful the computer is needed. This is the only way to be the first to solve the problem and get the coveted virtual coin.
Mining is the only way to create and receive cryptocurrency, not buy it. But for beginner digital money miners, starting such an activity can be difficult, since not everyone can afford expensive, high-quality equipment. And mining without investing in technical tools is almost impossible. Therefore, mining pools were created.
A pool is an association of miners and their devices on a server, where each user’s equipment solves cryptographic problems. The resulting virtual currencies are divided among all participants depending on who invested how much power.
Collectively, cryptocurrency is mined faster, but this way the earnings will be shared, which means that one person will get a little less than if he worked alone. But the plus is that a regular home computer can also be used here.
Negative examples
When discussing when the era of mining will end, it is worth citing the example of the most “mining” country - China. The largest farms are located here; advanced ASICs are produced at local factories. But all this faced misunderstanding on the part of the government, which prohibited the decryption of blocks in a distributed network.
The decision to completely ban cryptocurrency transfers was made by the country’s authorities in the spring of 2022. Attempts to limit the “mining” of Bitcoin and other coins were made earlier, but were more mild, so they did not cause much damage.
Now, illegal financial activity, as the Communist Party calls it, is completely prohibited. This is justified by the government’s desire to protect the property of citizens, as well as to ensure financial and economic order.
The only cryptocurrency that will work in the country is the digital yuan. Representatives of the local Central Bank are launching it. Release is set for the opening date of the 2022 Winter Olympics. It will not be possible to mine this coin; representatives of the ruling party will control the issue and circulation of money.
Similar bans also affected residents of the country living outside the state. They also cannot engage in activities related to the exchange and transfer of cryptocurrency.
Cloud mining
In order to mine cryptocurrency, it is not necessary to buy expensive equipment. It can be rented. This is called cloud mining.
The contractor manages the equipment, solves all technical and software issues, does the setup, provides round-the-clock power supply, and you just need to pay rent.
In addition, you need to register on a service, for example, HashFlare, Genesis Mining or Eobot, select a tariff and pay for it, indicate the wallet where the cryptocurrency will be withdrawn. After all this, all that remains is to wait for the accruals.
Cloud mining can be called investing. You invest money in a project, and after a while you receive even more funds.
One of the advantages of this method of earning money is that the investment is small compared to buying equipment, while the income will be at least 1% per day from the funds invested. In this case, all costs will be recouped in 3 or more months, and after that you will receive a stable profit.
But keep in mind that there are many scammers in this business. Therefore, before choosing a platform for cooperation, study the reviews about it.
Mining farm
A mining farm is a powerful system that quickly solves cryptographic problems. The main thing is video cards, because the mining farm consists of them, as well as a cooling system.
A video card can even be called a separate computer: it has memory, special processors, and its own cooling system. It is a PC part that is used in everyday life to calculate 3D graphics and video.
The more high-quality video cards there are in the association, the faster and more efficient the cryptocurrency mining is. Performance is measured in megahashes per second - MH/s. This is an indicator of the speed with which cryptographic problems are solved. In addition, pay attention to the video card memory. It should be from 3 GB and above, it is better to take 6 GB.
You can create a mining farm yourself, and if you don’t have enough skills and resources for this, then you can order a ready-made farm. But in any case, for the purchase of this design to pay off, it takes at least 3 months.
Mining farms have their pros and cons. Positive sides:
- The equipment can be resold to gamers at a good price.
- High performance and the ability to mine more cryptocurrency.
- No human intervention is required for operation; the system will do everything itself.
And the cons:
- Consumes a lot of energy.
- Cumbersome design.
- There is 24-hour noise, you can’t stay near it for more than 2 hours.
Despite the fact that the pros and cons are on an equal footing, there are more miners among those who prefer to use mining farms.
I’ll say right away that keeping such a structure in a residential building is problematic. This is due not only to noise, which households and neighbors are unlikely to like, but also to electricity.
Limited power is supplied to the apartments, and if you turn on an electrical appliance and the mining rig at the same time, the lights will turn off. And the system must work constantly.
It is problematic if you plan to keep several mining farms at once. In addition to a short circuit, such a situation may result in a fire.
Instructions for earning money
Let's look at a short step-by-step instruction that beginners can use to start mining from scratch.
Step 1. Development of a business plan.
When developing a plan, consider the following factors that affect cryptocurrency mining:
- power, quality and quantity of equipment;
- exchange rate of the selected currency;
- cost of electricity.
Let's look at each of these points in a little more detail.
Step 2. Purchase and setup of equipment.
You can mine a decent amount of cryptocurrency and provide yourself with a good income using high-quality equipment. To do this you need to purchase:
- CPU;
- video card;
- high performance chip.
The processor can be useful when mining new, recently emerged cryptocurrencies. They don't have to be complicated! Only with this option will it be rational to mine them.
Otherwise, if there are many miners, the mining process will become more complex, as will cryptographic tasks, and more and more electricity will need to be spent. And then the use of the processor will be ineffective.
Video cards are needed to organize mining farms. With their help, the equipment's power increases, which leads to faster and more efficient mining. These details are used by experienced miners, because in order to monitor a mining farm, you need to have free time and knowledge.
In order not to spend a large amount at once, you can purchase video cards gradually. But before spending money on these parts, you need to find out whether it is possible to obtain the selected electronic money using additional video cards. For mining some cryptocurrencies, for example, Bitcoin, the method described above is not suitable.
To mine the most difficult currencies, it is necessary to purchase chips with high performance. This is what ASIC is. This is a GPU processor, the power of which is a hundred times greater than the power of video cards. They are very expensive, so they are mainly used only by large pools.
And in general, the greater the hype created around cryptocurrency mining, the more expensive the equipment. Prices for some equipment have skyrocketed 6 times or more. But the quality of the equipment directly determines the amount of virtual coins mined, so over time you will have to purchase good hardware.
Step 3. Organizing uninterrupted power supply.
The flow of electricity must be constant and powerful. Most often, especially if it is a mining farm, it is necessary to rent a separate room, since keeping all the equipment in an apartment is ineffective and also unsafe.
Do not forget to cool the entire structure, otherwise it may break from overheating or even catch fire.
Step 4. Selecting a suitable cryptocurrency.
You should mine liquid coins that can be easily sold later. If for some reason you mine a new digital currency, then after receiving it it is better to exchange it for more common money.
Or you can immediately change everything into rubles, dollars or other national currency. I do not recommend keeping mined coins for a long time. The rate may change at any time, and you will not earn anything.
Step 5. Evaluation of results.
You can talk about success or, conversely, failure in a couple of months. Analyze your expenses and income, think about whether it’s worth further developing and organizing mining farms or whether it’s better to do something else.
Forecast
Does all this mean the end of mining? If we talk about mining as a means of earning money for anyone, then apparently yes. It’s too late to invest in mining now. The market has received enough links and pools to ensure the functionality of any blockchain. However, this does not mean that the mining industry will collapse. Today the reverse process is also observed. Entire pools are switched off from networks. This may be due to the fact that mining has become unprofitable with existing equipment. As a result, the complexity of the network drops slightly and this gives hope for at least some profit. But, alas, you can’t count on astronomical figures.
In cryptocurrency mining, as in any other major undertaking, the profits were made by those who “were at the origins.” Many of them did not even count on such income, but rather went into business out of enthusiasm. Who could have known 3 years ago that Bitcoin would rise in price by 70 – 700 – 1000 times. But rate growth is one of the main components of profit when working with cryptocurrency. Now, when there are too many people who want to “earn money”, there is not enough profit for everyone. This is the law of the market.
How much can you earn
The extraction of digital coins is influenced by many factors, for example: the quality of equipment, the size of the initial investment, the type of cryptocurrency and much more. Therefore, it is difficult to give an exact fixed amount of earnings. Only approximate figures can be given.
So, if a miner only has a gaming computer, electricity in his region is cheap, then he can receive up to $2 on average per day. Some beginners get nothing at all without powerful equipment.
With the help of mining farms you can earn more. But in this case, you will have to take into account additional expenses: electricity, which will obviously be consumed in larger quantities than from a simple computer, renting a room if there are several farms, etc.
Subtracting all expenses, it turns out that you can earn about 30,000 rubles per month. This is the average income of a miner who equipped farms. But taking into account the expenses on the equipment itself, you can get a net profit only in six months, plus or minus a couple of months.
Earned virtual money can be exchanged for real currency. There are several ways to do this:
- through exchange systems, in other words, exchangers;
- through a specialized terminal;
- using cryptocurrency exchanges.
Why is it unprofitable to rent out power?
So, let's imagine that you have your own farm, where you consistently receive Bitcoin. You have probably had it at your disposal for several years already, which is why you managed to not only recoup it, but also earn money. What needs to happen for you to suddenly decide to rent it out to random people, and even guarantee them some kind of stable income? You will only give it away if you lose profitability, and this is extremely unlikely, because you, in fact, only consume electricity. You already receive a stable income on your own and there is no point in sharing it with anyone.
Well, let's assume that you specifically created a huge farm in order to rent out power. Logically, for users the price of mining 1 bitcoin should be at least 1.5 times higher than for the owner, because you pay for electricity, maintenance, and the equipment itself was not given to you for free. You cannot promise any profit at all - just mined coins with which users are free to do whatever they want. However, this poses a dilemma: who will pay you 1.5 bitcoins for 1 bitcoin if he can simply go to the exchange and take it at the market price? Here we gradually approach the second question.
Prospects and relevance in 2022
People are divided into two camps that have different views on the future of mining.
Representatives of the first are confident that earnings from mining are a soap bubble that will one day burst. I'll explain with an example.
It is profitable to purchase products whose price is increasing at a rapid pace in order to resell them a little later at a higher price. Therefore, such a product is in demand. More and more consumers are purchasing it - the price is increasing even more.
As you can see, the true value of the product in this case is not at all important, because it plays practically no role. The hype around a product is born out of nothing, appears as if out of thin air, which is why such an increase in demand and cost is called a soap bubble.
One day there will be a peak when people no longer want to pay the offered price for the product. The owners of the products will decide that it is time to sell what they have accumulated, but there will be no more buyers.
Then sellers will begin to reduce the price until someone takes the goods. And in this case, most often you will have to sell for pennies.
The same thing, according to the first group of users, will happen with cryptocurrency. The exchange rate for all its types will fall, and mining digital money will become unprofitable.
The second scenario is more positive. Users believe that the heyday of cryptocurrency is yet to come. The most profitable mining will be for such digital currencies as:
- Ethereum
- ETC,
- Ravencoin,
- Ergo,
- Beam,
- Conflux,
- MTP,
- Equilibria,
- BitTube.
Miners claim that the above-mentioned representatives of the cryptocurrency are capable of bringing the greatest profit and they will be relevant for many more years.
But in general, it is impossible to say whether the first group of users or the second is correct. Still, mining is an uncontrolled and independent process.
Cryptocurrency mining has both positive and negative sides. Therefore, everyone must decide for themselves whether it is worth spending time and money on mining. When making a decision, you should consider the following factors:
- The difficulty of mining virtual money is increasing every time.
- Prospects for the development of mining equipment.
- Government decisions regarding mining and cryptocurrencies in general.
- Future increases or decreases in electricity prices.
- Possibility of selling equipment in case of failure in mining digital currency.
- Prospects for the development of the main cryptocurrency platforms.
- General state of the global financial system.
- The probability of a drawdown in cryptocurrency rates.
They say mining is illegal. Is it so?
Like any other area with super-profits and a high level of risk, the state has become interested in cryptocurrencies. And if at first the conversation was about somehow taking their turnover under control (which is basically impossible for a decentralized system), then later the government took up mining.
It all started with an attempt by the Ministry of Finance to regulate the use of cryptocurrencies. In particular, the law allows the existence of digital currencies, but prohibits their use to pay for goods and services. True, in the original version of the bill there was administrative and criminal liability for transactions with digital money, but then they were excluded. Just as they excluded the possibility of bequeathing cryptocurrency, collecting it in bankruptcy or in enforcement proceedings.
At the same time, the experts we interviewed unanimously claim that mining in Russia is legal. So Timofey Semenov from Intelion Mining
told us the following:
- the state does not refuse to cooperate with miners – on the contrary, it conducts an active dialogue with them. For example, at the Blockchain Life forum in October 2022, State Duma deputy and chairman of the financial committee Anatoly Aksakov was present;
- The law on digital financial assets allows the issue, purchase, sale of cryptocurrency and other transactions with it. The only restriction is that Russian citizens cannot pay with cryptocurrency;
- those who own cryptocurrency will in the future be required to file returns (this will happen after appropriate amendments are made to the Tax Code). The declaration will need to indicate both the fact of ownership and transactions with it;
- It is prohibited to advertise cryptocurrency.
The state did not ban mining, and thereby legalized it. On the other hand, Maxim Yudichev believes, the state will now more actively control cryptocurrencies, including income from its mining. Already in 2022, it is worth understanding that mining is an income-generating activity, so all participants will have to declare income and pay taxes on it. Accordingly, tax costs are added to electricity payments.
However, mining is becoming a full-fledged type of business in Russia
. This makes sense - for example, in the regions of Siberia there is cheap electricity and a fairly cool climate, which can reduce the cost of mining itself and cooling equipment.
And recently it became known that the largest batch of equipment was imported to Russia - in the city of Bratsk, Irkutsk region, a large farm was organized in a data processing center. In total, 14 trucks of equipment were imported - that’s 20 thousand devices that consume a total of up to 70 megawatts
(which corresponds to the energy consumption of a city with a population of 150 thousand people). The equipment cost up to 60 million rubles, and will represent more than 1% of the entire global Bitcoin network.
