Should You Start Mining Crypto? Top Things You Need To Consider

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What Is Crypto Mining

If you are new to crypto or maybe just a lurker that constantly monitors, you might have thought about crypto mining at some point. The thought occurs to me every now and then: “Is it too late to start mining?”

In this post, we are going to dive into the main question of profit, the main types of mining, and things to consider before you start mining.

Nothing should be considered investment of financial advice. Enjoy the ride.

Is Crypto Mining Profitable?

Before we get to far into this post, we need to answer the elephant in the room: Is crypto mining profitable?

Yes and no. It all depends on the timing of the market, the coin you choose to mine, and of course your mining setup.

Although, there is almost always a few coins that you can continuously mine profitably at any given time. This is because the difficulty to mine coins fluctuates based on the amount of people mining them. In short, if the price of assets drop and less people mine it, the more you receive and are compensated for your contributions through mining.

So as you can see, it is generally profitable to mine most cryptocurrency given you have the proper equipment. This is especially true if you hold the assets you mine till a bull run and don’t just sell them out right.

Now, lets get into what crypto mining really is.

What Is Crypto Mining?

This is a question I get all the time when people start talking about Bitcoin: what is mining?

To put it simply, mining is about contributing some type of resource (typically computer power) to authenticate a block of transactions by solving an algorithm. Once your computer solves the algorithm, you are then rewarded by the native currency of the blockchain you are contributing to.

Mining is further broken down into 3 main types: ASIC, GPU, and CPU. Lets learn about these to give you a solid foundation of crypto mining!

What Is ASIC Mining?

ASIC mining is short for: Application-Specific Integrated Circuit Miner.

This type of mining is the most efficient form of crypto mining but also the least known. ASICs are typically designed for a single purpose use. What this means is that they are usually specifically made to mine one cryptocurrency. Now, some can mine multiple coins if they use the same underlying algorithm. A good example would be Ethereum and Ethereum Classic.

Pros: They are cheaper and mine much more efficiently than CPUs and GPUs.

Cons: They only mine certain coins, and are not as durable or upgradeable

What Is GPU Mining?

GPU mining is short for: Graphics Processing Unit.

This type of mining literally uses the graphics card from computers that are used to play games or watch shows to mine cryptocurrency!

GPU mining has become more popular recently, but is more expensive than ASIC mining. In addition, the costs of power consumption and general maintenance can cause issues with staying profitable long-term.

Pros: Can mine multiple coins and are efficient

Cons: More expensive and uses more power. Slightly inefficient compared to ASICs.

What Is CPU Mining

CPU mining is short for: Central Processing Unit.

This type of mining is the most commonly known but sadly outdated at this point. The entire idea behind this type of mining originated with Bitcoin. It lets you use your basic computer processing power to solve algorithms to get rewards. As you can guess, it is now mainly a gateway for people trying to get into mining and play around with the entire process at this point.

Pros: Anyone can mine from any computer or phone! Also provides people with an easy way to experience and experiment with mining without expensive hardware.

Cons: It is extremely inefficient and outdated. Basically impossible to profit from it

Whew! Now that we have the basics out of the way, lets discuss things to consider that can drastically effect profitability.

Use A Mining Calculator

This is where most people start their mining journey before they even consider what coins to mine or what type of miners to purchase. Use a crypto calculator!

Even though you might really really love a certain crypto project, it might just not be realistic to mine it profitably. It is very important when you approach mining to put away bias and treat it purely as a business investment.

Use the crypto calculator to see which coin will give you the best return based on your situation. This includes: fees, electricity costs, costs to purchase the miners, and expected price of the assets.

Research The Token Economics

With each coin you decide to mine, there is an entire market behind it that you need to research.

For example, does it have enough liquidity to sustain you constantly selling the asset if you plan to take profits? Does the price volatility reflect instability that could effect your month to month cash flow?

These are all questions that you need to research before committing potentially thousands of dollars to mine. In addition, you need to look into how reliable the project is long-term.

Do you think that the project will be there in 3 to 5 years? Or, do you think the project will lose out to new projects coming into the market? Dig into the roadmap and website to make sure it has a strong team, community and liquidity levels before ever committing to even purchase one miner.

Create a Business Plan

Like the Token Economics, you need to establish a business plan with mining.

Most people do not know this, but if you mine personally you can not write off any of your expenses like electricity or even purchasing the miners. In addition, you STILL have to pay taxes on when the asset is mined and when you sell it. Yikes.

The easiest way to work around this is to create an LLC.

Once you have done that, you can write off your expenses and keep more of your profits on the backed of your mining operation. For instance, if you spend $10,000 on miners with an LLC, you can take $10,000 in profits without having to pay taxes on it from your mined coins. This is extremely important and you need to have this figured out and set up before you start mining.

In addition, have a plan for when you are going to sell your assets. Will you do it monthly, or just wait for the next bull run? Did you know that if you hold your assets for over a year that they are taxed differently? All of these things you need to consider before diving head first into mining.

Make sure you have everything mapped out to maximize your profitability!

Crypto Mining

This concludes our post on crypto mining! I hope this post left you with basic knowledge of mining, and gave you something to consider before you start! At the end of the day, you can make plenty of money mining, but there is always a system that needs to be put in place first.

Take your time, map it all out and you could make more money than your job currently!