Altcoin Mining: Opportunities and Risks
Cryptocurrencies have generated a great deal of hype, particularly since the introduction of Bitcoin. Alongside the rise of Bitcoin, many altcoins have made their mark on the crypto market.
Altcoin mining has become an increasingly popular way to earn money, and if the demand for crypto transactions increases, more and more miners will inevitably be needed. But what is required for altcoin mining? Where can altcoins be mined and is mining worth it at all? This article will go through all of these points, and will explore the various forms of mining such as private mining, mining in a pool and cloud mining.
When it comes to crypto mining, the following points are important to consider:
- Altcoin mining isn’t just restricted to the home.
- Mining requires a high level of computing power.
- Altcoin mining is also possible in a pool or via the cloud.
- A crypto wallet is required for mining.
Content:
- Altcoin Mining – is it easy to benefit from the crypto hype?
- Altcoin mining in a pool
- The cloud as an altcoin mining alternative
- Altcoin mining with reputable providers
- Conclusion: prospects for higher profits, but with increased risk
Altcoin Mining – is it easy to benefit from the crypto hype?
What is altcoin mining? Altcoin mining is essentially a process whereby you can earn altcoins without putting down money to earn them. Miners receive altcoins for completing ‘blocks’ of verified transactions. These are then added to the blockchain.
Altcoin mining sounds quite simple in theory. All that’s required is sufficient computing power, and with the right software, you can get started. But theory and practice are not often one and the same.
Altcoin mining is certainly not a cheap and easy process. High-performance graphics cards and cooling systems are just a few of the hardware requirements. Since blockchain technology, the basis of cryptocurrencies, is extremely complex (requiring complex mathematical operations), high-level computing power is an essential requirement. In answer to the question, ‘can you make money mining Altcoins?’ the answer is yes. Despite the advanced system and hardware requirements, there’s a large number of miners worldwide, mining altcoins as a source of income.
Altcoin mining requires significant computing power
The sheer level of data and the processing of algorithms for successful altcoin mining requires a particularly high level of computing power. Significant power consumption comes as a further aspect to bear in mind. These factors combined mean that altcoin mining is no simple feat. Those interested in evaluating the profitability of altcoin mining should consider the following factors:
- The highest possible megahash or gigahash performance per second.
- Keeping electricity costs as low as possible.
Electricity costs account for a significant part of altcoin mining expenditure. For this reason, mining is becoming less and less appealing to private miners, particularly in Europe. Instead, many are switching to professional providers active in altcoin mining clouds or altcoin mining pools. For the individual miner, cryptocurrencies, such as Litecoin, Dash and Ethereum provide several possibilities in this regard.
Altcoin mining in a pool
There’s a range of alternative options available for lone-miners who don’t have the means to engage in altcoin mining from home. These include so-called ‘mining pools’, which combine the computing power of others who, in turn, have a share in the profits gained. In this case, your own computing power is combined with that of other miners in order to generate the highest possible level of computing power and mine the blocks faster. As mentioned, profits are distributed within the pool. Those who contribute a particularly large amount of computing power receive a significantly higher share of the profits than miners who contribute only a small amount of computing power to the pool.
Be aware of the mining pool fees
Anyone who joins an altcoin mining pool should pay attention to the additional fees incurred. There are many variables that are determined by the pool.
Miners who want to calculate their probability of making a profit can use an altcoin mining calculator for this. Various parameters (electricity costs and hash performance, for example) are used to determine if altcoin mining can actually pay off. Good calculators also take into account the individual fees of the pool.
A wallet is required for altcoin mining
Altcoin miners receive their rewards in the form of coins after they’ve successfully completed the task at hand. However, these coins must be managed virtually. This is precisely why a digital wallet is necessary – a must-have for every miner. These wallets are available either for specific cryptocurrencies or as multi-wallets, in which different cryptocurrencies can be stored. The wallets are available as hardware wallets, mobile wallets (apps), desktop wallets or browser wallets.
The cloud as an altcoin mining alternative
For miners who don’t have significant computing power and don’t want to invest in the necessary high-end hardware, cloud mining is one solution to explore. Using this method, the computing power isn’t provided by your own computer, but by a third party via the cloud. For altcoin mining, customers simply rent the hashes per second and pay a fee to the company providing the service. The computing power is then made available virtually and can be used for mining. Most contracts have a term of at least one year and are provided with kilo-, mega-, tera- or peta-hashes.
Altcoin cloud mining and profit-sharing
Those who mine altcoins via cloud providers receive a percentage of the profit. The higher hash values also generate higher profits. For the successful cloud miner, the costs associated with altcoin mining and the rented computing power should therefore be recovered relatively quickly.
Cloud mining taxes
The tax system for altcoin mining isn’t always simple or straightforward. There’s clear tax regulation for coins, as dictated by the European Court of Justice (ECJ), which states:
- Profits are tax-free if held for more than one year. Those who have previously sold their coins are treated according to the income tax rate and have to pay taxes on the sale of their coins.
No final taxation is applied to altcoin mining (as is the case with securities or bonds). When considering taxation, it’s also crucial to consider whether altcoin mining is primarily performed privately or professionally. Those who act as professional miners always have to pay tax on their income.
Altcoin mining with reputable providers
Altcoin mining via professional providers is becoming increasingly appealing for many miners. After all, by using this method, users can save themselves expensive hardware and energy cost investments. Instead, providers can simply offer the required computing power or, with the use of a pool, can also share in the profits. However, due to the high demand, there are also some black sheep in the industry. In order to find a reputable company, miners should therefore compare providers and rely on reviews from real users.
No legal basis: payouts are not always guaranteed
At present, there’s much about cryptocurrencies that’s unregulated, meaning miners aren’t always guaranteed to receive payment for their profits. Although there’s a contractual basis that the companies have to adhere to, these agreements can be manipulated. The reason for this is the handling of the coins themselves. The networks in question are virtual, meaning it’s possible that coins can simply ‘disappear’ or can even be stolen from a wallet by hackers, for example.
Some altcoin mining contracts from cloud mining providers contain additional clauses that dictate how the contract can be suspended. While the computing power required remains a constant, the requirements and regulations in the sector can change. Therefore, there’s always the residual risk that altcoin mining can become unprofitable and that the companies can choose not to continue their contracts.
Conclusion: prospects for higher profits, but with increased risk
Altcoin mining is an interesting way to earn coins without having to go through the process of buying them. But it does require significant computing power and energy consumption in the process. Some miners don’t shy away from this and mine their cryptocurrencies at home. However, for most miners, this option is unprofitable and involves unnecessary effort. Therefore, mining pools or cloud mining providers are the only options.
It’s important to recognise that altcoin mining doesn’t always pay off. The additional costs (for example, from renting computing power or pool fees) also play a role. If you conduct your mining with others, you’ll receive a payout based on the computing power you provide. The higher the hash rate, the more profit you’re likely to make. But with this increasing hash rate, there are also increased risks for users. Anyone who wishes to be an active and profitable altcoin miner should spend the time to assess whether altcoin mining will pay off for them at all.
