What Is Hobby Mining?

Cryptocurrency mining has become a great way to make some side income, thanks to the enormous success and wide adoption of cryptocurrencies as financial instruments. Bitcoin’s prices skyrocketed immensely from the mid-2010s onwards, and altcoins quickly followed suit. For a time, creating or mining coins with your own device was both popular and profitable. However, the cryptocurrency industry is changing very fast, and the mining requirements change (increase) with it.

The competition in the field has brought high-end mining rigs and centralized mining farms into the picture. These changes have serious implications in terms of the profitability of the business. In this article, we will tackle the evolution of the mining industry, tell you how to start mining with your own equipment, and what you should expect from it.
What Is Cryptocurrency Mining?

Cryptocurrency mining is the process of creating new coins by validating the incoming transactions on the blockchain. All cryptocurrencies depend on blockchain technology, whose security, in turn, depends on the miners. How?
Vector illustration of male miner sitting in front of laptop with bitcoins on blue background

To validate the transactions, miners, also known as nodes, compete to solve a cryptographic hash function. The first miner to come up with a solution validates the block by adding it at the end of the blockchain and gets the right to claim the block prize. Every time a new coin is created or moves around, it’s recorded on the blockchain, which works as a public ledger. These “movements” are called transactions in financial terms and are subject to an elaborative inspection by the miners who look for double-spending or third-party data changes.

This is also how cryptocurrencies stay decentralized, because thanks to blockchain technology, the network facilitates its security and transparency without the need for a third party to confirm the validity of the transactions.

Theoretically, cryptocurrency mining is a random procedure because it’s impossible to solve the cryptographic hash function logically. What they do is check whether a given output holds as the solution. However, they need to generate a vast number of guesses with their mining devices before they arrive at the right output. The number of guesses a device can produce per second is called hashing power or hash rate: the higher your hash rate, the higher your chances of making a lucky guess.
Mining Hardware for Bitcoin Mining

As the name suggests, hobby mining is mining cryptocurrency on your computer without expecting to make a sustainable profit out of it. It is a great way to get yourself introduced to the mining field and the tweaks of the business without committing to a big investment.

Back in 2009, everyone with a basic CPU-based computer could become a Bitcoin miner. However, since now you need greater computing power if you want to mine the next block and generate new bitcoins, more powerful mining rigs have come to dominate the market. Mining cryptocurrency on a CPU is virtually impossible today because of the disproportionately powerful GPUs and ASIC miners.
What’s a CPU?

The acronym CPU stands for a central processing unit. It basically represents the brain of your device as it lives on your computer’s electronic circuitry and processes the input information. Every computer has a CPU. In fact, you will find a CPU in any device that is slightly smart such as your cell phone, your smart tv, or your Roomba.
Hand wearing gloves setting up CPU on hardware
What’s a GPU?

GPUs are graphics processing units or graphics cards that have originally been designed to do rapid memory optimizations to accelerate the image processing in a frame buffer that is ultimately intended to output to a display device. This means that GPUs render high-quality images and provide a very quick output to your screen. These units don’t substitute CPUs but rather function as complementary equipment that’s vastly used for gaming and video editing.

Even though GPUs were not initially produced for mining, their great capacity for serial processing makes them highly efficient mining devices compared to CPUs. But to use a GPU to mine cryptocurrency, you tweak your way around some factory settings including settings on fan speed and workload capacity limits. Playing around with these settings comes with some potential risks if you don’t know what you are doing.
What’s an ASIC Miner?

ASIC stands for the application-specific integrated circuit board. The main difference between an ASIC and a GPU or a CPU is that ASICs are not programmable to perform various tasks. They are designed and programmed to do one particular type of job – cryptocurrency mining. This is why ASIC miners are known for their very high efficiency, scoring a far greater hash rate than other mining devices currently available. Plus, setting up an ASIC miner is quite easy compared to the other mining rigs, as the ASICs don’t require mining software and fine-tuning.

So, if you are only interested in hobby mining, there’s no need to spend time and resources on buying the latest mining gear if you have no intention to take your mining to the next level in the future. On the other hand, it is still a good idea to have a GPU, at least if you want your mining to be profitable at all.

Choosing proper and efficient software is also an important part of cryptocurrency mining. And the best mining software for you depends strictly on your hardware. Because CPUs and GPUs aren’t designed for crypto mining exclusively, optimizing your settings to mine efficiently will require lots of fine-tuning. Therefore, if you start mining on a CPU, your efforts would be wasted on learning your way around a completely outdated device and software.
Do I Need a Separate Device for Hobby Mining?

No, you don’t. You can do it on the computer that you use every day, but it’s strongly recommended to have a GPU on it. After you check that from the list, it is a question of how you want to allocate your processing power between tasks. If you want to carry on computationally demanding tasks, such as gaming or video editing, you might want to temporarily stop the mining. Many miner software allows you to pause the mining activity so you can assign more GPU to the other things you want to do.
Black GPU isolated on black background on black reflective surface
Is Hobby Mining Profitable?

Bluntly said, no, it is not. In order to extract a profit from hobby mining, especially if you want to mine Bitcoin, you need to own a strong GPU, if not an ASIC miner. You can use a hash power calculator such as Cryptocompare or Alloscomp’s calculator to learn the amount of inflow you can expect. Even though hobby mining isn’t profitable per se, there are some strategies that might increase your chances.
Mining Pools

Mining pools are online platforms that let miners combine their processing power. It’s kind of like forming a cartel, which gives you a chance to compete with existing monopolies in the market. In other words, there are strongly centralized and heavily invested mining farms in the industry, and they get the most of the block prizes available for major cryptocurrencies. When you join a mining pool, your chances of solving the puzzle increase, but, at the same time, the prize is split among the miners in the pool, excluding the service fee. Still, in the end, it is a better strategy than solo mining for people who don’t want to make a huge investment.
Multipool Mining

Another important factor that affects the profitability of mining is the coin you choose to mine. The profitability of a certain coin can fluctuate over time depending on factors like market price or the total hash rate. For example, coins like Bitcoin (BTC) and Ethereum (ETH) are widely popular; thus, they have very competitive mining industries. For this reason, mining less popular altcoins can be more profitable at times.

Checking the total hash rate of a coin and constantly comparing its market price is tentative work. Instead of doing all that manually, you can use mining software with a multipool mining feature. Multipool mining is a strategy where your mining software shifts between the most profitable coin to mine without you having to worry about it once you set the mining going.
Cloud Mining

Cloud mining is a service where you can rent out computing power from other people online and have their machines work for you. It only applies to coins with PoW procedures like Bitcoin. You can use Antpool, Poolin, f2pool, or Slush Pool as some of the most popular mining pools that serve individual miners. However, when signing up for a cloud mining pool, you should consider the upfront costs as well as the rate of rent you need to pay in return for the hash rate you rent and the cuts the pool makes to your profit. Still, those expenses considered, cloud mining can be worthwhile.
Vector illustration of man mining using computer beside cloud filled with gold bitcoins
What Are the Costs of Hobby Mining?

First of all, consider your electricity costs. If you leave your computer running at all times, you might be surprised when you get the electricity bill at the end of the month. Second, there is a cost of depreciating your device. Mining cryptocurrency for a long period of time will wear down your hardware.
Crypto Tax

A lot of people tend to forget that whether you are doing business or hobby mining, there’s still a cryptocurrency tax obligation that you must meet. The regulations differ from region to region. For example, in the US, according to the IRS’s guidelines, you are clear from the business tax and shouldn’t worry about the tax deductions and tax return as long as you don’t set up a mining business. However, you are still subject to an income tax if you are able to generate money through mining.

If you aren’t holding your crypto assets for longer than a year, you are subject to the short-term capital gains tax. However, If it’s been a year since you obtained the assets, you are subject to a long-term capital gains tax, which is less than the capital gains tax.
A Few Words Before You Go…

If you are thinking about starting a digital currency mining business or are just curious about mining mechanics, hobby mining is a great way to get yourself introduced. Cryptocurrency miners face a lot of choices, such as the best hardware for their budget, the best software for their experience lever, the most profitable coins, or the mining strategy they will follow. The best way to find the answers to all of these questions is to get your hands dirty in the mining business.

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