Some years ago, when crypto hadn’t yet entered the mainstream and was widely regarded as an obscure niche interest of techies and libertarians, it was easy to make good money from mining, be it Bitcoin, Ether, or Monero. In the early days of Bitcoin, its pseudonymous creator Satoshi Nakamoto was the only miner on the network at the time and used an average consumer-grade computer to add new blocks to the chain — something that is unthinkable today, when Bitcoin miners use expensive and power-hungry hardware designed for the sole purpose of creating new blocks.
Naturally, as crypto gained ground and more miners joined the chain to compete for block rewards, the network difficulty increased. Needless to say, mining equipment also evolved to accommodate the needs of a developing industry. As costs of hardware and electricity soared, many felt that they were unfairly priced out of competition, since securing the blockchain was supposed to be — at least in its early days — accessible to anyone with a computer. Nowadays, however, the industry is dominated by professional mining companies and pools, which raises concerns about centralization and the potential for 51% attacks.
This is true not only for Bitcoin but also for other minable cryptocurrencies like Bitcoin’s forks Litecoin, Bitcoin Cash, and Bitcoin SV, and Ethereum proof-of-work forks Ethereum Classic and ETHPoW. In fact, the crypto mining industry keeps evolving even today despite the ongoing crypto winter, reflecting the pace of innovation and current profitability rates.
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For now, it seems like crypto mining is no longer profitable for us ordinary folks, who can neither afford to buy specialized mining equipment nor move somewhere to the North Pole for cold weather and cheap renewable energy. This in turn begs the question: is crypto mining dead? And since it is not — the global crypto mining market is expected to reach $7 billion by 2032 — is crypto mining worth it in 2023 and which cryptos you can mine at home?
To answer these and some other questions, keep reading our guide on crypto mining to give you a comprehensive overview of the current state of the industry.
What is crypto mining and how does it work?
To understand if crypto mining is still effective in 2023, we should first examine how it works and peep into the details of its underlying cryptography.
When we say that crypto is “mined,” we drew an analogy between generating new crypto coins and mining for valuable resources — like gold and precious metals — from the ground. This is a nod to Bitcoin’s narrative of being a “digital gold” due to its scarcity and store of value properties.
Read also: Merov Introduces a Suite of Services for the Bitcoin Mining Industry
Indeed, in both cases, there is an element of effort, work, and competition involved in obtaining something of value. However, unlike traditional mining, which physically extracts minerals and metals from the ground, crypto mining uses computational power to solve mathematical puzzles required to complete "blocks" of verified transactions that are added to the chain. But what are the exact steps of what miners do to add new blocks and earn rewards?
First, miners collect a set of transactions from the mempool, which is a sort of waiting room for pending transactions on the network, to form a block. Next, they create a unique block header, which includes information like the block's version, timestamp, a cryptographic summary of the transactions in the block called the Merkle root, and a nonce, which is a random number.
The nonce is a crucial part of the proof-of-work consensus mechanism that adds an element of randomness to the calculations performed by miners. By trying different nonce values, they can generate different hash values for the block header. The ultimate goal is to find a hash value that is below a certain target difficulty set by the network's algorithm.
The process of finding the right nonce involves a lot of trial and error and can be thought of as a brute-force method for solving a cryptographic puzzle to earn a reward. The first miner who computes a valid hash value can broadcast the new block to the network, so other participants, also known as nodes, can verify its validity. After it’s confirmed to be legitimate and added to the blockchain, the miner who successfully solved the puzzle receives a fixed amount of a newly minted cryptocurrency, plus all the fees from transactions included in the block.
Obviously, the ones with more computational power have an edge over other miners, since they can perform a higher number of calculations per second, increasing their chances of finding the right nonce. For that reason, crypto mining is a never-ending arms race to maximize computational power, which led to the development of specialized hardware designed solely for solving blockchain cryptographic puzzles.
Now let’s take a brief look at what stages of development crypto mining devices have undergone since 2009 and what hardware is used to mine cryptocurrencies now.
What is CPU mining?
Just as traditional mining requires specialized tools and equipment, such as shovels and excavators, crypto mining needs specialized hardware. However, the early days of crypto were very much like the California Gold Rush, with very little equipment needed to make a fortune. An average personal computer was just enough to start, as there was little competition. That was the era of CPU mining, which used the central processing unit (CPU) of a computer.
Since CPUs are designed for general-purpose computing tasks and aren’t optimized for calculations required to solve the block puzzle, they have a low hash rate and less computational power compared to later GPUs and ASICs, which rendered CPU-based mining unprofitable.
Currently, none of the established proof-of-work cryptos can be successfully mined with CPUs, although some small projects can deliberately use CPU-friendly algorithms to support decentralization and attract a broad base of small-scale miners.
Is GPU mining dead?
As mining difficulty increased and the demand for computational power grew, miners turned to new, more efficient hardware leveraging graphics processing units (GPUs).
The thing is that the performance of a computer chip is greatly influenced by its complexity. The more simple the chip is, the more efficient it becomes, but the set of tasks it can perform also decreases. Unlike CPUs, GPUs were designed to work for a narrower range of operations that involve parallel processing of many simple math tasks and were originally built for computer games. However, miners quickly found a way to reprogram them for solving cryptographic puzzles on the blockchain.
If you feel enticed by the prospect of simply plugging your GPU in and starting to passively earn crypto, I’m afraid I have to disappoint you. In the industry, there’s a common belief that GPU mining dead now due to the Ethereum Merge that happened back in September 2022, when the network successfully transitioned from proof-of-work to proof-of-stake.
As the second-largest cryptocurrency that was designed to be ASIC-resistant, Ethereum used to be the first choice for GPU miners. When its PoW era came to an end, many Ethereum miners switched to other PoW altcoins, tanking GPU mining profitability as network difficulty skyrocketed alongside the hash rate.
“Graphics processing units (GPU) mining is dead less than 24 hours after the Merge,” Ben Gagnon, chief mining officer at bitcoin mining company Bitfarms, tweeted at the time. He pointed out that the three largest GPU chains — Ethereum Classic, Monero, and Ravencoin — had either low or negative profits, and “the only coins showing profit have no market cap or liquidity.”
What is ASIC mining?
Unlike general-purpose CPUs and narrow-purpose GPUs, ASIC miners — short for application-specific integrated circuits — are specifically designed and optimized to run just one hashing algorithm. For example, a Bitcoin miner can’t mine Litecoin, since the two blockchains use different hashing algorithms, SHA-256 and Scrypt, respectively.
By focusing on a particular mining algorithm, ASIC crypto miners can achieve superior performance and energy efficiency compared to other mining hardware. At the same time, ASICs are a sizable investment with the potential for huge losses — they’re insanely loud, costly to purchase and maintain, and need a dedicated warehouse for maximum airflow, plus older models quickly become less competitive over time due to rapid developments in the semiconductor industry.
Currently, most proof-of-work cryptocurrencies are only profitable to mine with ASICs, unless they are purposely designed to be ASIC-resistant like Monero or Ethereum Classic. However, even they are not fully immune to these ubiquitous devices used by large mining farms to gain an upper hand on their less technologically advanced competition. The thing is that ASIC manufacturers are incredibly fast to develop new chips to circumvent imposed restrictions, and software to hide their presence on the blockchain by imitating nonce selection with patterns that resemble non-ASIC devices.
The hard-to-swallow pill is that the days of affordable crypto mining are long gone. The cherished goal of maximum miner decentralization is simply at odds with the market incentives that motivate ASIC manufacturers to put millions of dollars into research and development of new chips and mining companies to purchase them in bulk.
Unless the crypto market somehow returns to its pre-mass adoption phase, making mining largely unprofitable for big players, we will likely see even more centralization in the industry, with hobbyists and enthusiasts being priced out by large profit-hungry mining companies.
How to start crypto mining at home
If you’re just curious about blockchain technology and want to try crypto mining as a hobby, you can start from GPU — fortunately, now there is no shortage of used GPU cards and mining rigs that solo miners are selling at a discount in hopes to recoup some of their lost revenue. Keep in mind though that your chances to break even on your initial investment in a GPU are pretty slim.
According to the WhatToMine website, all GPUs, including top ones like GeForce RTX 3090, 3080Ti, 3070, and Radeon RX 6800 and 6800 XT, yield negative profits at a standard electricity cost of $0.10 kWh, which means that you will actually lose money after paying your bills.
If you’re feeling more serious about mining, you would need to buy an ASIC and also rent a place to host it, since the average device produces between 70 to 90 decibels of sound, which is similar to a food blender or a loud vacuum. You’d also need to factor electricity costs, market dynamics, and increasing mining difficulty into your profitability calculations.
Still, you should keep in mind that the odds of solving a Bitcoin block as a solo miner are so rare that such an event has occurred only 270 times out of the 700,000 blocks produced since 2009. To increase your chances of earning crypto from mining, you can join a mining pool, where many miners join forces and operate as a single entity for a higher chance of earning coins. The rewards are later evenly distributed to all participants, proportionately to the computing power they contribute. Keep in mind that mining pools typically charge a fee to cover operational costs and provide their services, so you should subtract it from your expected profits.
To find out what is the most profitable crypto to mine with your hardware, you can visit WhatToMine, a popular crypto mining profit calculator. Here you can select your electricity costs and GPU/ASIC model that will help you decide which coin will generate the most profits at the current network difficulty.
Staking as an alternative to mining
Unlike proof-of-work, which relies on miners to solve cryptography puzzles, proof-of-stake secures transactions on the network with the help of validators, who stake and hold a certain amount of tokens. The longer the validator is active and the bigger their stake, the bigger their chances of solving the block, although this process is highly randomized to ensure fair competition.
Unlike mining, which requires specialized hardware and high energy consumption, staking only requires a crypto wallet for rewards and basically any amount of crypto, since staking-as-a-service platforms allow multiple crypto holders to pool together their tokens in a similar way mining pools combine their computational power. Currently, both centralized exchanges and DeFi protocols offer staking services, so you can choose the best option by comparing yields, ease of use, degree of decentralization, and other important factors.
Have I piqued your interest already? If yes, you may want to take a look at our review of the best Ethereum staking platforms for 2023.
Bottom line
Unfortunately for small-scale crypto miners, the modern cryptocurrency mining industry has quite a high barrier to entry, primarily due to expenses associated with specialized hardware and energy consumed by it. Still, this doesn’t mean that the answer to the question "Is crypto mining dead?" is yes — the space is constantly innovating and evolving, sometimes even at a cost of decentralization, as large mining farms are gaining an edge over retail miners. Luckily, there are also alternatives to solo mining in the form of joining a pool or even switching to proof-of-stake blockchains.
Since Ethereum Merge in September 2022, GPU mining has become largely obsolete, as alternative GPU-friendly PoW blockchains simply can’t accommodate this much computing power. Whether GPUs will ever claw back their lost share of the crypto mining market remains to be seen.
Crypto mining FAQ
What is a hash rate?
In crypto mining, hash rate refers to the computational power or speed at which a device can perform calculations required for mining. The hash rate is measured in hashes per second (H/s), which stands for the number of hash functions it can calculate in one second. A higher hashrate equals more computational power and higher performance, which increases the chances of solving the block and earning rewards.
What is proof-of-work in blockchain?
Proof-of-work (PoW) is a consensus mechanism used in some cryptocurrencies, where miners compete to solve cryptographic puzzles to validate transactions and create new blocks. The first miner to find a valid solution is rewarded with newly minted coins, plus all transaction fees from the recent block. Such a mechanism ensures the security and integrity of the blockchain by making it computationally expensive and time-consuming to carry out a 51% attack on the network.
What is ASIC vs GPU mining?
ASICs (Application-Specific Integrated Circuits) and GPUs (Graphic Processing Units) are both types of hardware that are used to mine cryptocurrencies. ASIC mining offers higher mining efficiency and performance but is limited to specific hashing algorithms, while GPU mining is more versatile but also generally less efficient in terms of hash rate and power consumption.
