If we pay attention to the evolution of cryptocurrency mining, we will find the rapid change in the mining process. From CPU to now, it is ASIC mining. Aside from this, we can also see the variation in methods of mining members use nowadays. There is solo, pool/group, or cloud computing minings.
It is a fact that solo miners have been facing playability issues. This is because of increasing competition to offer the most excellent hash-solving power among the community. This crazy competition makes it difficult for solo miners to keep up and thrive. However, there are still many individuals who prefer solo mining. At the same time, most mid-sized and low-capital holders are participating in pool mining.
After all, maintaining and operating a mining farm takes an enormous amount of capital and resources. However, some individual miners are efficiently running their rigs. Hence, we can deem that there are multiple factors that affect the success of solo mining.
Let us look into the definition of solo mining, how it works and if it is better than pool mining.
Table of contents
- What is the process of mining?
- How does mining work?
- How can anyone start mining?
- What is solo mining?
- What is pool mining?
- Comparison between solo and pool minings
- Which mining is better: solo mining or pool mining.
- Analyzing capital requirement and profitability of solo mining
- Closing Thoughts
What is the process of mining?
The mining process in relation to cryptocurrencies refers to the computation of cryptographic numericals to create or mint crypto coins. The individuals who perform this process are known as miners. Furthermore, miners need high-power computers to resolve complex equations.
In crypto mining, the verification of blocks containing data and the addition of records of transactions on the public ledger occurs. This ledger is known as the blockchain. Moreover, complex encryption techniques secure the data on the ledger.
The system works as a decentralized network where cryptographic algorithms verify the transactions. Hence, there is no need for any centralized authority to oversee the system.
How does mining work?
As we know, miners use supercomputers to perform complex numerical equations to verify a crypto coin. But the process gets interesting due to the competitiveness of the field. Here, the earliest miner who cracks the complex codes has the right to authorize the transaction.
Due to their service, the crypto community provides miners with some rewards. Once the verification process by miners finishes, the system adds new data in the form of blocks over the ledger.
How can anyone start mining?
Firstly, you would need a high-performing computer that can efficiently solve complex equations for hours. Further, you will need to set up a digital wallet that supports mainstream cryptocurrencies like ETH, BTC, etc. Then you can either join the mining pool to gain profits from trading or start solo mining. In mining pools, a group of miners connects their resources to expand theri mining performance.
This algorithm involves many cryptocurrencies like BTC, ETH, and DOGE. Additionally, the system assures that no central authority gets the sole power to control the blockchain processes. The mining process is important for running the crypto cycle on the blockchain.
Also, the system adds a new block only when a miner displays a new winning POW. Furthermore, this process occurs every ten minutes in the network. POW or proof-of-work works to keep users from double-spending or to mint additional coins they did not earn.
Among the cryptocurrency community, two types of mining are pretty popular: solo mining and pool mining. Let us look into both of them.
What is solo mining?
As you can guess by the name itself, solo mining implies that a single miner independently conducts and executes the mining process. These solo miners do not depend on any third party in any way. Instead, they link their mining computers to native crypto wallet clients and discover blocks.
If the solo miners complete the whole process of mining within the network, they will get a remarkable incentive. Additionally, solo mining extensively depends on the hardware hash power and the overall hash rate of the network. However, at a time when hash rate complexity was less, solo miners were earning adequate profits. Apart from this, fluctuation in crypto value and high electricity charges affect profitability as well.
The possibility of solo mining and profitability primarily rely on two elements: hardware power and network difficulty. The thing about solo mining is that either a miner
gets the solution to complex block data within a short span, or it might extend to years.
Although in solo mining, it is hard to find blocks, it can offer users the highest returns over time than pool mining can offer. However, the process will depend on multiple factors; hence solo miners must maintain their patience. But, as sometimes it takes longer to find a block, most users are drawn to pool mining to mine altcoin or bitcoin.
Hence we advise you not to go for solo mining unless you acquire enormous amounts of hash power. Another thing to note is that now miners use FPGAs in place of CPU or GPU to leverage maximum power. Hence you must do thorough research on expenses and profits you might make with solo mining.
What is pool mining?
Pool mining is a group of crypto miners who contribute their computational powers and resources over a network to enhance the chances of finding a block or completing crypto mining. Basically, members of a mining pool combine their processing power and aim to find the block at the fastest speed. In case they successfully find the block, they receive rewards in the form of cryptocurrencies. Further, the system distributes the reward amount among the members as per their percentage of contribution in the pool. Additionally, you must note that a member receives rewards only when they show the proof-of-work of transactions.
Comparison between solo and pool minings
Advantages of solo mining:
- One of the most significant and most attractive advantages of solo mining is being the sole owner of vast amounts of rewards. This is simply not possible in pool mining. In case a solo miner’s equipment finds the value of a new block earlier than others, then the entire profit will only be his.
- In solo mining, there are minimal chances of getting interference from outages. Further, this might result in enhanced uptime.
- Miners who practice solo mining are not viable to pay any extra charges. In fact, for the discovery of every block, a solo miner receives around 6.25 Bitcoin and transaction tax.
- With solo mining, the chances of getting a higher long-term yield are more. Especially when we compare it to pool mining. Plus, rewards get higher over time as solo mining eliminates the need to pay a pool fee or transaction fee.
- Solo miners are free from any effects from pool timeouts. Thus, solo miners can configure a backup pool.
Disadvantages of solo mining
- The need for a large amount of capital to start and process solo mining.
- The risk of losing reward money all at once if some other miner or miners with better computation speed decide to participate in solving the particular block you are putting your resources into.
- The possibility of never reaching the level of computation power as a group of miners.
- High risk of capital loss if miners plan to invest in popular cryptocurrencies like Bitcoin.
- With solo mining, the income generation tends to be more erratic.
- Solo miners tend to face wastage of their valuable time as solo mining only supports network pull.
Advantages of Pool mining
- Members get the advantage of generating more steady income with pool mining.
- In pool mining, miners get the benefit of long polling, which lets them generate 1 to 2 percent higher earnings.
- In pool mining, miners get to choose among multiple options of crypto coins. Hence, they get the benefit of switching between various crypto coins helping them choose the best ones for trading.
Disadvantages of Pool mining
- With pool mining, the emergence of obstacles from external entities at the pool provider is high.
- Moreover, pools are prone to DOS attacks as well as have other security drawbacks. However, members can make adjustments in the configuration of pool mining.
- A large portion of the income miners generate from pool mining covers the platform charges. Also, the process of chasing out transaction fees is very slow.
- Pool mining attracts attackers due to the ample storage of currencies in it.
Which mining is better: solo mining or pool mining
When it comes to finances, people prefer reliability and stability. Both of these concepts can be arguable in the field of cryptocurrency. But, it would be much safer to earn and trade new crypto daily than to stay uncertain for over five months or more. Though pool mining is a subject of risk, solo mining also needs a lot of patience without any guarantee of success.
However, it depends on your preference and financial capacity. In case you have millions to invest, then go for solo mining; otherwise, joining a pool would be better.
Furthermore, the hash complexity of all the famous cryptocurrencies is increasing at a rapid pace. In fact, just within a year, ETH and BTC are 30 and 4 times more complex to solve. Additionally, Dash now has 150 times more complex hash codes.
Even at the beginning of the mining industry, the majority of miners were aware that mining solo would be near to impossible. Hence, we see most of them are in pool mining combining their equipment capacities. Together they have been earning more stable and fair rewards.
However, as a pool miner, you will never be able to receive the total reward price; the more the miners in a pool, the lower the rewards you’ll receive.
Analyzing capital requirement and profitability of solo mining
Furthermore, due to the involvement of a large number of participants, the hash rate complexity is reaching an unreal degree. And, the possibility to find such a unit alone is almost zero. In fact, let us analyze the capital requirements for a solo miner to mine a bitcoin network that has a high hash rate of 1 pth per second. For this, miners will need to maintain a farm capacity of around $200k. Also, remember that this cost does not include supply and electricity bills.
Hence, with a possibility of 95%, you will need to put in consistent work for around 200 days. Then, you can find a block value and earn 12.5 Bitcoin as a reward. Note that this amount is actually very huge, so it is definitely profitable to you.
Furthermore, the complexity of this network will increase in the coming days. Hence, almost 100 times more capacity will be the standard requirement to continue the process of finding new blocks each day. This entire process will need a capital investment of millions of dollars.
In conclusion, users with adequate capital can engage in solo mining or can opt for less famous coins with lower complexity. This way, they can find the block easier and faster. However, we must consider that cryptocurrencies holding values of 100s and thousands of dollars won’t bring you big rewards in a short span. Hence, even with low complex hash rates, you’ll need to wait for years to make a remarkable profit.
However, if those coins get more prominent in the future, you will instantly become a millionaire. But, it is just a possibility, and it is better to be practical. Then again, you need to invest big money to solo mine bitcoins.
Even when you start with solo mining, you can always join big mining pools whenever you want for regular coin movements. There you can make an influential contribution and get fair dividends. To make big profits as a pool miner, make sure to invest a significant amount of money.
If you want to learn more about such topics, then joining a platform that offers a pool of knowledge on the subject would be a perfect decision. Hence, check out the BLOCKCHAIN COUNCIL; the platform has a wide range of relevant courses and certification programs. Also, only highly qualified blockchain professionals will guide you throughout the course of your choice.