Key Takeaways
- Crypto miners provide computational power to verify transactions on the blockchain
- Hobby mining is for those who occasionally mine crypto as an additional source of income
- Commercial miners use specialized mining machines that are expensive, but more efficient and powerful
- Three main types of mining: CPU, GPU, and ASIC
- You need to declare crypto you mine as taxable income
If you have been involved in the blockchain or crypto industry for some time, you would have definitely come across the word mining, through which countless people have profited quite well. So what is the fuss about? Mining is the process of creating new blocks of crypto assets that follows the proof-of-work mechanism, where every transaction or block needs to be verified before it can enter the blockchain.
For every block mined, miners are paid a fee, and this is how they make money. The more blocks you mine, the greater the reward will be. One thing to note is that not every miner has a premium mining rig consisting of high-end hardware; some miners mine with their personal computers or even mobile phone. This where the difference between hobby mining and commercial mining comes in. Before we evaluate what a hobby miner is and what are the differences with commercial mining, let’s first understand how the mining process works.
Crypto mining 101: What is it?
Most of the crypto assets that can be mined today are based on the POW (proof of work) mechanism, and they have a decentralized system without a third party to organize or manage everything. Due to decentralization, these blockchains require others to verify transactions in order to let cryptocurrencies reach their destination. That is where the mining process comes in; miners provide their computational power, solve mathematical problems, verify each transaction, and then let it proceed.
Remember that the verification process - or mining a single block - requires a lot of computational power. This allows more than one miner to work together to confirm the transaction as fast as possible. The faster you verify the transactions, the more you will be able to earn. To do so, you will require better hardware and components.
What is hobby mining, and how does it work?
As mentioned above, in order to mine crypto assets, you must have suitable hardware. A lot of miners don't invest heavily in dedicated mining machines or high-end components, and simply mine with their regular computer or gaming computer.
This type of mining is what we refer to as hobby mining, as it is only carried out casually, and the miner does not rely on it solely as an income stream. If you only mine several hours a day or fewer, you can proudly call yourself a hobby miner.
What is commercial or full-fledged mining?
While hobby miners usually use a single mining rig or even use their everyday computers, commercial miners invest heavily in hardware and components to gain as much profit as they can through mining. You might have heard of people setting up mining farms; these consist of hundreds of mining rigs that are set up to mine a single cryptocurrency.
Commercial miners use dedicated or specialized mining machines that cost a lot but are more efficient and powerful than what a regular computer can provide. In order to understand this aspect clearly, you can take a look below to find out what components you need to start your mining journey.
Different types of mining you should know about
Mining is limited to a few specific types of hardware and specialized machines, but there are a few options that you can explore.
CPU Mining
If you are planning to become a hobby miner, then CPU mining is one of the best options to kick start your mining journey. As long as you have a desktop PC or a laptop with a processor/CPU, you can put it to good use and start mining cryptocurrencies like BTC or ETH. However, CPU mining is considered the least profitable method of mining due to the limited processing speed, and high amount of power it consumes. In saying that, CPU mining can be a good start for a hobby miner who doesn't want to invest in any additional hardware.
GPU Mining
This is where things start becoming profitable for miners; GPUs can generate a high income if you have opted for a latest-gen graphics card. GPU mining is also considered hobby mining until you have bought several GPUs for the sole purpose of mining. If you are an editor, gamer, or perform any type of work that requires a GPU, then you can begin mining on the side and generate some income as a hobby miner. Make sure to keep the thermals low, or else it will impact the overall life of your graphics card. If not maintained well, your GPU can die within a few months.
ASIC Mining
ASIC mining rigs are only used by commercial miners as they are very expensive. They are specialized machines that are designed for the sole purpose of mining and nothing else. They are in a league of their own and are so far ahead what a high-end GPU or even the most powerful computer processor can generate in terms of power. You can read our article on building your own ASIC miner if you are interested to get started with ASIC mining.
Is it possible to make a sustainable income with hobby mining?
The simplest answer is no, you cannot make a sustainable income with hobby mining. While you can earn enough to buy a meal every now and then, don't expect to get rich while hobby mining with your computer or GPU. However, if you hold onto your mined crypto assets for the long term, they may increase in value in the future, making you a reasonable profit as a hobby miner.
Do you have to pay tax on your earnings as a hobby miner?
The answer to this question widely depends on the country you live in. There are many countries that have waived crypto tax for its residents, with Portugal being one notable example. However, if you are living in the US, you have to declare your crypto earnings and pay tax on them. The good news is that if you hold onto your crypto assets for over a year, the tax is reduced. Whether you are a hobby miner or a full-fledged miner, you must declare your mined cryptocurrencies and pay taxes.
Conclusion
If you want to explore the world of cryptocurrency without purchasing any crypto, then hobby mining can be a great way to earn crypto without any investment, as long as you own a computer. Just be sure to pick a profitable coin to mine, preferably one that has the potential to grow in the future. That way, even if you only earn a little crypto from hobby mining, in the future it could be worth a lot more.
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