A Father/Daughter Beginner’s Guide to Cryptocurrency Mining

Several weeks ago, just as the Bitcoin frenzy really started to heat up, my teenage daughter Alexa expressed an interest in Bitcoin mining. I didn’t know a lot about it, but I thought it sounded like a fantastic educational opportunity (for both of us!) and a fun project to do together.

Cryptocurrencies like Bitcoin, and the underlying blockchain technology, will have far reaching impacts on the future of how people work. Bitcoin may well impact how people are paid in the future and how organizations pay each other. Bitcoin is possible because blockchain technologies provides the ability for two parties, who don’t know or trust each other, to enter into a transaction with no third-parties in between. This obviously has major implications to the financial system of today, but ultimately will impact a wide range of application areas and cloud computing architectures across industries.

An integral part of blockchain technology is the concept of mining. Getting some hands-on experience with this seemed like a great way for Alexa and I to understand what was going on underneath the covers – and maybe make a couple bucks. Here is a quick description of what we did to get started and the results we’ve achieved so far. We are by no means experts yet, but I’ve had several people ask me for details on what we did, so I thought I’d share the experience to date. I’d call this article Cryptocurrency Mining for Dummies, but it’s not totally accurate, and the Dummies people’d probably sue us.  Anyway, here’s what we have learned so far.

Blockchain Mining Basics

First, let’s look at what mining actually is and how it’s linked to blockchain security. Some parts of the “mining” metaphor are apt, but it falls down in places. Often, you hear people describing miners as finding or making currency. In fact, without getting too deep in the theory, the miners are doing computations that protect the integrity and security of the distributed blockchain ledger that tracks each transaction. In exchange for completing those calculations, miners are paid out in the currency they’re mining.

This led to the first decision we had to make. We had to pick a currency to mine. Bitcoin is the most popular, but it turns out it is not the most profitable to mine. In fact, Bitcoin is now so competitive for mining rewards that special purposes Application Specific Integrated Circuits (ASICs) are practically required. General-purpose computers are just too slow to earn you much of anything in the Bitcoin ecosystem. 

However, it turns out that there are many cryptocurrencies that you can mine. The second most popular currency is called Ethereum, and it has a reputation for profitable mining. So, with a little research, we embarked on a project to mine Ethereum. Here’s what we learned.

CPU vs. GPU

Ethereum is also very competitive, and if you want to get sizable payouts your computer needs to be fast at the types of hashing operations required by the blockchain network. An Intel-style Central Processing Unit (CPU) chip, even the fastest on the market today, isn’t very fast at hashing. However, there is another type of chip that’s far faster. It’s called a Graphics Processing Unit (GPU). As the name implies, these are designed to accelerate graphics -- usually 3D graphics for games. However, they are also blazingly fast for Ethereum hashing. This means you will need a system with a modern GPU to get reasonable payouts.

As a basis for comparison, my 2-year-old, home-office iMac has a quad-core 3.2 GHz Intel Core i5 and 32 gig of RAM. It’s a fast, and pretty expensive computer. However, the GPU that’s built into the system has too little memory and is not compatible with the task of mining. It turns out a system with a newer, compatible GPU will be over 100-times faster than my Mac’s CPU. I experimented with some mining on my Mac, but we’d only be able to earn pennies. It wasn’t worth it.

Selecting a Mining System

Despite being a Mac family, it was clear a PC was going to be far more cost effective for this project. We researched GPU benchmarks for Ethereum mining and found some nice pages – like this one. We wound up selecting an Nvidia GTX 1070. It’s a generation or two old, but still offered solid performance. It wasn’t the most expensive and seemed to be pretty electricity efficient. It looked like the bang-for-the-buck winner.

We searched Amazon for a PC that had that card – there were several. We chose this one from Asus. It had the GPU we wanted, but was pretty modest in terms of memory and CPU. Turns out those aren’t very important at all for mining. Too much memory or a fast CPU is a waste. Oh, and you don’t need a fancy SSD hard drive either. Bare bones is fine. All the work is done by the GPU.

Selecting an OS

There were three choices we considered, not including MacOS – which we ruled out early. Linux is free and likely performs well. However, my Linux/UNIX skills are really rusty – despite having worked at Sun Microsystems for years.  There is a special-purpose Linux distribution called EthOS that’s supposed to be cool. However, we decided to go with what we thought would be easiest and that’s Windows. Our research seemed to indicate, and it did play out, that Windows performance should be just as good as Linux. Being raised on MacOS, I figured my daughter could adjust to Windows quicker. We choose Windows.

Getting a Wallet

If you haven’t been trading in Ethereum yet, you’ll need to get yourself a wallet. A wallet is really the cryptocurrency term for a set of encryption keys that control an account on the blockchain. You can use free services to create a wallet and manage it. We wound up deciding to go with Coinbase. It is very popular, and has a spiffy iOS app and manages all the keys for you. They’re also a brokerage so they’ll help you with buying and selling of Bitcoin, Litecoin and Ethereum.

I’d suggest you research options for where and how to get and store your wallet. Security is really important here and if you lose the keys to your wallet you can loose all your coin. There’s no password reset on blockchain if you’re managing your own keys! If someone gets your keys, from you or a service holding them for you, they can steal all your coin. This is serious business!

Selecting Mining Software

The Ethereum project offers open-source clients written in C++ and Go languages. If you’re a developer and feel confident with a compiler and a command-line, then this is the most direct route. However, we choose an easier route (for us).

We choose a pre-built, Windows GUI client called WinEth. It’s an easy download and install on Windows. It’s free to download and install. In exchange for making this easy, they take about 1% of your earnings. This was an easy trade for us as we were just getting started.

Selecting a Pool

For mining, it’s now so hard for popular currencies like Ether that it’s best not to go it alone. Payouts will be few and far between. As a way for your to smooth your payouts, all smaller miners join pools. In this way you pool your resources with other miners and share rewards. If you’re just getting started then join a pool.

Since we decided to use WinEth, our choice of pool was easy. WinEth is preconfigured to use Nanopool. With Nanopool you’re on a team with over 60,000 other Ethereum miners. Nanopool takes a small cut in exchange for managing the pool. It is well worth it.

Our Nanopool control view

Getting Running

Upon double-clicking the WinEth icon after install, a small GUI window appears. You enter your wallet ID (these are the public keys to your account) where Nanopool will deposit your earnings. You also enter an email address. This will be used to manage your Nanopool account. 

After that’s entered, just click start! The GUI shows you the detected GPUs, you can have more than one, and shows you your hashing rate in a simple graph. After you start mining, eventually you will earn a “share”. The frequency has a random element, but is based off the amount of hashing power you’re contributing to the pool. Once you’ve earned your first share, WinEth automatically creates your Nanopool account and registers it with your email address.

Each share you find will translate to a small amount of Ethereum being credited to your account. How many dollars this translates into depends on the exchange rate between Ether and Dollars and may vary from hour to hour. It will be very small amounts of money to start, but it does add up over time.

You’re now a cryptocurrency miner! Congratulations.

Tuning

We were excited when we got started, but our earnings were meager -- pennies in the first day. We started to believe the rig wasn’t working well. Turns out we were right. Over the next day or two we realized the following things were key to dramatically increasing our take:

• Let Windows update do its work. When you get a new PC it’s going to be missing lots of patches. It seemed to take several hours of downloading, disk crunching and required several reboots. 
• Make sure as part of your updates you get the latest drivers for your video card. In our case things seemed to work better after installing the very latest drivers from Nvidia.
• Deactivate/uninstall virus protection. You don’t want that stuff interfering with your mining.
• Set the power management functions! Make sure the PC doesn’t go into low power mode or to sleep when it’s “idle”. While you’re mining the PC is going to appear idle to Windows and you don’t want it going to sleep instead of mining!

Measuring Power Usage

You’ll see lots of discussion on the net about how cryptocurrency mining is very electricity intensive. In fact, I’ve seen crazy estimates that it is on track to use more electricity than any other industry in the world. I don’t know about that, but understanding our energy consumption seemed an important part of this experiment -- both from an ecology and an economics point of view. 

To that end, we acquired some wifi-enabled Smart Plugs that track power usage and plugged our rig into one. These were super easy to set up and we were able to pretty quickly estimate our power usage. It came back at about 0.15 KWh / hour. So, in rough terms about the same power draw as a couple of incandescent light bulbs. Not inconsequential, but it is not going to cause the heat death of the universe anytime soon.

Results

After running for about a week, it seems we’re earning about $3 / day worth of Ether. If we subtract out the cost of power (assuming $0.10 / KWh) we get a net profit of $2.64 / day. That comes out to about $80 / month.

The PC we purchased for our rig cost about $950 so we will take about 1 year to break even. At the end of that year we’d be mining for pure profit or we could sell off the PC and take that as profit – or reinvest it in a newer, bigger rig.

Conclusions

We can make a profit at this – making a lot of assumptions about the cost of power, price of Ether and the consistency of our mining payouts over time. However, we’re not going to get rich this way. In talking to people who are more experienced with this, it’s clear that you can gain a lot of efficiency by having multiple GPUs in a single rig. In that way you can spread the fixed cost of the CPU, motherboard, RAM and hard drive across multiple GPUs. This will dramatically increase your profitability. Rigs with a dozen or more GPUs seem common. With a rig like that you could earn a thousand dollars a month or more.

As an educational experience, this has been really fun and enlightening. Alexa has been having a blast and now wants to invest time over the holidays in building a bigger rig. She’s learned some good computer science and some really interesting economics lessons. I think it’s an experience she’ll remember for a long time and might even impact her choice of career.

We hope you find this resource useful. Happy mining!