- 1 What You Need to Know About the Mining Process?
- 2 Why Should You Mine Litecoin?
- 3 What Hardware Is Needed for Litecoin Mining?
- 4 What Litecoin Mining Software Should Be Used?
- 5 Should You Mine by Yourself or Join a Mining Pool?
- 6 Choosing a Wallet for Your Mined Litecoin
- 7 Staying Profitable as a Litecoin Miner
If you simply want to own some Litecoins, you will be better off purchasing some through an exchange rather than going through the mining process, but if you think you have what it takes to make a profit from Litecoin mining then this may be an interesting project for you to get involved with.
You will need to have the relevant resources and time to make this a successful venture. This is unless your ultimate goal is not making a profit but to support the decentralized network of Litecoin or you are curious as to how the mining process works.
Most of the mining process depends on your rig such as what software, hardware, the operating system you are using and what mining pool you are a part of.
What You Need to Know About the Mining Process?
Litecoin is a proof of work cryptocurrency that works in a similar manner to Bitcoin. The process of mining is how the distributed ledger of every transaction that has been made through the network can be kept properly maintained.
The miner’s job is to group together the latest transaction data in order to keep the ledger both updated and maintained. These groups of data are called blocks and they are added to the chain. The miner will then calculate a hash for each block.
This is done by having the data run through a specialized algorithm that generates a unique string. This step is repeated over and over again until the valid hash has been identified. This is a hash which will start with a significant string of zeroes.
Whichever miner is able to find a valid hash will be rewarded for their work with some Litecoin and the given block will be verified and can be added onto the chain.
It is the hash that helps keep the ledger secure and tamper-free. If even a single letter or number has been hanged in any part of the chain, all hashes for each block will be completely different and the compromised ledger will then be rejected by other nodes.
The process for mining Litecoin is the same as that for mining Bitcoin. Mining, in general, is competitive as only the first miner who manages to generate a valid hash will receive some compensation for their efforts.
They will receive any block transaction fees, as well as the block reward. The two main factors involved in being a successful miner are computing power and luck.
As computer power is the only one of these variables that you can control, a lot of gear has been developed in recent years to make the mining process as fast and effective as possible. There are now big companies dominating the mining sector, having massive collections of mining rigs in big warehouses in areas where electricity is relatively cheap, so profits can be maximized.
In the beginning, it was mostly individuals who mined the likes of Bitcoins, but the mining process is becoming more and more centralized and professional.
Why Should You Mine Litecoin?
Litecoin was created in October 2011 by a Google software engineer named Charlie Lee. It effectively was a carbon copy of Bitcoin with some changes made to allow it to be more scalable.
It has shown great staying power since it was created and it currently sits in 5th position in terms of cryptocurrency market capitalization, with a market cap of just under $10 billion at the time of writing.
This figure exploded in 2017 along with the majority of other mainstream cryptocurrencies, having hit highs of around $420 in December 2017, but this price has fallen to around $176 at the time of writing.
A new block of Litecoin can be mined every 2.5 minutes which makes it 4 times faster than Bitcoin. While Litecoin is yet to achieve mass adoption, the claim by its founder that it is a digital currency that is “silver to Bitcoin’s gold” might actually hold true.
What Hardware Is Needed for Litecoin Mining?
One of the claims that the founder of Litecoin made when setting up this cryptocurrency did not come true, which was that people would be able to use the central processing unit (GPU) of a computer to mine Litecoin.
The scrypt hash functions were utilized for Litecoin instead of the SHA-256 function that is used by Bitcoin. This is because Lee didn’t want Litecoin to have to compete with Bitcoin when it came to miners.
However, since the early days, the process of mining has changed dramatically, and today mining Litecoin is not really being profitable unless highly specialized equipment is used.
In the beginning, you could mine Bitcoin using just a CPU but by 2011 the only profitable method of mining was through the use of a graphics processing unit (GPU).
With the adoption of scrypt, CPUs could mine Litecoin, but this was not popular for long. GPUs began to be used for also mining Litecoin. It did not take long for bitcoin miners to being utilizing application-specific integrated circuits (ASICs) to mine instead of using GPUs.
Lee believes that the transition from GPUs to ASIC in Bitcoin mining was a good thing for Litecoin and contributed a lot to this cryptocurrency’s success. When Bitcoin transitioned to ASICs, GPU owners wanted to use their rigs to mine a different coin, with Litecoin being in the right place at the right time having just made the shift to GPU mining from CPUs.
There have since been ASICs created for scrypt and in today’s environment, you almost need to be mining with an ASIC to generate any sort of profit. There are a few different ASICs that are popular for scrypt, such as that of Bitmain’s Antminer L3.
However, this product is very popular and tends to be sold out straight away, which means that you have to be quick off the mark when new stock is announced.
Generally, to mine Litecoin in a profitable manner, you will be looking at an ASIC that will cost you at least $2,000 initially.
ASICs dedicated to scrypt can be used in the mining of other coins that utilize the same algorithm. Therefore, at any given moment in time, you can choose to focus on the coin that is generating the most profits, which is calculated by looking at the difficulty of mining it and the current price level.
If your goal is not to be profitable when mining and you simply want to see how the process works, you will get away with using a GPU or CPU to mine. It will allow you to get familiar with how the process works without having to shell out a lot of money for a specialized ASIC rig.
Centralised mining is not a good thing for the likes of Litecoin and Bitcoin, as these currencies are inherently decentralized. Mining is also a process that was designed with the goal of being anonymous and not knowing who was mining these tokens.
This would make the given token more secure as the miners were just focused on making money through mining. Unfortunately, it is hard to see a shift away from the big mining companies’ dominance of the market any time soon due to the computing power that is needed to be profitable in this sector.
What Litecoin Mining Software Should Be Used?
ASIC miners usually use mining software already installed on the hardware device. With GPU or CPU mining you have to select what software you are going to use, with security being at the forefront of your mind when making this decision. Certain software may contain some form of malware.
It is important that you do not use software that you do not trust and has not been widely praised. Make sure you take your time to research utilising the likes of social media, forums and review sites to see what the best option for your specific needs may be.
Should You Mine by Yourself or Join a Mining Pool?
Once you have your equipment in order, you will then choose if you want to mine as an individual or as part of a mining pool. If you are mining as an individual, it may take you a long time to even find a block to mine.
The advantage of mining as an individual is that you will be able to keep the transactions fees and a 25 Litecoin block reward. Of course, if you are solo mining, this can only be somewhat profitable if you are using numerous ASICs and not a CPU or GPU where you will literally make no profit at all.
Pool mining allows you to pool your computing power together with other miners, with the subsequent earnings being distributed to the pool in terms of the proportion of hash power you have contributed. Therefore, you can earn steady chunks of Litecoin over time, but of course you will have to share all of the rewards that are earned.
When looking at mining pools, it is important that you choose one that has proper security protocols in place.
Even the pools with the best reputations can still be subject to hacking if there is not a strong level of security in place. Make sure you do your research in the same manner as you would for your mining software. You should never leave too much of your mined coins in the pool at any one time.
Finally, different pools will have different fees. Some will have no fees, but these pools usually have a lack of computing power and you will not earn as much as if you went with an established pool with plenty of miners but higher fees.
Choosing a Wallet for Your Mined Litecoin
One of the most important factors in keeping your cryptocurrency safe it utilising the right type of wallet.
Generally, hardware wallets are preferred as they are not connected to the internet which means that they cannot be hacked. They are stored in a physical location and are ideal when you are looking to hold significant amounts of digital currency in the long term.
There are desktop wallets such as Litecoin Core that are commonly used by miners. It has a good reputation and it appears to be relatively secure if best practices are followed. It is also more convenient than a hardware wallet as it is stored on your desktop.
Some miners like to keep their Litecoin in their cryptocurrency exchange accounts but this is not always the wisest idea. Outages at these exchanges are common and they have a long track record of being hacked and attacked, with funds being lost.
Staying Profitable as a Litecoin Miner
As you can see, there are a number of variables that contribute to being profitable at Litecoin mining. This includes the hash rate, the mining pool fees, your electricity costs, your hardware costs, the current price of Litecoin and so on.
There are many profitability calculators out there that can help you determine what levels, if any, of profit you can expect from your Litecoin mining.