What is ASIC Mining?

Cryptocurrency is all about ASIC mining today, but back in the early days, it used to be something that you could do right from your own office or bedroom. Ask an early crypto adopter, and likely as not, they’ll be delighted to regale you with tales of how they’d mine Bitcoin with the CPU of their humble old PC through the night.

For better or for worse, those days are long gone. Computer GPUs are a lot more efficient at performing the mathematical computations involved in mining, but even these components have been outstripped by a machine called the ASIC.

So, what is ASIC mining, and what is its relevance to cryptocurrency today? Let’s find out!

What is Cryptocurrency Mining?

First things first, though. Crypto mining itself is important to understand before examining what ASICs are and how they work!

Blockchains are made up of multiple independent computers and provide an immutable record of transactions. This is why they’re often referred to as “distributed ledger technology,” or DLT.

If you use a blockchain to send some coins to someone else, that transaction is grouped with many others like it and forged into a block. This block also points to the previous block in the chain because it includes a cryptographic hash of the previous block’s contents.

That’s why you’ll hear people refer to blockchains as “immutable.” Going back into previous blocks and changing a transaction would make the block hash change, thereby breaking the chain.

Blockchains that ASICs mine use a consensus mechanism called “proof of work.” This system brings all network nodes into agreement about the validity of the transactions that took place on the network during a prescribed period of time.

What’s going on here is that one mining node is declaring what it believes to be the hash of all transactions that took place. The other mining nodes can then check this hash, validating the block.

The miner who does that isn’t chosen arbitrarily. Instead, all of the blockchain’s miners attempt to solve the block hash concurrently, with those in possession of more computing power, or hash rate, having a greater chance to prevail.

Mining is crucial for a blockchain since it establishes consensus and ensures none of the network participants are cheating or trying to double-spend. The more independent miners there are on any given blockchain, the healthier the network.

What is ASIC Mining?

Now, let's get back to those early crypto adopters who mined crypto on their PCs in the early days. As far as Bitcoin’s creator, Satoshi Nakamoto, intended, Bitcoin was meant to be mined this way.

Technology can overtake even the best-designed plans, though, and GPU mining has emerged as an alternative. For one thing, GPUs could generate far higher hash rates than CPUs. Furthermore, it was possible to design specialized computer motherboards that supported up to 18 GPUs.

Unfortunately for GPU miners, they were also soon to be left behind. A glance at historical price action shows that Bitcoin has become one of the fastest-growing assets in the recent past. This also meant that Bitcoin mining was becoming very profitable.

If you mine a profitable metal, you don’t use a pickaxe. Rather, you’ll probably opt to use technology closer to this image:

That’s how the ASIC, or Application-Specific Integrated Circuit, came to be. Enterprising engineers and computer scientists decided that they could build a better pickaxe.An ASIC is designed from the ground up to do one thing and one thing only—mine crypto.

Some ASICs do other jobs, but what we’re talking about here are ASICs designed purely to mine crypto, performing the specific calculations required by the consensus algorithm.

This also means that ASIC miners are specialized in particular blockchains. An ASIC miner that you use to mine Bitcoin can’t simply be used to mine Litecoin with a change of software because Bitcoin uses SHA-256, and Litecoin uses Scrypt. These are entirely different consensus algorithms.

How Much Do ASIC Miners Cost?

You may have heard that ASICs are expensive, and, as a rule, that’s not wrong. You can find basic ASIC mining machines for under a thousand dollars, but the top-of-the-line models can cost close to $20,000.

ASICs are expensive for a reason, however. Given that they’re engineered for one job right from the ground up, you can bet that they churn out a significant hash rate with tremendous efficiency to boot. If you’re looking at mining the same cryptocurrency, ASIC rigs put GPU mining rigs to shame when it comes to hash rate versus power cost.

A Bitmain Antminer S9k consumes close to 1,500 watts, outputs 14 TH/s, and retails for just $138 right now. By contrast, the same company’s Antminer S19XP produces ten times the hash rate at just double the power consumption, though it’s listed for almost $18,000.

ASIC miners are available at these different ranges to help you optimize your business plan. If you’re in an area where electricity is extremely expensive, you may be more inclined toward an expensive but highly efficient machine like the S19XP. If your power is cheap or even free, machines like the S9k might be more your thing.

Common Crypto Mining Algorithms

As mentioned previously, different blockchains tend to use different mining algorithms. This is often a design choice by the developers, and many mining algorithms were chosen, such as Ravencoin’s KAWPOW, for their ASIC resistance.

Here are some of the common mining algorithms you should know about:

• SHA-256. SHA-256 uses a 512-bit message block and a 256-bit intermediate hash value. It’s generally known for having a longer block time and is used by none other than Bitcoin. If you want to buy an ASIC rig for Bitcoin, look for SHA-256 machines.
• Scrypt. Scrypt was first implemented in Tenebrix and Fairbrix, which were precursors to Litecoin. Given that Dogecoin also uses Scrypt, this is an extremely popular mining algorithm.
• Ethash.Ethereum Classic still uses Ethash, but Ethereum itself has moved on and adopted the proof of stake consensus mechanism. Ethhash was designed to be ASIC-resistant, but that element of its identity has since been defeated. The most expensive Ethash ASIC miner on the market is AnexMiner’s ET7, listed at an eye-watering $68,980 MSRP.

Top 5 Coins to Mine with ASICs

Given that many ASIC machines are dedicated to certain blockchains and their individual mining algorithms, it’s important to decide which coin to mine before you jump in. Here are some of the best options!

#1. Bitcoin

Bitcoin is the most highly capitalized cryptocurrency in the industry and the one that everyone’s heard about. It’s widely regarded as a top-notch investment asset, and while other coins come and go, Bitcoin has endured.

For that reason, Bitcoin may be one of the best cryptocurrencies to mine. It’s also one of the most difficult in terms of winning a block reward, but there are ways to earn an income with Bitcoin and its SHA-256 algorithm.

#2. Litecoin

Litecoin is one of the oldest cryptocurrencies out there and is often spoken about in the same breath as Bitcoin, given just how long it’s been around. Referred to as “digital silver” next to Bitcoin’s “digital gold,” Litecoin is a versatile and efficient payment network that’s robust and easy to use.

It’s popular among GPU miners, butif you use an ASIC mining rig or mining farm, you’ll enjoy a significant advantage in terms of hash rate and efficiency when mining Litecoin.

#3. Dogecoin

Dogecoin is the OG memecoin and serves as the inspiration for the hundreds or even thousands that have followed in its wake. Many attempts have been made to copy Dogecoin, even going so far as to steal the Doge that serves as its symbol, but only a handful have ever reached its level of popularity.

None of the other memecoins are proof of work cryptocurrencies, either. Dogecoin is just that, and you can use a Scrypt miner to earn yourself some DOGE with an ASIC.

#4. Ethereum Classic

Ethereum Classic forked away from Ethereum a long time ago, so the two have much less in common than you may think. The core principle behind ETC is that “code is law,” and blockchain immutability is prioritized over all else.

When the two blockchains forked, Ethereum was still a proof-of-work network, and Ethereum Classic remains so to this day. You’ll need an ASIC miner built to handle the Ethash algorithm if you want to mine ETC.

#5. Dash

Dash, which stands for “Digital Cash,” used to be known as Xcoin back in the early days of blockchain. Also known as Darkcoin for a short while, Dash is an open-source blockchain that uses InstaSend and PrivateSend to allow users both fast and private transactions.

The Dash blockchain actually originated as a fork of Litecoin, which in turn was forked from Bitcoin. This makes Dash yet another spiritual successor to BTC, and it’s also ASIC-mineable.

Is ASIC Mining Profitable?

There are two main expenses you need to think about when setting up an ASIC mining rig or mining farm. First, there’s the cost of purchasing ASIC miners. As we’ve established, there are some seriously expensive miners out there, so buying them represents a significant outlay.

Second, there’s the electricity cost. ASICs are designed to be far more efficient than GPU mining rigs, but plugging in an ASIC miner will still take your monthly electricity bill through the roof.

To make ASIC mining profitable, you’ll have to balance these two costs with the price of the cryptocurrency you’re mining. A deep bear market could make the entire venture unprofitable, irrespective of how well you’ve planned.

One way to offset the vagaries of the crypto market is to be judicious about when you sell the crypto you mine. Most big-time miners hoard their stash and sell when the market’s pumping.

The other main decision you must make is whether you want to play the solo mining lottery or earn regular payouts with mining pools.

Solo Mining

As a solo miner, you’re adding an independent node to the network and helping it decentralize further, so it’s extremely healthy for the network.This was the original design of the proof of work, but with the increasing popularity of crypto, solo mining is tricky because of profitability.

Even if you decide to set up a mining farm full of ASICs, it’s quite likely that the total hash power you’re generating will make up only a small proportion of the entire hash power of the network. You can imagine this as a lottery, and your hash power proportion represents your odds of winning the block reward.

If and when you do win, the block reward will likely net you back your entire investment and more. The problem is, there’s no guarantee of winning a block reward unless your proportional hash power is extremely high.

Mining Pools

The payout problem inherent to solo mining is why mining pools exist. Mining pools collect the hash power of all the miners who sign up for the pool and give them shares that represent their relative contribution to the pool.

When a block is found, the miners can then receive payouts based on how many shares they have. Therefore, you can make a predictable amount through mining daily and, assuming the pool’s policies are reasonable, get paid out very frequently.

That said, mining pools do present a centralization risk.Even Bitcoin, supposedly the most decentralized blockchain in existence, is, in fact, dominated by a small number of extremely large mining pools.

This is great for the miners who make up those pools because they get regular payouts. On the other hand, it exposes the network itself to attack if a pool is compromised or taken over somehow.

Furthermore, you’ll also have to download a mining pool’s third-party software if you want to join up. This, as you might imagine, is something you should be very careful about.

How to Start ASIC Mining

Now that you know what ASIC mining is and how to do it in a profitable manner, here’s how to get started!

#1. Pick a Cryptocurrency to Mine

We’ve already covered the fact that ASIC miners are specialized for certain consensus algorithms. This means that you’ll have to decide what coin to mine first and then buy your machines. Make sure to choose wisely, since if the coin doesn’t last in the long run, your investment might be for nothing.

#2. Buy ASIC miners and Set Up Your Rig

Now that you know what coin you want to mine, you can choose your ASIC miners. Remember to filter according to what algorithm you’re mining, but also keep an eye on price versus power consumption.

If you’ve got cheap energy, it may be worth investing in machines with lower efficiency, but higher-priced machines tend to work well with high energy costs. It’s just a matter of deciding which factors to prioritize, and your individual situation will dictate the approach.

#3. Decide Whether to Solo Mine or Join a Pool

Check out the mining pool stats on offer, what sort of hash power they have, and how they work. Ensure that the pool is transparent and that the payout schemes are in order.

Some pools operate on a decentralized basis, so these may be worth a look. Preserving the integrity of the blockchain while also reaping the benefits of pool mining would be the ideal situation if you can’t mine solo.

#4. Get Mining

If you don’t have a crypto wallet at this point, get one! Remember to configure the mining software that you downloaded with your wallet address. You’ll need to do this if you want to actually receive any payouts from mining.

Risks of ASIC Mining

ASIC mining presents a severe barrier to entry in terms of cost, but it also has several other risks you must be aware of before getting started. Here’s a brief list of what to watch out for:

#1. Misbehavior of Mining Pool Operators

If you don’t DYOR and just join the first mining pool that you come across, you may get in trouble. All sorts of things can infect your computer if you download and install bad software, and it’s even possible that unscrupulous operators will try to skim your earnings.

#2. Fraudulent ASIC Sellers

Not every so-called ASIC vendor may be genuine, and there have been scams online where customers get scammed into sending their money to a fraudster with no intention of shipping an ASIC miner across. Be very careful who and where you buy your ASIC miners from!

#3. Spiking Power Costs

Electricity costs can fluctuate, and they have done so to dramatic effect in several developed countries in the past couple of years. A change in power costs can turn a profitable ASIC mining enterprise into a lossmaker very quickly.

#4. Crypto Bear Markets

Just as your costs can change quickly, the prices of the crypto you’re mining can change even faster. Coins can plummet rapidly and for no reason, and as an ASIC miner, you don’t have many options if you need to switch to another coin.

Future of ASIC Mining

ASIC mining makes up the lion’s share of the hash rate on blockchains that aren’t completely ASIC-resistant. This isn’t something that’s likely to change, given that the increasing popularity of cryptocurrency makes mining profitable, and ASICs are the best tools for the job.

That being said, it’s always possible that blockchain communities decide to pivot away. Ethereum miners had a rude awakening in this regard, although they had plenty of warning and time to make alternate plans since the Ethereum proof of stake Merge took years to complete.

Still, the Merge does show that proof of work mining may not be here to stay. Proponents argue that it’s the best form of consensus, but if proof of stake wins out in the long run, more and more blockchains may shift across and leave ASIC mining for dead.

Key Takeaways

Cryptocurrencies and their blockchains are secured by nodes, which are called miners in the case of proof-of-work blockchains like Bitcoin. These miners perform a vital service for their respective chains and are therefore rewarded in a very lucrative fashion.

This monetary reward for mining is why ASICs exist. A single block reward on the Bitcoin blockchain, for instance, can represent a six-figure sum that could pay back a significant investment in ASICS.

That said, mining is something of a lottery, and most miners choose to join mining pools. This helps them earn a regular payout and helps to recoup the significant investment required by ASICs in a predictable fashion.

ASIC Mining FAQs

• Are there ASIC mining calculators?

  Yes. You’ll find plenty of ASIC mining calculators, and the websites of most ASIC vendors will also give you an idea of how much you can expect to earn with them on a daily basis.

• Is ASIC mining profitable?

  Your ASIC mining profitability depends on how well you can manage your costs and what the ROI on your ASIC machines is. Depending on the power costs where you are, you may or may not want to prioritize more efficient ASIC rigs.

• What is an ASIC mining farm?

  An ASIC mining farm simply refers to a business or location where a number of ASIC miners have been set up to mine crypto. A few ASICs in a basement are just as much of an ASIC mining farm as an industrial-scale operation, although a mining farm does hint at a larger scale.