What is Monero? And other things you should know
Monero is a proof-of-work cryptocurrency, just like the O.G. cryptocurrency- Bitcoin. While blockchain technology bills itself as anonymous, this isn’t completely true. All wallets on networks like Bitcoin and Ethereum are visible on the blockchain, as well as their transaction histories. Let’s say you’re in a shady area and you pay for something with crypto- the vendor could see that you’ve got a lot of crypto in your wallet and use that information to exploit you by coercing you to spend more or worse. Privacy coins like Monero can fix this issue and others. Monero’s transactions are completely anonymous thanks to three of its technologies, which are Stealth Addresses, Ring Signatures, and RingCT. For a comprehensive explanation of Monero check out their website. They’ve got a brief video that says it all.
The IRS Hates Monero
And for that reason, I’m onboard with Monero. Just kidding, of course. Last year the IRS offered a $625,000 reward to anyone who could hack Monero and uncover which wallets were sending and receiving coins. With current computing capabilities this is more or less impossible- it’s like trying to take a Chicken McNugget and turn it back into a chicken. Impetus for this reward is obviously that the IRS sees trouble down the road in tracking cryptocurrency gains to which it might be able to apply the cryptocurrency capital gains tax. The IRS is not anti-crypto- they just want their share of US constituent’s earnings. If you mine Monero instead of purchasing it on an exchange, no one knows you even have it, although taxes have to be paid on the fair market value of the cryptocurrency when it was mined.
Equipment for mining Monero
The most important choice you can make is which piece of hardware you buy to mine Monero. Fortunately you don’t need an ASIC (application specific integrated circuit) like you would with Bitcoin mining- these machines can cost as much as a used car. Mining can be done with a CPU or GPU, which most households already have. The two most important considerations with your hardware are going to be a) the power consumption of the hardware and b) the hash rate (computing power) of the hardware. A great guide on the different pieces of hardware you can use is here. While there’s some debate over the two, a GPU seems to be a more profitable choice as opposed to a CPU for mining. Once you have a proper CPU or GPU installed, getting started is simply a matter of downloading the Monero mining software, joining a mining pool, and starting to mine. It’s also recommended that you have a hardware wallet where you can store your newly mined XMR.
To help you calculate your return on investment for a piece of hardware, this Monero calculator is super useful. You’ll need your average electricity cost per kilowatt hour, hash rate of your hardware, and then initial hardware cost.
Best Mining Pools
Here are a few mining pools that I could find. Keep in mind there are probably many more mining pools out there, with the number growing each day.
Pool hashrate 999 MH/s (Mega-hashes per second)
~14,000 active miners
Pool fee: 1%
Pool hashrate 189 kH/s
~4,000 active miners
Pool fee: 1%
Pool hashrate 248 kH/s
~2,100 active miners
Pool fee: 2%
Proof of work is good and has a place in the crypto future
While PoW networks consume more electricity than their PoS counterparts, they’re also more likely to weather attacks successfully in the future because proof of work is extremely economically expensive to try and manipulate for gain. As a proof of work network ages and the market capitalization of its coins become more valuable, more miners enter the market, and the returns generated by each miner decreases. Think about Bitcoin- unless you’re sitting next to a coal factory in Benin with access to illegal free electricity it’s going to be a lot more profitable to buy Bitcoin on Coinbase or another exchange than purchase an ASIC Bitcoin mining machine and hope to win the hashing lottery. Thankfully, Monero is early enough in its days that mining and mining pools can provide you with some good returns. For the latest on Monero mining, check out the specific Reddit sub for this topic. It’s always better to learn through the mistakes of others than to learn it directly from your own experience.
Decide whether you want to buy Monero or mine Monero
If you decide to mine Monero, in addition to being kick-ass way to start a conversation at your next social get-together, the coins you hold will be yours and there will be no record of Monero bought on any exchange. It’s a true “off the grid” activity. Use the mining calculator linked above to enter your equipment and electricity costs, and calculate how long it would take for a piece of hardware to pay for itself- is your investment time horizon at least that long? It will need to be for the mining to be worth your while. In most cases, it will be- Monero isn’t going anywhere anytime soon. As the price of Monero rises, more miners will enter the game, and fewer rewards will be distributed to each miner, the same way that profitability of businesses decrease as competition increases. If you’re bullish on Monero becoming much more valuable in the future, it’s worth a look. Don’t you wish you were one of the people mining Bitcoin in 2010 when it was under $1? It may not have been profitable to mine it at the time, but looking back- what a good investment that would’ve been.