Monero (XMR) is a privacy- oriented digital cash and has one of the most engaged developer communities for an open source project. It was initially released in 2014 in a Bitcointalk forum and was a fork of Bytecoin. Monero is one of the top 15 cryptocurrencies by market cap ($3.5+ billion) and the only one in the top 15 that is a privacy focused cryptocurrency.
Monero is one of the few cryptocurrencies that still uses a Proof-of-Work consensus mechanism that was ASIC-resistant (until recently) and can still be mined using regular CPU and GPU computational power.
When it comes to mining, you want to first think about whether you are going to solo mine or pool mine. Pool mining has associated costs like pool fees but you could see quicker rewards and reduced reward variance in comparison to solo mining. Let’s break down the elements of mining Monero so you get a complete understanding of the underlying technology and how the process works.
Monero Mining & Consensus Mechanism
Monero is based on the CryptoNight hash algorithm, which is a Proof-of Work (PoW) consensus mechanism based on the CryptoNote protocol. CryptoNote is an application layer protocol that aims to be an evolution of the fundamental ideas behind Bitcoin, as it focuses more on anonymity. The CryptoNote codebase is not forked from Bitcoin, so it has different inner algorithms that are used to recalculate new difficulty levels or new block sizes for example. Blocks on the Monero blockchain are mined in two minute intervals, which is a lot quicker than the current 10 minute block interval used by Bitcoin.
CryptoNight relies on ring signatures to provide a certain degree of privacy when making transactions.Unlike other blockchains, CryptoNote transactions cannot be followed through the blockchain by anyone other than the sender and receiver in any way that reveals who sent or received the coins, due to the use of ring signatures.
The XMR hash algorithm is memory intensive and since 2014 was most efficiently mined using CPUs. The fact that you can mine Monero using ordinary consumer hardware makes it a lot easier for anyone to get involved in mining. This benefits the casual miner as it reduces the payoff from using specialized hardware, making GPUs less effective from a cost/reward perspective. That being said, if you already have GPUs, Monero is one of the few currencies that can be mined by both CPUs and GPUs (most algorithms are built for only one or the other), thus making mining rigs that are already set up more profitable.
According to MinerGate, until recently, the CryptoNight algorithm was ASIC-resistant and could not be mined using Application Specific Integrated Circuits (ASICs) but only mined using CPUs and GPUs. As of 2018, there are now at least 3 ASIC miners with very high hash rates that can be used to mine Monero.
Monero Mining Hardware
For casual miners, Monero can be mined using consumer grade CPU hardware such as x86, x86-64, ARM, and GPU’s. AMD graphic cards are optimal for mining Monero compared to others, but below is a list of some hardware components you will need to set up your own rig:
- A CPU with at least 8GB RAM is recommended;
- DDR3 or DDR4 SDRAM, depending on the CPU you pick;
- A motherboard that is compatible with the selected CPU, and that has enough PCIE lanes for the amount of GPUs that you’d like to accommodate. The board should have a powered riser cable for each card;
- An open-air rig setup and a reliable internet connection;
- Any HDD or SSD that’ll be powerful enough to sustain your OS of choice;
- A reliable power supply. The specifics will depend on the GPU and CPU you choose.
Below are a series of tables including some profitable CPU, GPU, and ASIC miner hardware that could be utilized to efficiently mine Monero:
Monero Mining Software
The software used to mine Monero is just as important as the hardware. Different software has been created for different hardware. You want to get the most out of your hardware, so utilizing the correct mining software and optimizing your GPU or CPU is essential to reap the most profits.
The process is typically the same regardless of the software. You will need to download the software and extract the .zip file. Now, inside the extracted folder, you can run the application. Once you run the application, choose to mine Monero. It should prompt you to enter a pool address. The best way to mine is to be part of a pool, as solo mining can yield little to no results, compared to pooled mining. That being said, it is critical you find a good mining pool. You can find one here. Pools usually have a small fee, but the fee is justified considering the consistency of rewards and reduced variance. You will also need to ensure you have a Monero wallet setup in order to receive your rewards.
Monero Mining Difficulty & Profitability
The total global hashrate for Monero has dropped off over the past month or so with the new Monero fork, but it is still a profitable cryptocurrency to mine given its price potential. The hashrate is related to the price of the coin, and difficulty closely tracks the hashrate.
The difficulty level automatically adjusts the computational difficulty of solving the next block to maintain the two minute block interval. You will see this in the images below, as the charts appear to be synchronized. With both levels dropping, mining Monero based on potential long term growth of privacy focused coins could prove to be very profitable.
Below is a chart outline potential profits using cryptocompare. This link will allow you to enter different inputs and see the associated profit potential so you can gauge your overall cost and profits. This is for illustrative purpose and results can vary depending on your inputs and the market price of Monero. It is also based on an XMR price of USD$ 229.81.
With the introduction of ASIC miners for the CryptoNight algorithm, there is significant profit potential if you choose to mine Monero, given that anonymity based cryptocurrencies are projected to see some significant price appreciation over the coming years.