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Lately, I’ve been trying to earn some money by mining the Bitcoin alternatives, Litecoin, Feathercoin and Terracoin. After spending the entirety of last week attempting to get free money, I may have succeeded, to an extent. This introductory article covers how I got started mining cryptocoins and which coin provides the best returns on investment, for beginners. It’s shockingly easy.
If you know nothing about Bitcoins and virtual currencies then here’s a short primer: Bitcoin is an uncollateralized digital cryptocurrency subject entirely to the market forces of supply and demand. As long as individuals demand it, it will possess value, although that value will fluctuate wildly. It establishes ownership through a peer-to-peer network, which keeps track of who owns what, known as a “Blockchain”.
For those of you not familiar with the mining process, here’s a simple explanation of how it works: All cryptographic coin networks structure themselves around blocks, which contain hashes. A hash is an encrypted chunk of information that, when successfully solved, or decrypted, awards the cracker a number of coins – the exact amount varies by the type of cryptocurrency. The network registers coin ownership through the Blockchain, which records all transactions on the network. You can then trade these coins for other currencies or goods. On the downside, Bitcoin alternatives are not universally accepted at all exchanges, so mining an unpopular currency may simply waste your time and money.
For those of you willing to take a risk, continue reading.
There are five essential elements of the mining process that you must familiarize yourself with:
The Blockchain, The Wallet, The Proxy, Scrypt, Pooled Mining and GUIminer
The Blockchain: The Blockchain stores all the transactions made on a cryptographic currency network. It’s a database containing information pertaining to “who” owns “what”. When you first start the client, it will download the entirety of the Blockchain, which can take several hours, depending on the network. All Blockchains distribute via peer-to-peer networks, so there’s little difficulty in acquiring it.
The Wallet ( or client): Your specific coin’s client also functions as a wallet. For all three kinds of currencies reviewed in this article, there’s a single Wallet interface, which includes your address, and a unique identifying number linked to currency transfers. Whenever you mine for currency, or have it transferred to your address, all clients recognize this ownership. Many alternative wallets exist, including mobile and web wallets.
In a nutshell, inside your client will be an address, which allows you to receive coins.
Pooled Mining: Because of the increasing complexity of mining, individual miners, also called “solo miners“, may find it difficult successfully solving a block. This leads to pooled mining, which is a joint effort of multiple miners trying to solve a block. When each block is successfully solved, it distributes the coinage among all miners involved, according to several different distributional methods. Many pooled mining services exist. In this article, I use Coinotron because it pools miners for a variety of cryptocoins, but many alternatives exist, such as Litebonk [Broken Link Removed].
The Stratum Proxy: The Stratum proxy is the coordinating software which permits multiple miners to attack one block. It reduces network traffic and increases (supposedly) hashrates. This is a required software for many mining pools — fortunately it comes prepacked with the mining software used in this article, GUIminer (see below).
Scrypt VS SHA-256: Scrypt is the hash function that alternative cryptocurrencies use. SHA-256 is used in Bitcoin. Unfortunately, because ASIC miners destroyed the profitability of GPU mining, any cryptocurrency using SHA-256 suffers from a difficulty level that the vast majority of desktop machines, even with high-end graphics cards, will find unprofitable for mining.
GUIminer: A variety of mining software exists that can solve hashes. My favorite is GUIminer, although it takes some tweaking before it will provide optimized hash rates. In a nutshell, the mining software will attempt to solve a block through brute force methods — i.e. throwing a bunch of numbers at a problem until it’s successful. If you’ve properly configured the miner for pooled mining, whenever a block is solved, the mining pool will register this and distribute the coins accordingly.
You don’t actually need to know this information to get started cracking blocks and making money, but it helps.
What is Litecoin?
Litecoin’s creation harkens back to the good ol’ years of 2011, before the Bitcoin boom. The currency caught on rapidly as it was less difficult to mine than Bitcoin and paid out at four times its rate for solving blocks. Unlike Bitcoin, it doesn’t use SHA-256, so ASIC miners – machines customized to solve SHA-256 hashes – do not exist for it. Litecoin currently is among the least difficult of all the cryptocurrencies to mine. When all blocks are solved, 84 million Litecoins will exist. Because its extant coinage will exceed Bitcoin’s, speculators assume that it will eventually have 1/4th the total value. So if Bitcoin rises to $100, Litecoin may rise to $25. Also, Litecoin’s security, in theory, is better than Bitcoin’s.
What is Feathercoin?
Feathercoin hit cryptocurrency exchanges very recently, coming out in 2013. It produces 16 times as many coins per block solved as Bitcoin and will have, when all of its coins are discovered, around 336 million coins. Relative to many other cryptocurrencies, it has a low level of difficulty for solving blocks and with the same security as Litecoin.
What is Terracoin?
Terracoin released in 2012 and uses the SHA-256 hash algorithm – which means that after a year of being mined by ASIC machines, it has a very high difficulty level for solving blocks, unlike those currencies using the Scrypt-based algorithm.
How Do Terracoin, Litecoin, and Feathercoin Compare?
The biggest difference between Terracoin, Litecoin and Feathercoin is in value, ease of mining, and security. Whereas Terracoin uses the SHA-256 algorithm found in Bitcoin; Litecoin and Feathercoin use Scrypt. The differences between Scrypt and SHA-256 form the most salient reason to avoid Terracoin — it’s nearly impossible to mine on SHA-256 coinage because of the level of difficulty involved if the currency has been out for a short while.
As miners increasingly discover the “easy” coins, mining becomes less profitable and more difficult. Eventually the slower miners get left in the dust — particularly, if you’re competing against ASIC machines, which suck up the easy coins very rapidly. To illustrate the relationship between the difficulty level of a coin and its profitability, on a 250 KH/s machine I pulled about 7 Feathercoins and almost a single Litecoin per day of mining. With Terracoin, after five hours of mining I netted absolutely zero coins, despite using a mining pool. Sadly, Terracoin’s extremely high difficulty rating made it impossible to use on lower end machines. However, you may want to read this article on the most efficient Bitcoin mining GPUs.
I should note, though, that technically SHA-256 is easier to mine, since it requires less overheads than Scrypt. In reality, the reverse is true.
How to Mine Litecoin, Feathercoin, and Terracoin
Before getting started, first go through the mining profitability calculator. In order to determine whether mining will net profits, you will need to know the hashrate of your computer, how much you pay per kilowatt hour and the wattage draw of your computer at maximum load. For me, my computer draws around 200-300 watts at max draw and produces a maximum hashrate of around 250 KH/s for Scrypt. Keep in mind that the cryptography used by Terracoin is SHA-256, which produces a higher hashrate. However, Terracoin’s difficulty is much higher than Scrypt based cryptocoinage.
Before getting started you will need three essential pieces of software and web accounts:
- The cryptocoin client: I suggest either Feathercoin or Litecoin;
- An account with a mining pool: I suggest Coinotron.com;
- The cryptocoin mining software: I suggest GUIminer (Terracoin).
The mining process remains the same for each of the alternative currencies:
First, setup a client such as Terracoin, Feathercoin, or Litecoin. Any cryptocurrency will do, although you may need to do additional research for a coinage not covered in this article. For a complete list of the available cryptocurrencies, check out this list on Wikipedia.
Setting up the cryptocoin client only requires that you download the software and run its executable. Some clients are installable files, whereas others are simply executables, nested within the downloaded folder. Don’t worry about that, though. The difference between installed clients and an executable is negligible.
The client can perform several essential actions: It can both send and receive its respective coin. Most important, the client will sync the Blockchain, which records ownership of the currency. The syncing process may take some time as it downloads the network’s transactional database, also known as a Blockchain. For example, Bitcoin has an exceptionally long Blockchain at 8 gigabyte in size. For the currencies listed here, fortunately, you won’t deal with such a large download.
While waiting for the client to sync, you may want to examine your address, which is located under the “Receive” tab in the menu bar. You won’t need this until you set up your account with a mining pool – just keep in mind where it is.
Second, you will need to join a mining pool. As mentioned earlier, a pool will coordinate the efforts of multiple miners in cracking a block – once a pool solves a block, the coins distribute among the miners in the pool according to several schemes:
- Round based pay per share;
- Pay per share;
For beginners, pay per share and round based pay per share are the most straightforward payment systems (and they’re also the only payment schemes that work with Litecoin and Feathercoin at Coinotron). RBPPS offers the lowest total payout to the mining pool at 2%.
In the tutorials I read, Coinotron receives a great deal of praise for its ease of use as a mining pool. To get started:
First, Sign up for an account and then, if you are not signed in, sign into your account.
Second, navigate to the “My Account” tab in the menu bar.
At this stage, it’s not yet necessary for you to input a payout address – just remember that you will want to eventually fill that portion out. Although, you can optionally input your payment address, you won’t have any coins until you actually mine some coins. Also, the pools charge varying rates for each currency. For example, using the Litecoin pool costs between 2 and 5 percent of your income, depending on your payout scheme.
Then fill out the “Add Worker” box in the middle of the “My Account” page with the following information:
- Your username;
- Create a name for your worker (you will reuse this information later on);
- Create a password (you will reuse this later);
- Choose the kind of coin that you want to make from this, either LTC (Litecoin), TRC (Terracoin) or FTC (Feathercoin).
Third, you will need to configure the mining software. For this example, I will use GUIminer for its ease of configuration. Danny Steiben wrote an excellent introductory article, covering GUIminer’s features.
Unzip and then run GUIminer’s executable file (GUIminer.exe) from within the unzipped folder.
In the main window you’ll notice several elements:
- Host: This is going to be “coinotron.com”.
- Username: Input your username from Coinotron and the name of your worker, separated by a period. For example, if your username is “wayne” and your worker’s name is “bruce” you would enter “wayne.bruce”.
- Device: Select your graphics card from this list. Be aware it will use a code name for your card.
- Thread concurrency: Input “8000” here. It’s supposedly the amount of RAM being used, but no other value designated in multiples of 64KB would work for me.
- Vectors: Any number between 1 and 4 should work. You may try different values to squeeze more performance out of your machine, but in my experience this value didn’t matter.
- GPU threads: If your GPU is capable of multiple threads, you can try. Mine were not.
- Port: This indicates which coin you’ll be mining. For Litecoin 3334. For Feathercoin: 3337. For Terracoin: 8322 or 9322.
- Password: Reuse the password you entered in the mining pool.
- Intensity: This value determines how hard your miner will work; higher numbers result in harder work. A good starting value to use is around 12. I warn you to never exceed 18, as you might damage your computer through overheating.
- Stratum proxy: You will want to select “Yes”. Before getting started, run the Stratum proxy from within your GUIminer folder — it’s located in the Stratum proxy folder.
After you’ve inputted all the information, hit the start button to begin mining. Because I use a relatively exotic dual GPU system (also known as “CrossFire” or “Dual Graphics”), I had to setup two different GPU miners. You will likely need to use only one. However, if you do have a CrossFired or SLI setup, you will need to run two different instances of the mining software, one instance for each of your GPUs.
You can use the same configuration options as above. Just go to “File” and “New miner”. Then if you have a Radeon card, select “CGminer”. The new miner will show up as a tab. You can switch between GPU miners by clicking on the tab. If you have an Nvidia card, choose “New CUDA miner”.
Transferring Coins to Your Address
After you mine coins, the pool can transfer them to your account via your address. The address, as mentioned above, exists within your client’s Wallet. To access this, simply open the client and click on “Receive” in the tabs. You can then copy and include in your pool’s payout method.
Remember to set a “Payout threshold”. Coinotron by default doesn’t setup automatic transfers to your Wallet. To receive coins, input a number. Make sure you set this number above the Minimum Withdrawal Threshold, or otherwise you’ll take a penalty.
Other Points of Note
Security: It’s been suggested that everyone using a digital currency should encrypt their private keys. A key unlocks your coins so that they can be spent. If this is ever lost or stolen, you will lose access to the currency. Your address is linked to this private key. Whenever you change computers, you will also want to import your key.
Your private key stores itself inside the “wallet.dat” file. You can locate this file simply by using a search tool. Once you’ve located the file (in Windows, it’s typically located in your appdata directory). You can read more about encryption or using a paper wallet. A paper wallet stores the private key on paper, which reduces the likelihood of your keys getting lost or stolen.
PayPal: As a word of caution, you should never buy or sell cryptocurrencies via PayPal because of PayPal’s chargeback policy. If you exchange coins for cash, a disreputable buyer can then file a claim against you – and PayPal will remove the money from your account with the buyer keeping your currency.
Buying and Selling: As of 2013, the largest, most reputable exchange, Mt. Gox, doesn’t trade in cryptocurrencies other than Bitcoin. It did announce plans to begin the trading of Litecoin, but due to a massive distributed denial of service attack against it, Litecoin trading was shelved indefinitely. Consequently, I signed up for an account with Vircurex, although it should be mentioned that Vircurex has been hacked in the past. In fact, most of these exchanges have been hacked and the accounts of its holders compromised. Theft within the world of cryptocurrencies remains a common event.
The advantage of Vircurex is that it trades in a huge number of alternative currencies. Although at present, you can’t trade for any fiat money, you can trade for other cryptocurrencies, which can then be transferred to Mt. Gox and converted into cash. The process feels much like a stock exchange where each currency possesses an “ask” (asking price) and a “buy” or a buying price. You simply indicate the amount of a currency you’d like to purchase and the price at which you are willing to purchase. The exchange then connects buyers with sellers. On the downside, adding USD to a Vircurex account became impossible due to their business partner which handles their money.
Fortunately, MakeUseOf reader Rodrigo Graça introduced me to the BTC-E exchange, which permits the direct transfer from LTC, TRC and FTC into hard currencies, such as USD, Rubles and more. BTC-E charges a 0.2% fee on all transactions. As of 7/20/13, BTC-E takes all major credit cards in addition to debit cards and bank transfers.
Ripple: A relatively exotic means of exchanging Bitcoin worth examining is Ripple (not to be confused with Ripple the cryptocurrency) which (when ready) distributes coin through a decentralized peer-to-peer system, obviating the need for a centralized exchange. Unfortunately, its current path of development will lead it to trade only in Bitcoin. Additionally, there are quite a few questions as to the security and function of this sort of distributed exchange system.
I didn’t expect Terracoin to yield any profits because of its difficulty level and use of SHA-256, meaning I competed against ASIC miners with a relatively pathetic machine. The reality proved even worse: After around five hours of mining, I failed to receive even a fraction of a Terracoin. On the other hand, both Litecoin (trading between $5 and $3 per coin as of 7/11/2013) and Feathercoin (trading at 8 cents) netted a great deal of value for a GPU miner. Although for me, Feathercoin’s value doesn’t currently exceed the cost of power by much; if you expect the future value of these currencies to rise, then you might be willing to take a hit on power costs.
My overall impression is to stay away from any cryptocurrency using SHA-256. Terracoin in my opinion isn’t worth the mining effort, unless you have an ASIC miner.
Does anyone else love mining cryptocurrencies? Let us know in the comments.