Just like with so many other cryptocurrencies the process of mining Litecoin is simply the steps you go through in order to verify a block of transactions on the Litecoin blockchain. Mining Litecoin also involves solving cryptography puzzles, just like the mining of every other coin. Miners who solve the puzzle first gets reward by a coin.
Let’s talk a bit about Litecoin first. Though not quite as popular and well-known as Bitcoin, Litecoin is one of the better-known altcoins and many cryptocurrency exchanges around the world trade and sell Litecoin. Though Litecoin works very much like Bitcoin it does differ in that whereas Bitcoin will only ever release 21 million coins, Litecoin’s creators intended a broader release of up to 84 million coins. It is four times the coin circulation compared to Bitcoin.
Like Bitcoin, the Litecoin blockchain serves as a record of all the transactions on the Litecoin network. These transactions need to be verified and the process of doing so is mining. Miners user powerful computer hardware to solve mathematical puzzles that allow them to verify transactions and therefore add new transactions to the Litecoin blockchain.
In return for verifying a full block a Litecoin miner gets a reward. Until around 2023 miners who mine Litecoin will get 12.5 Litecoins for every block that they verify. This amount is reduced by a half around every four years; the designers intended that compensation for mining Litecoin will eventually be composed of only transaction fees – not coins.
This process by which miners are compensated is called Proof of Work and it is based on what is called a hashing algorithm. Millions or even billions of repeated hashes will eventually give miners the answer to the cryptography problems that Proof of Work requires them to solve. In turn the miner gets Litecoin for their work – and they move on to trying to solve another block on the blockchain.
In the past it was only computer experts and people who liked to tinker with computers for a hobby that mined cryptocurrency. It used to be quite tricky to set up a mining rig so most people didn’t pursue the idea of mining cryptocurrency. Of course, as cryptocurrency such as Bitcoin, Ethereum and Litecoin caught the public imagination more and more people started to build an interest in what was becoming a very valuable asset. Cryptocurrency values were increasing at a really rapid rate.
The result is that mining cryptocurrency started requiring more and more computing power. At the same time, it became more difficult to get a hold of this hardware and, of course, intense computing power is expensive to obtain.
In fact, mining started requiring so much computer power that electricity expenditure became a really big aspect that had to be included in the expense of mining. So, mining is now a good option for people who live where electricity is cheap, or for big groups who could pool their resources in order to obtain computer power cheaply. In many cases mining coins such as Litecoin is now a big, industrial-size enterprise.
There’s little doubt that mining Litecoin now means that you need to spend a lot of money on hardware that is powerful enough for mining. When Litecoin was launched it was still easy to mine it using a graphics processing unit (GPU) connected to a standard computer. However, as Litecoin become popular more and more people jumped into Litecoin mining and it soon became a matter of who it is that has the most powerful computer equipment – and like we said, cheap electricity.
The result is that mining is increasingly concentrated in places like Asia where electricity is cheap. However, GPU costs remained a big problem as mining caused a worldwide shortage of GPUs. This alongside the fact that GPUs eventually were no longer powerful enough to mine Litecoin effectively lead to the rise of the GPU alternative: the ASIC, the application specific integrated circuit.
When you mine Litecoin you need to be able to store it somewhere. An e-wallet is one option to deposit your Litecoins, but you can also choose to store your Litecoin in a hardware wallet. You also need to think about the mining software you’ll use to do the actual mining for you. Mining software instructs your hardware on how to use mathematics to process blocks.
It depends really – but you should look past the obvious allure of obtaining cryptocurrency such as Litecoin and carefully do the sums on your mining activities.
In other words, work out the cost of the hardware you need to buy and divide it by the profit (if any) between mining and electricity costs. This will tell you how long it will take you to recoup your hardware costs – any time period running into years will probably not be cost effective because mining difficulty quickly outpaces hardware prowess.
Remember that it can be difficult to compete profitably against very large mining operations when you’re using just one GPU. You also need a fast connection to the internet, this connection must be highly reliable too.