Troubles of Small-Scale Crypto Coin Mining

Whether for Bitcoin or Alt coins, Crypto coin mining or the operation of computing equipment for delivering the proof of work necessary to “create” virtual currency, has become “hot” during the past year and a half. With Bitcoin making headlines in late 2013 for breaking above $1000 — albeit for a very short time so far — attention has been drawn to the overall Bitcoin sector.

First-movers had long been mining bitcoins. When additional currencies both using the SHA-256 algorithm as Bitcoin itself (such as Peercoin) or the wider Alt coin selection headed by Litecoin (and based on the less resource-incentive Scrypt algorithm) started coming along, so did the first dedicated coin mining machines or ASICs (application-specific integrated circuits or usually arrangements of multiple such chips).

The result has been a dramatic increase in mining efficiency as well as profits achievable by operating such equipment. A side-effect is the constant, and accelerating, increase of network difficulty which basically means that a growing number of miners also means higher requirements and more investment of computing power before a new “block” can be “discovered” (or successfully calculated by someone’s machine).

During the first half of 2014, profits in Crypto coin mining have been good, or very good, with plenty of coins to choose from in both algorithms, SHA-256 as well as Scrypt.

The explosion of both stupidity (by way of yet more silly-sounding “coins”) as well as hashing power (with the release of very powerful Scrypt-specific ASICs), however, quickly and dramatically pushed up network difficulty to a point where daily (or monthly) profits are dwindling. Many Scrypt-based coins have seen their early-2014 profitability shrink to about a quarter or less. Even Lightcoin itself with its relative stability due to enormous total network hashing power has sunken to less than one third of its May 2014 profitability levels.

To counter the ever-growing “pump and dump” group of “miners”, a number of coins even have moved to drastic measures. These include talks by Potcoin to move to Scrypt-N (which at that time was believed to be ASIC-resistant) or pegging the Dogecoin network difficulty to the one of big and mighty Litecoin. The Feathercoin and Guncoin developers have actually hard-forked away from Scrypt and are now using the X11 algorithm for which there are no powerful ASICs in existence as of this writing.

The overall result for Crypto coin miners as well as users and coin developers is that choice is decreasing: choice of highly profitable and easy-to-mine coins, choice of coins for longer-term holding or similar real-life uses, and choice of “useful” algorithms for developers and operators of a coin who want to protect their invention and help it grow to meaningful every-day use by ordinary people.

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