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Mining Basics: How Does It Work?

Zcash is a privacy-focused cryptocurrency which produces new coins through the mining process. A new ZEC is created when a new block is added to the blockchain, which happens about every 2.5 minutes.

Zcash is different from other cryptos, as it launched with a “slow-start mechanism.” This meant that the number of coins released into the system in the early days was much smaller, in order to lessen the risk of the protocol containing bugs or security issues. This system was applied to the first 20,000 blocks that were mined during the course of the first month.

The coin uses the “proof of work” protocol and “Equihash” algorithm, which makes it resistant to application-specific integrated circuit chip (ASIC) mining. This is an advantage for new miners as cryptocurrencies that can be mined with ASICs make it nearly impossible to compete if you mine using CPU or GPU hardware.

Selecting the Right Hardware

The type of mining hardware used in the mining process impacts potential mining profits, so it’s important to know what are your available options. By using the Equihash algorithm, ZCash needs a high amount of RAM to be mined, so miners can’t use the ASICs to mine the cryptocurrency. Because of this, you can mine ZEC using CPUs and GPUs.

CPU hardware

One advantage of mining Zcash is that you can use the CPU you already have, which you can’t do with other cryptos like Bitcoin. This is one of the main differences between Zcash and cryptos that use ASIC miners. This equipment is so powerful that it would be very unprofitable to even try CPU mining – but this is not available for Zcash mining. If you have dedicated a CPU to mining, make sure to have adequate cooling because units can reach high temperatures when mining.

GPU equipment

When compared to CPU mining, GPU mining has the advantage of being much faster and more efficient. But it requires more investment on your part. When buying a GPU equipment, you must check to see what hashing power it has as it is directly tied to how efficient it will be.

Miners can also buy a used setup, but be careful, as the older GPUs can get hot pretty quick, and if the cooling isn’t working properly, it could quickly end up ruining your investment.

You don’t have to buy an expensive “rig” that will leave a hole in your wallet when mining Zcash. If you want to get started right away, use the CPU you currently have and consider upgrading to a GPU later on.

If you already have experience with mining and want to make the most of your profits from Zcash mining faster, you might consider directly purchasing a GPU. The potential to make more profit is higher with the GPU setup, but isn’t necessary if you just want to see how the mining process works.

Zcash Software Mining

In order to start mining, you must first download specific software. The software options available for mining Zcash are:

  • CPU: Nicehash or Minergate
  • AMD GPU’s: Claymore’s Miner
  • nVidia GPU’s: EWBF’s CUDA Zcash Miner

After you have downloaded the miner that suits your hardware specification, go ahead and extract to a folder of your choice. Once extracted the miner must be configured by editing the config file to set the Zcash address and the mining pool.

How Much Can You Earn?

Every miner wants to receive their reward as soon as they can and start making a profit. Because of this, many wonder how much they can make with Zcash. Zcash has the same total supply of coins as Bitcoin- the maximum amount of coins to ever be produced being 21 million ZEC units.

However, 10 percent of that reward is reserved by the stakeholders in the Zcash company, which is comprised of the founders, investors, advisors, and employees. This is known as the “Founders Reward”.

For the first four years since its creation, 50 ZEC will be created every 10 minutes, and the miners will receive 80 percent of that newly created ZEC, while 20 percent is distributed to the founders. Just like Bitcoin, the rate of ZEC being created will halve every four years.

Currently, the block reward is set at 12.5 ZEC. However, after every 4 years (or 840,000 blocks mined) that reward is halved. In 2020 the reward will be 6.25, and in the year 2024, the reward will be 3.12 and so on (until the currency reaches its cap). This will increase mining difficulty as time goes by. As with most new cryptocurrencies, those that started mining earlier have an advantage.

Calculating Zcash Mining Profitability

There are several key factors that affect the profits made through Zcash mining, or any other cryptocurrency for that matter. Below are the core factors you should pay attention to:

  • Current market price
  • The hardware type
  • Total hash power available
  • Cost of electricity
  • Pool fee costs

It’s best to estimate how much you can make with your unique specifications by using a profit calculator.

Most calculators allow you to input the hashing power, power consumption and cost per kW/h to calculate your profit ratio per day and per month. Before buying your equipment, you can use this type of calculator to determine if the investment will surpass the potential profit or not.

Or, if you already have a CPU, you can calculate if investing in a GPU will allow you to significantly increase your profit potential.

Calculators show that latest profit potential is not particularly high. This is because the market has been suffering a series of price drops in 2018 which has made it difficult for small miners to make a profit.  But these results are only estimates.

Zcash Mining Conclusion

This has been our guide for those of you that are interested in mining Zcash. Of course, there is still a lot more to learn if you want to make significant profits by mining Zcash, as the market and competition is rather tough.

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