How to Set Up a Mining Operation

Article by Casey Burgwald / Cover artwork by Page Beerman

Mining Proof of Work cryptocurrencies can essentially be boiled down to using electricity to power a processor to solve math problems. Essentially any type of processor can “hash” out the answers to the math problem posted by the network, but throughout the years since the inception of the Proof of Work mining model, CPU mining quickly became obsolete due to the rise of GPU mining. For some specific algorithms, due to the increasing value of the cryptocurrencies associated with them, it became economical for companies to develop Application-Specific Integrated Circuits, or ASICs as they are commonly known. These highly specialized computers are much faster and many times more efficient then GPU mining rigs, and thus pushed graphics card mining out of profitability for certain Proof of Work functions.

Litecoin’s Proof of Work algorithm is Scrypt. The first Scrypt ASIC miner was introduced in mid-2014 by the Chinese-based company Zeus; designated “Blizzard”, this first-generation ASIC miner was capable of 1.2 Mh/s (1 Mh/s = 1,000,000 “hashes” or solutions per second). Since then, ASIC miners have been consistently and exponentially increasing in both output and efficiency.

As CPU and GPU Scrypt mining are no longer viable, you will need to procure a Scrypt ASIC miner in order to mine Litecoins profitably.

Selecting a Scrypt ASIC Miner

There are 4 factors to consider when selecting an ASIC miner to determine profitability: hash rate, power consumption, cost, and delivery date.

The hash rate of a miner (typically reported in hashes per second, H/s) determines how many solutions the unit can generate for the cryptographic function in a given time. The higher the hash rate, the more likely the miner is to find the solution and be awarded the block payout. To determine the total hash rate of a mining operation, add the hash rate of all the mining units (often referred to individually as “workers”). This number can be plugged into various mining calculators (available on numerous crypto currency mining websites) to determine expected payouts (this can vary based on the type of mining performed; see Types of Mining for more information).

The power consumption (typically reported in watts, W) of a miner indicates how much electricity the miner will use in a given time while actively mining. This is used to determine the running cost of the miner by multiplying the power consumption by the cost of electricity.

Example:

For a miner with a power consumption of 500 W and an electricity cost of $0.12USD/kW-hr…

 

500 W = 0.5 kW

(0.5 kW) x ($0.12 USD / kW-hr) = $0.06 USD / hr

 

…it would cost $0.06 USD per hour to keep the miner running.

 

($0.06 USD / hr) x (24 hrs / day) = $1.44 USD / day

($1.44 USD / day) x (7 days / week) = $10.08 USD / week

($1.44 USD / day) x (30 days / month) = $43.20 USD / month

Together, the hash rate and power consumption attributes determine the miner’s efficiency, or the effective cost of hashing. Most mining calculators will request the user to input the power consumption of the miner and the average cost of electricity; it will then provide the user with the expected payout for a given period, the estimated total cost of electricity during that period, and the profit (calculated as expected payout minus the estimated cost of electricity). This is important to determine whether mining is profitable, and for speculating as to how long it will remain so.

In addition to the base cost of electricity, for high consumption areas, peak and off-peak times for electricity usage should also be considered (especially if the cost per kW-hr is significantly higher during peak usage times). Most mining calculators will assume the base price per kW-hr will not vary while mining.

The cost of the miners is also important for determining the expected return on investment, or ROI. To be profitable, a mining operation must be able to recover all of the initial investment costs (including the miners, power supplies, facility setup, etc.) and continue to provide returns (realized profit).

Finally, the delivery date for the ASIC mining equipment is extremely important when evaluating whether the mining operation will be profitable. This is due to the fact that the function difficulty and overall hash rate of the network tend to increase over time, potentially putting the profitability of the ASIC miner in jeopardy before it is even delivered.

ASIC miners come in a variety of shapes, sizes, and outputs. Where smaller desktop models with outputs in the 0.5-2 Mh/s range were popular at the dawn of Scrypt ASIC mining, they quickly yielded to large, incredibly efficient standalone units with their own dedicated power supplies that were hundreds to thousands of times more powerful. Fortunately, while there are many different manufacturers and models, when assessing profitability, the same basic considerations outlined herein can be applied to all of them for comparison.

Selecting a Power Supply Unit

Most ASIC miners require the purchase of a separate, external Power Supply Unit (PSU). Some manufacturers may sell power supplies designed specifically for the miner, but aren’t necessarily required (unless specifically stated).

When selecting a power supply, be sure the PSU wattage (also expressed in watts, W) is rated to exceed the power consumption requirements of the miner with an additional margin for safety. For example, if a miner is reported to use 500 W, check the specification to see the expected variation. The power consumption usually varies by a fraction of the overall rating, so a 500 W miner may be rated to 500 W +/- 10%. This means that at peak power draw, the unit will demand 500 W + (10% of 500 W), or 550 W. Typically this will be the true maximum power draw, though the miner will tend to operate closer to the nominal listed value. Additionally, the wattage rating of PSUs refers to the peak output, but the units are not designed to run consistently at the peak levels. For this reason, an additional safety margin beyond the peak power draw of the miner is recommended. For example, when determining which PSU to purchase for a miner that is reported to consume 500 W +/- 10%, a power supply rated for 600 W or higher should be considered. As miner power consumption increases, so should the margin between the miner power consumption specification and the peak output rating of the PSU (e.g. for a miner that draws 800 W +/- 10%, a PSU rated for 1000 W would be advisable).

In addition to the wattage rating, PSUs will typically have an “80 PLUS” designation. This is usually followed by a rating of Bronze, Silver, Gold, or Platinum. This is a rating of the overall efficiency of the PSU. Since Proof of Work mining is an energy intensive process, a more efficient PSU will use less electricity to deliver the same power to a miner (since less of the electricity is wasted). Wasted electricity manifests in the form of heat, which is also an important consideration for mining (specifically, heat generation and accumulation should be mitigated to the greatest extent possible for maximum efficiency). For these reasons, though higher rated PSUs tend to be more expensive initially, they can be more reliable and more efficient in the long term when considering a mining setup. Consider the following scenario where the input variables are held constant while the effect of PSU efficiency is evaluated at the different levels.

Example:

Using a 600 W power supply to power a 500 W +/- 10% ASIC miner. Assume that the actual draw averages the nominal 500 W as specified. The following table explores the cost savings over one month of continuous mining with an average electricity cost of $0.12 USD / kW-hr.

 

PSU 80 PLUS Rating Power Output Estimated Efficiency Required Input Power Loss Profit Loss
(per Month)
Unrated 500 W 70% 714 W 214 W $18.48 USD
80 PLUS 500 W 80% 625 W 125 W $10.80 USD
80 PLUS BRONZE 500 W 85% 588 W 88 W $7.06 USD
80 PLUS SILVER 500 W 88% 568 W 68 W $5.88 USD
80 PLUS GOLD 500 W 90% 556 W 56 W $4.84 USD
80 PLUS PLATINUM 500 W 92% 543 W 43 W $4.58 USD

This shows that investing in a more efficient PSU can result in reduced overall running cost of the mining operation, despite a higher initial investment (as well as mitigating heat generation from the wasted power).

Finally, be sure the selected PSU has the appropriate number of connections to power the miner. High output miners tend to have numerous connections to draw power to the unit. Modular power supplies are ideal for this, as connections can be customized to the specification of the miner, and reducing the number of unused cords around the miner will allow for better ventilation.

Factors for Determining Profitability

Beyond the attributes of the specific Scrypt ASIC miner and external power supply unit, there are external factors that should be considered when starting a mining operation; they are network difficulty, cost of upkeep, and market value of the coin to be mined.

The network difficulty of Proof of Work algorithms is monitored and adjusted by the governing network in an attempt to maintain consistent block mining rates. This difficulty is directly related to the overall network hash rate, or the cumulative total rate of hashes per second generated by all of the miners on the entire network. This is because network difficulty adjustments are made based on the rate of blocks being mined; if blocks are being found too quickly, the network increases the difficulty of the function, conversely if blocks are being mined too slowly, the difficulty is decreased. Since difficulty adjustments or “re-targets” are frequent and directly related to the overall network hash rate, most calculators use the network difficulty as a scaling factor to determine estimated profitability. For Litecoin, the network monitors and re-targets the Scrypt function difficulty every 2,016 blocks (or roughly every 3.5 days) in an effort to keep the mining rate at 1 block / 2.5 minutes.

In simplistic terms, the probability of mining any given block for a single mining operation can be thought of as the total hash rate of workers in the operation divided by the overall network hash rate.

The cost of upkeep for a mining operation is mostly a function of the cost of electricity. Higher electricity costs in certain areas may be prohibitive to mining operations because high electricity prices erode profits. Here, the efficiency of the miners is also important, since highly efficient miners waste the least electricity and tend to generate the least heat. For sufficiently large operations, factors such as miner maintenance, facility costs, and additional cooling or heat management must also be considered.

Lastly, prior to set up a mining operation, the expected market value of the coin to be mined should be considered. If the goal of a mining operation is to maximize profits, the total number of coins earned by a given ASIC miner must exceed the cost of the miner in terms of the coin being mined. Put simply, if a miner costs X LTC (including the power supply, setup costs, and cost of electricity) the return must be greater than X LTC at the time of purchase/setup, or the operation was not profitable (since an equivalent number of the given currency could have been purchased instead).

In summary, for a mining operation to be profitable, the results of the mining operation must meet the following criteria:

  1. The value of the mined coins must exceed the cost of the input electricity
  2. The operation must remain profitable for long enough to recoup the initial investment and provide profit
  3. The total return on investment must exceed the total cost of purchasing and upkeeping the miners

Basic ASIC Miner Setup

While models may vary significantly in terms of their outputs and efficiencies, there are some basic similarities for setting up an ASIC miner. Prior to setting up the miner itself, there are some universal preparations that should be made.

Find a suitable location for the miner. It is ideal to plan ahead according to the size of the operation and the number of miners, as larger operations tend to produce considerable heat and noise. The location should be well ventilated to reduce heat build-up, but isolated from potential contaminants (dust, pet hair, dirt, moisture, etc.) than can damage the miner. The mining operation should also be isolated from high traffic areas to protect the miners from accidental damage (see Miner Upkeep section for more information).

This location must also have access to a power outlet (preferably through a surge protector or battery back-up unit) and to an ethernet cable connected to the internet. There is no requirement for the connection to be hardline direct to the internet, but hardline connections tend to be more stable and can reduce miner downtime. Wifi bridges are an effective substitute for remote mining operations.

For larger mining operations, be careful to note the number of miners on a given circuit. ASIC miners draw significant power, and multiple miners in series on a single circuit may cause an overload. Also consider the power draw of auxiliary cooling/heat management devices (fans/air conditioners) if they are used to promote ventilation and cooling; these devices can draw significant power as well (see Miner Upkeep for more information).

Optional: Log in to the router you intend to connect the miner to and look through the device list. By looking through the list now, it may be easier to find the miner as it will be the new addition to the list.

Now, to set up the miner. Most ASIC miners will come with specific installation instructions, but the following provides a general outline of steps.

  1. Upon receipt, inspect the ASIC mining unit for any obvious damage. Compare the unit to pictures on the manufacturer website, and check the instructions for specific inspection points. If any noticeable defects are detected (loose connections, physical damage, broken components, etc.), notify the manufacturer. (If the unit was purchased from a third party, you may have to look for solutions to asses and or repair the unit without the manufacturer.)
  2. Connect the power supply unit (PSU) to the miner. DO NOT CONNECT THE POWER SUPPLY TO THE WALL SOCKET YET. Ensure that all required connections are powered correctly. Refer to the installation procedure for the specific miner for details of the connections. It is ideal to power an entire miner with a single PSU, so choosing a PSU with the correct number of connections is important. Some miners may have an extra inpute requirement to power the control board separate from the hashing boards. Be sure to connect the control board or the miner will not power up.If the power supply unit is designated as an ATX PSU (very common), it may be necessary to short the switch in the ATX connector to keep the power supply on (known as “jumping” or “shorting” the power supply unit). This is best accomplished by a special cap affixed to the ATX connector often referred to as an ATX Bridge Tool, or an ATX Power Supply Jumper. (There are other methods for shorting this connection, but they are not recommended for safety purposes.) ATX power supplies typically will not power up without this connection shorted, as this is the connection that the power button on most computers uses to order the PSU to turn on. The cap is designed to fit on the end of the ATX connector, so for modular PSUs that have a removable ATX cable, attach the cable and short the ATX connector using the ATX Bridge Tool or ATX Power Supply Jumper (or the unendorsed method of your choice).
  3. Connect the ethernet cable to the miner. Refer to the manual if unable to find the ethernet port.
  4. Double check the power connections on the miner. CHECK THE POWER SUPPLY AND VERIFY THAT THE UNIT IS SWITCHED OFF (often OFF is identified by a “0” and ON is identified by a “1” or “I”). Check the manufacturer’s instructions for additional steps prior to powering on the ASIC miner, or for any specific startup procedures. Upon completion of any additional steps or lack of additional instructions, connect the PSU to the wall and switch the PSU to ON.
  5. If the correct setup for the miner was completed, miner should have visible/audible indications that it has entered startup. Often there will be lights near the ethernet port to denote that it has a successful connection, and the onboard fans should spin up. Online videos can be good resources to verify that the miner is starting up correctly.
  6. Log into the router connected to your miner. To log in to a router, open a web browser on a computer and enter its IP address (or refer to the manufacturer instructions). Find the miner in the router interface and note (or copy) the IP address.
  7. Sign up for a mining pool. There are numerous Litecoin mining pools, and while fee structures may vary and overall pool hash-rate may be significantly different from one pool to another, there shouldn’t be a dramatic difference in profitability. The benefits of pooled mining will be discussed later. Follow the instructions provided by the mining pool to configure your profile. Look specifically for the mining pool server address list (the addresses are typically something similar to stratum+tcp://________.___:#####). Find the pool that is the closest to you geographically, and note or copy the URL. The mining pool may also ask you for a wallet address for payouts. For mining payouts, use a local wallet (exchanges typically do not accept mining rewards). The Litecoin Core wallet is recommended, which can be found on the Litecoin website.
  8. Next, log into the miner by entering the IP address found in step 6 into a web browser. Each manufacturer will have a different interface, but browse for the miner configuration settings. This will usually give you fields to input URLs, Worker Names, and a Passwords. Enter the URL found in step 7 into the “URL” field, name your “worker” (this is the mining unit itself) the same name both in the miner configuration setting and on the mining pool profile, and enter the same password in the miner configuration settings and on the mining pool profile. Save and apply the settings.

At this point, the miner should be set up and starting to actively mine in the mining pool you have designated. Access your mining pool profile created on the pool website to check the status of your miner (often referred to as a “worker”). Pools distribute mining rewards in different ways. Some allow you to select whether you prefer incremental payouts, periodic payouts, or manual payouts. Be sure to select your preferred payout method and enable two-factor authentication whenever possible to avoid fraudulent withdrawals of mining rewards.

Miner Upkeep

After the initial setup, there is little active maintenance required to keep the miner running. Here are some basic requirements and some additional tips to keep the miner running at optimal efficiency.

Requirements:

  1. Keep contaminants and other objects away from the miner, specifically the air inlet.Most miners have a very efficient ventilation system with a fan or series of fans to maintain a cool stream of air across the hashing boards. Without this, the miner may overheat causing a momentary shutdown until it returns to a normal operating temperature, or it may cause the miner to burnout completely rendering it useless. Contaminants such as dust, dirt, or hair can accumulate in the miner (either in the fan, on the hashing boards, or on the heat sinks), decreasing the throughput of cool air and insulating the boards causing them to rise in temperature.Since miners typically have multiple fans to promote maximum airflow, the fans may be susceptible to damage from larger objects. Keep a reasonable distance between the miner and other objects (including the power supply) to mitigate the risk of damaging the fans and to allow for good ventilation (to reduce heat).
  2. Keep the miner as cool and dry as possible.The cooler the miner, the more efficient it will be and the longer it will last. When setting up the location for the miner, try to maximize the air available to the inlet of the miner while moving the hotter exhaust air away from the mining area if possible.Also be sure to keep the miner dry. Most miners have exposed circuitry to minimize production costs and reduce heat buildup while maximizing the convective surface area for efficient cooling. Moisture (either by accumulation or by spills) can cause shorts in the exposed circuity, which can both be an extreme safety hazard and cause catastrophic damage to the miner.
  3. Avoid adding significant load to the miner circuit.Miners use a considerable amount of electricity and heavily load the circuit on which they are installed. Especially for residential mining operations, adding other large power drawing appliances on the same circuit may cause an overload and result in tripping the circuit breaker. This is inconvenient but can also damage the miner and the other appliances on the circuit due to the sudden loss of power. Whenever possible, distribute the power draw to as many unique circuits as possible.

In addition to these basic requirements for operation, here are some additional tips for keeping the miner running as efficiently as possible.

  • Log in to your mining pool profile periodically and check the performance history of your worker(s). This will alert you to any potential efficiency issues (intermittent overheating, reduced network bandwidth, improper miner setup, etc.) that can result in lost profits.
  • Most miners have the capability of adding auxiliary mining pools; this is a back-up in case the first pool goes offline or is unreachable. The miner will automatically switch to the second pool and continue mining. Configure as many pools as possible to ensure the mining up-time.
  • Actively research the most profitable pools or services (see Types of Mining for more information) while mining. By switching to the most profitable pool or service, you can secure the highest available profits.
  • Check whether the pool or service you are using has a mobile application developed for your cell phone. Some mobile applications can be configured to automatically alert you if there is a problem with one of your workers.

Types of Mining

This guide walked through the basic steps of setting up the miner for pool mining. Pool mining is the style of mining were multiple miners owned by different people are grouped together and treated as a single miner by the network. With more miners, these pools grow in terms of overall hash-rate, giving the pool a greater and greater chance for finding a block and receiving the award from the network. From there, the reward is split and divvied out to all participating workers based on the percentage of their contribution. The effect of this is that pool mining results in smaller rewards more consistently than solo mining, since any miner finding the block rewards all of the miners in the pool. This approach is typically evaluated to be more profitable with less risk than solo mining.

Solo mining with an ASIC requires significant setup time; essentially, a pool must be created where the only the workers are those added by a single individual (or organization of people acting as an individual solo miner). This style of mining means that any blocks found by the solo mining pool will be retained entirely by the owner, but is not recommended as the payouts will be significantly less consistent. In addition, as the network difficulty increases, unless the solo miner adds more workers to the pool, the probability of finding blocks will decrease over time.

Selling hash power can be profitable as well. This style of mining essentially leases out your workers to a third party who (theoretically) provides more consistent payments (in frequency and value), but relinquishes the owner’s claim to any rewards for blocks the workers may find or pool payouts that the workers earn. Still, this may be more profitable as people who rent hash power tend to pay more to avoid the inconvenience of purchasing and setting up miners themselves.

Conclusion

Mining crypto currencies using Proof of Work is a race against time, thermodynamics, and every other miner on the network. Specific advantages in hash rate, efficiency, and timing can lead to significantly increased profits, all while adding to the security and decentralization of the crypto currency network. There are numerous variables to consider when setting up a mining operation, but by purchasing the most efficient hardware, starting the operation as quickly as possible, and performing good upkeep on the miners as they do their work, considerable profits can be realized.

Proof of Work mining has evolved significantly since the early days of crypto currencies, and promises to continue evolving as the race for block rewards becomes ever more competitive.

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