Mining

First, you can mine coins. I won’t go into explicit detail, but mining is basically using your own computing resources (called a rig) to attempt to solve a complex algorithm which helps to verify and approve any transactions with that particular currency.

Here is the description of Bitcoin mining from https://en.bitcoin.it/wiki/Mining:

Mining is the process of adding transaction records to Bitcoin's public ledger of past transactions. This ledger of past transactions is called the block chain as it is a chain of blocks. The block chain serves to confirm transactions to the rest of the network as having taken place. Bitcoin nodes use the block chain to distinguish legitimate Bitcoin transactions from attempts to re-spend coins that have already been spent elsewhere.

Mining is intentionally designed to be resource-intensive and difficult so that the number of blocks found each day by miners remains steady. Individual blocks must contain a proof of work to be considered valid. This proof of work is verified by other Bitcoin nodes each time they receive a block. Bitcoin uses the hashcash proof-of-work function.

The primary purpose of mining is to allow Bitcoin nodes to reach a secure, tamper-resistant consensus. Mining is also the mechanism used to introduce Bitcoins into the system: Miners are paid any transaction fees as well as a "subsidy" of newly created coins. This both serves the purpose of disseminating new coins in a decentralized manner as well as motivating people to provide security for the system.

Bitcoin mining is so called because it resembles the mining of other commodities: it requires exertion and it slowly makes new currency available at a rate that resembles the rate at which commodities like gold are mined from the ground.

If you keep reading on that page, you’ll see the different ways that you can mine Bitcoins. The problem today is that in order to mine them profitably, you need very powerful and expensive hardware (see ASIC mining) that can cost five figures. Most of us don’t have the kind of cash or technical know-how to set that up.

The next most popular cryptocoin to mine is Litecoin. Right now one Litecoin (LTC) is going for around $21. These are much easier to mine. While typical mining rigs use CPU power to mine, you are limited to usually just the one CPU in a typical computer. That’s why recently people have been switching to GPUs to mine.

GPU (graphics processing unit) is the CPU of a graphics card. What GPU miners do is focus all of their processing power to the GPU because they can install multiple graphics cards on one motherboard so that they can mine much faster. And the more computing power you have, the better chance you have of solving the algorithm.

I was actually going to get into GPU mining, trying to mine Litecoin, by building my own LTC mining rig. The problem I ran into was that the graphic cards themselves are very hard to come by. And even if they are available, they are ridiculously expensive.

I don’t think that mining is the cause of the video card scarcity (people do love their computer games and high-end graphics you know), but due to the recent popularity of mining with GPUs, it’s now much harder to even find the right hardware.

The cost to build a LTC mining rig isn’t terrible. I was pricing one out by buying each piece individually (the motherboard, CPU, memory, graphic cards, etc.) and it came to around $1200. Not too bad really for a moderately high-end computer. I could always use it to play the latest PC games or sell it to someone who wants to.

And since I could not get the best graphics cards (I think the ones I priced were still around $350 each), my hash rate (a measure of how much power I’m using to compute) wasn’t top of the line. At my proposed hash rate and power consumption, I think that I could have made about $20 per day mining Litecoins.
That might seem awesome at first, but that $20 depends on a lot of things, especially the price of Litecoin. If it drops or crashes, then that $20 could go down to $10 or even $5. Best case scenario would be about 2.5 months to get my investment back, then the rest is profit.

But that’s a lot of work, and you have to be somewhat of a techie to get it all setup correctly. Plus, you really have to join a mining pool so that you are joining forces with other miners. I could write an entire book on mining and pools and GPUs and ASIC mining.