How to Mine Zcash: The Definitive Guide

There are hundreds of cryptocurrencies, with new ones entering the market each day. One such currency is Zcash, which launched in 2016 and quickly captured the market’s attention. The first morning of its launch, trading surged to $4,000 U.S. per coin — an un-preceded entry. But why all the hype?

Zcash CEO Zooko Wilcox-O’Hearn collaborated with leading cryptographers for over three years, conducting in-depth research and testing the viability of a new cryptocurrency that solved a major problem — one that is a sticking point for many users — privacy.

Most cryptocurrency transactions rely on the use of private keys, which are a string of letters and numbers that identify each user. Those addresses are attached to all transactions, which makes it possible to research users’ purchasing trends, and with enough forensic research, uncover their identities.

Zcash leverages a zero-knowledge proof concept that is known as “zk-SNARKs,” which allows users to exchange transactional information without giving up their personal identities. Zcash payments are published on the public blockchain, and users can decide to use an optional privacy feature that conceals the sender, recipient, and the amount of the transaction.

This is an exciting development for cryptocurrency users, and with Zcash generating so much attention, many want to learn more about mining but often struggle with getting started. Here is a quick guide.

Mining Basics: How Does It Work?

Zcash is a cryptocurrency that generates new coins through the mining process. Each time a block is added to the Zcash blockchain, a new ZEC is created. In fact, new blocks are created about every 2.5 minutes.

Zcash launched with a “slow-start mechanism,” which is different from many cryptocurrencies. The number of coins released into the system was much smaller in the early days of mining to mitigate the risk of the protocol having a major bug or security issue. If a problem was uncovered, the slow-start mechanism would reduce the impact. This approach impacted the first 20,000 blocks that were mined over the first month.

A “proof of work” algorithm is used, and Zcash uses the “Equihash” algorithm, which is not compatible with application-specific integrated circuit chips mining. This is a plus for new miners because cryptocurrencies that are compatible with ASIC mining make it difficult to mine using CPU or GPU hardware. The ASIC units are so powerful, it’s nearly impossible to compete with these expensive units and turn a decent profit.

Also, because the ASIC units aren’t currently used for Zcash cloud mining, you can get started relatively quickly and without a large upfront investment. Potential miners could use their existing CPUs, join a mining group, and start earning relatively soon. But let’s back up. What exactly do you need to get started mining Zcash?

Selecting the Right Hardware

Mining hardware directly affects potential mining profits, so it’s important to understand all your options. Zcash uses the Equihash algorithm, which relies on high RAM requirements, so miners can’t use the ASIC setup for mining the cryptocurrency. As a result, you have two options to consider — CPUs and GPUs. Let’s briefly discuss each.

CPU equipment. The benefit of mining Zcash is that you can use your existing CPU, which you can’t do with other options, such as Bitcoin. This is one of the main differences between Zcash and bitcoin. The equipment that miners use with Bitcoin is so powerful, it would be very unprofitable to even attempt CPU mining — but this isn’t the case with Zcash. If you’re purchasing a new CPU, make sure that it has adequate cooling because units can get very hot during mining.

GPU equipment. The benefit of GPU mining is that it’s faster and more efficient than CPU mining. But it’s also a more expensive investment. When looking to purchase this type of equipment, check the hashing power of the unit (which is directly tied to how much you’ll earn). Some miners decide to purchase a used setup, which is fine, but GPUs get hot and if the cooling isn’t working properly, it could quickly destroy your investment. As with the CPU units, ensure that all fans are working correctly upon receiving the equipment.

Purchasing an expensive “rig” that costs hundreds or even thousands of dollars isn’t necessary when mining Zcash. If you want to get started quickly, use your existing CPU and consider upgrading to a GPU later. If you’re more experienced with mining and want to maximize your profits from Zcash mining faster, you might consider purchasing a GPU right away. The potential to earn more exists with the GPU setup, but isn’t necessary if you simply want to get your feet wet, and get started mining.

The Mining Reward — How Much Can You Earn?

Miners want to receive a reward, and ideally, as quickly as possible. As a result, many wonder how much you can earn with Zcash. The Zcash monetary base is the same as bitcoin, which is a total amount of coins produced of 21 million ZEC units. However, 10 percent of that reward is distributed to the stakeholders in the Zcash company, which includes the founders, investors, advisors and employees. Zcash calls this the “Founders Reward”.

For the first four years of operation, 50 ZEC will be created every 10 minutes, and 80 percent of that newly created ZEC goes to the miners while 20 percent goes to the founders. Every four years, the rate of ZEC being created will halve, similar to Bitcoin.

So how much will you earn? Currently, the reward is set at 12.5 ZEC per block. However, each four-year period (or 840,000 blocks mined) that reward is cut in half. For example, in the year 2020 the reward is expected to drop to 6.25 and in the year 2024 the reward is forecasted to drop to 3.12 and so on (until the currency reaches its cap). This will make mining more difficult over time. As with most new cryptocurrencies, those who start mining early may have an advantage when it comes to earning rewards.

Determining Profitability

We discussed the Zcash reward, but let’s put things in perspective and explore the potential reward. How much can you earn mining?

The amount of your reward will depend on a variety of factors, including the equipment purchased, electricity cost in your area, and whether you belong to a mining pool or mine alone. But regardless, you can figure out your unique situation by using a profit calculator.

For example, this calculator allows you to input the hashing power, power consumption and cost per kW/h to determine your profit ratio per day and per month. Prior to purchasing equipment, you can use this type of calculator to determine whether the initial investment is worth the potential profit.

For example, you might already have a CPU, but determine that investing in a GPU allows you to significantly increase your profit potential. As a result, that upfront investment is worth the cost.

Setting Up a Zcash Wallet Address

Once you start earning ZEC coins, it’s critical to have a safe place to store your funds. This is basically a Zcash wallet address, and there are a few different options available, including:

• Internet wallets. Internet wallets have apps that you can download to your smartphone to view and manage your wallet. Here is a guide to help you compare before selecting an option.
• Hardware wallets. According to Zcash, a hardware wallet is the safest method for storing your Zcash. The drawback is that they currently support only Zcash transparent addresses, and those costs ranges from $40 to $99.
• Exchange wallets. The exchange wallets are among the easiest options to set up. You simply need to create an account with an exchange that supports Zcash. However, check out the security of the exchange when considering this option.

The decision of which wallet to select is key when storing your funds because with cryptocurrency, you’re essentially acting as your own bank. Yet, unlike a bank, your money isn’t backed with insurance and if the location where it’s stored gets hacked or the coins get stolen — you’re out of luck. Once they’re stolen, you can’t get the coins back. Check out all options and ensure that the wallet you select provides maximum security.

A Few Last Words

When bitcoin launched in 2009, there was no competition. If you wanted to mine, you mined bitcoin. But today things are much different, with so many options to choose from and dozens of cryptocurrencies that allow mining.

Many people assume that cryptocurrency is private and anonymous; however, this is only partially true. While it’s true that leading cryptocurrencies don’t display personal details, enough information is displayed that it may be possible to trace the owner of transactions with enough research.

Many users value privacy and, in the future, will be looking for options that are truly private. This provides a positive outlook for Zcash miners, who accumulate coins when the mining reward is still high, and hold and sell them when the value increases.