After the price gains that Dogecoin (DOGE) has seen over the past year, the cryptocurrency has drawn interest from traders, investors and those who want to mine it. Mining DOGE requires less computing power than some other cryptocurrencies, like Bitcoin.
Here’s what you need to know about mining Dogecoin.
Related: What is Bitcoin cloud mining?
Basics of Crypto Mining
Here’s a quick, simplified rundown on crypto basics and how the mining process works:
- Blockchain networks are the highways on which cryptocurrencies travel.
- A blockchain is a type of distributed ledger technology (DLT).
- The computers, called “nodes,” maintain the blockchain network.
- Some nodes, called “miners,” can add new blocks of transactions to the network.
- Miners solve complex mathematical problems to process transactions and achieve consensus on the network, ensuring everyone agrees on the validity of transactions.
Mining crypto is like mining for gold in that the process requires time, equipment and energy. But unlike gold mining, computers do all the work in crypto mining.
A Brief History of Dogecoin
Dogecoin began in 2014 as a joke. Developers Billy Marcus and Jackson Palmer launched Dogecoin as a fun way for people to learn about cryptocurrency. Based on a famous meme of a Shiba Inu dog with grammatically incorrect phrases surrounding it like “much style,” “very fashion” or simply “wow,” DOGE had almost no real value for several years. The meme coin traded at a price of a tiny fraction of a penny so people could send it to each other for fun while learning how to use crypto wallets.
In 2018, the altcoin reached more than $0.01 as cryptocurrency began to go mainstream for the first time. The price of DOGE then crashed and stagnated for several years. Then, in 2021, Dogecoin reached record highs, around $0.70, before crashing down to about $0.24 at the time of writing.
DOGE is currently the No. 10 largest cryptocurrency by market cap. You don’t have to mine Dogecoin to acquire it. You could also purchase it on an exchange, or use a Dogecoin faucet.
What is Dogecoin Mining?
Mining Dogecoin involves running powerful computers known as nodes that process transactions for the network. In exchange for this work, miners receive block rewards of newly minted DOGE.
A new block of transactions is mined approximately every minute on the Dogecoin network. The block reward is 10,000 DOGE, or about $2,000 currently. Unlike Bitcoin, which releases fewer coins over time, there is no limit on how many Dogecoin miners can ultimately find.
How to Start Mining Dogecoin
There are several things you’ll want to consider before you begin mining Dogecoin.
Requirements Before You Get Started
The requirements before getting started include:
- Basic personal computer knowledge
- Familiarity with cryptocurrency wallets
- A reliable source of electricity
- A desktop or laptop computer with Windows, Mac OSx, or Linux
- A DOGE wallet
Running mining software can take a lot of CPU power, so the computer being used for the job probably won’t be much good for anything else while the miners are up and running.
Both the miners and the computer running them will need to be plugged in almost 24/7 for maximum profits. Miners can also generate substantial amounts of heat. This is something worth keeping in mind, as you may need additional fans or other cooling equipment.
Solo vs Pool: Dogecoin Mining
Miners will need to decide whether they want to mine solo or with a pool. The benefit of mining solo is that 100% of the block reward will go directly to you. But it could be weeks or months before you find a block because there is so much competition.
Most miners choose to join a mining pool. Pool miners receive rewards in proportion to the amount of hashing power they contribute. However, they also have to pay a small fee in exchange for using the pool. Those who are new to mining might find using a pool to be the best option.
Dogecoin Mining Hardware
While it could be possible to mine DOGE with your computer’s CPU, it could damage the device due to overheating and might not be very profitable. Instead, you might consider either a GPU (graphic processing unit) or a Scrypt ASICs (application-specific integrated circuits), which is a device specifically created to mine cryptocurrency.
The prices of these types of hardware vary, but a low-end GPU might cost around $400. Scrypt ASICs, which are used to mine Scrypt-based coins like Litecoin and Dogecoin, can cost anywhere from $700 to $17,000 or more.
A single desktop or laptop computer can run numerous mining machines.
Dogecoin Mining Software
Once you’ve chosen a mining pool and obtained the necessary hardware, the final step in mining Dogecoin is setting up the appropriate software. Make sure the mining software is compatible with the mining hardware you’ve chosen.
Once you’ve connected your hardware to the computer that will run the software, you connect the pool with your crypto wallet, where it will deposit your Dogecoins. The pool owners and software developers have instructions for that on their websites.
Some mining software options include programs like CudaMiner, CGMiner or EasyMiner. CudaMiner is only for GPUs, while CGMiner and EasyMiner work with either GPUs or ASICs.
Dogecoin Cloud Mining
If you opt to mine through the cloud, you won’t need physical hardware or software. This mining option simply involves buying a contract for a certain amount of hashing power over a certain amount of time. In essence, you’re renting computing power from someone else.
Be careful, though. There have been many cloud mining scams over the years.
Is Dogecoin Mining Worth It?
Mining Dogecoin may or may not be worth it depending on several factors.
The most important variable in any mining profitability equation is the cost of electricity. Having access to low-cost electricity can make mining much more profitable. Renewable energy sources like solar and hydroelectric are popular among miners for this reason.
If figuring out how to mine Dogecoin, acquiring the needed hardware, and accessing affordable electricity don’t seem like difficult hurdles to conquer, then Dogecoin mining could be worth it.
The other big factor is, of course, the price of DOGE in relation to a miner’s local fiat currency or in relation to Bitcoin (when Bitcoin goes up or down, many altcoins tend to follow).
Dogecoin mining could also be an interesting way to learn about cryptocurrency mining in general. Using smaller miners that don’t take much electricity, you might choose to mine some DOGE for the learning experience. This is commonly referred to as “hobby mining.” Hobby mining generally isn’t profitable unless the coin being mined happens to see a huge price spike at just the right time.
How to Sell Your Mined Dogecoin
Unless you’re planning to HODL your Dogecoin, you’ll likely want to sell your DOGE after you’ve mined it. Selling DOGE requires using a crypto exchange. You can choose from a number of centralized or decentralized exchanges.
After getting set up on an exchange, find the public key address (also known as a deposit address) for your DOGE wallet. This is the address you will need to send the mined Dogecoins to in order to sell them.
Once the coins have arrived on the exchange, you can trade them for the currency of your choice. That could be U.S. dollars, a stablecoin like USDC or Bitcoin, for example.
The Takeaway
You don’t have to be a tech genius to mine Dogecoin. But having some previous experience with computers and crypto will be an advantage. The process also requires a substantial investment required in terms of time and money to get started.
Learn More:
This article
originally appeared on SoFi.com and was
syndicated by MediaFeed.org.
SoFi Invest
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC. SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal. Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA, the SEC, and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.
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Crypto taxes 2021: How to pay taxes on cryptocurrency
Over the past decade, cryptocurrency has slowly but surely become one of the hottest investments on the market. While many people were initially skeptical of crypto’s staying power and appeal, the rise of cryptos like Bitcoin has caught the attention of an increasing number of investors. But the IRS is also homing in on crypto taxes—and it’s important that investors know the basics regarding how to file and how to pay taxes on cryptocurrency.
Unfortunately, the IRS doesn’t exactly make it easy to understand how to calculate crypto investors’ tax liability, so a lot of the responsibility to get it right lands on the individual investor.
Of the 6 things to know before investing in crypto, the fact that crypto is taxed is right up there on the list. Read on to learn all you need to know about crypto taxes, including how to file and pay taxes on cryptocurrency.
Related: Guide to taxes and cryptocurrency
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There are many rules and regulations governing crypto, but the most basic thing to understand is that crypto investors are required to report their holdings and gains to the IRS when they file their taxes.
The IRS views cryptocurrencies (which it refers to as “virtual currencies”) as property. Not currency. And because of that, Uncle Sam wants to know what you’re holding, and many crypto holders will have tax liabilities . PDF Fileassociated with their holdings.
As they would with any other property they might own, crypto holders who purchased crypto like a stock or other asset will need to keep track of their crypto transactions. They’ll also need to report the value of their holdings (in U.S. dollars) on their tax filings.
One caveat: cryptocurrency received as a gift or a transaction, or that is mined, is instead treated as income by the IRS, and taxed accordingly.
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In many ways, investing in cryptocurrencies like Bitcoin is similar to investing in other assets, like stocks or bonds. Likewise, taxes are determined in similar ways.
For instance, when an investor buys and later sells a stock, they have a tax liability on their realized gains. They made money, or income, from the sale, and now owe taxes against that income. It’s a similar situation when it comes to tax on cryptocurrency.
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Here are some situations in which crypto investors will generate a tax liability on their holdings:
- Cryptocurrency is sold for cash: If you made a profit, that’s a capital gain. Depending on how long you held the crypto before selling, it would either be a short-term or long-term capital gain.
- Cryptocurrency is used to purchase a good or service: Technically, here you are selling your crypto for dollars, then using the dollars to pay for a good or service. In the selling, capital gains taxes may apply.
- Converting one cryptocurrency to another (exchanging cryptos): Converting or exchanging one crypto for another is selling the one to purchase the other. As a result, you may have to pay tax on the sale of the first crypto.
- Being paid by an employer in cryptocurrency: Even if you get paid in crypto, it will get taxed as income.
- Mining cryptocurrency: Proceeds from mining are typically taxed as income. It’s also possible for some miners to be taxed as a business.
- Crypto is acquired via an “airdrop” or “hard fork”: In the event of a hard fork that results in new coins, those new coins are taxed as income.
Make no mistake about it, if a return is generated—positive or negative—or some type of income is realized from holdings, your crypto will need to be reported to the IRS. This is why it’s important to keep track of any and all crypto transactions.
Many crypto exchanges will keep track of an investor’s transaction history (like a brokerage would with stocks). But it’s not a bad idea to make individual notes, too. Or, if you’re not quite sure what to do, consult a professional.
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When it comes to filing and paying taxes on cryptocurrency, here are the steps that should be taken.
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Reference the list of above to check if any of your transactions may have generated a tax liability. If so, it’s likely you’ll have a return to report to the IRS.
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These will need to be reported on your tax return (your exchange can likely provide these in a document for you.) This is a paper trail for the IRS to follow.
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The IRS requires specific forms depending on the activity an individual has conducted with their crypto. That could include making calculations on Form 8949 and then reporting the results on Schedule D of Form 1040 , which outlines and summarizes capital gains or losses. Or, Form 1099-MISC , which is used to report income from rewards if the amount exceeds $600 for the year.
If you do owe taxes as a result of your crypto investing activity, you can pay the IRS directly. But since crypto taxes can be complicated, don’t be shy about reaching out to a professional for help.
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When it comes to lowering your crypto tax liability, many of the same strategies that are used against traditional investments, like stocks, apply to crypto holdings. Here are a few examples:
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The buy-and-hold strategy is simple: The longer an investor holds on to their crypto, the lower their potential tax bill when they do eventually exchange it for cash. If it was held for a year or longer, then long-term capital gains tax rates apply On the other hand, if the investor sells their crypto after holding it for less than a year, then short-term rates apply
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If a loss is realized on a crypto holding, it can be used to offset the gains made on other holdings. This is called “tax-loss harvesting,” and is a common tactic used to lower tax liabilities on other investments. Investors can use tax-loss harvesting to offset as much as $3,000 in non-investment income.
One thing to keep in mind, though, is that if crypto is somehow stolen or lost, investors are out of luck. They won’t be able to apply the loss against their gains to lower their liability.
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The IRS classifies crypto as property, and property donations are tax-deductible and not subject to capital gains taxes.
Here’s how this might work in an investor’s favor: If an investor bought a Bitcoin for $10,000 and it now has a value of $35,000, they would owe capital gains taxes on that $25,000 gain. By donating it, they can avoid those capital gains taxes and also take a deduction “generally equal to the fair market value of the virtual currency at the time of the donation if you have held the virtual currency for more than one year,” according to the IRS.
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Depending on the circumstances, crypto may be taxed as income, or as property.
Cryptocurrency taxes are very real, as are the consequences of ignoring tax liabilities. There are stiff penalties for people who are caught avoiding or otherwise failing to report investment income.
But by keeping track of your crypto holdings and transactions, managing your cryptocurrency tax liabilities shouldn’t be too difficult. As always, you can and should contact a professional if you feel like you’re in over your head.
Learn more:
This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.
SoFi Invest
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal. Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB . PDF File, have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
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