The altcoin explosion… and how to profit from it

AltcoinsIf you’re following the cryptocurrency mining scene at all, you’ve probably noticed that there are digital currencies other than Bitcoin and Litecoin. Quite a few of them, actually. Bytecoin, Terracoin, PPCoin, Feathercoin, Freicoin, Novacoin… the list goes on and on, and it seems like there is a new addition weekly.

The sad reality is that virtually all of these coins bring nothing significant to the table when compared to Bitcoin. The Bitcoin code is open-source, which means that anyone with a few hours of time on their hands can make some minor adjustments and fork off a brand new virtual currency that is nearly identical to the original in everything but name.

But why would somebody make a near-clone of Bitcoin? Why would anyone use a knock-off currency when they could just use bitcoins instead? Read on for some answers about altcoins, and how you can profit from them as a miner.

(If you’re just interested in the “profit” part of this article, skip to it here.)

Why are there so many altcoins?

So what’s driving the development of clone after clone of Bitcoin? The answer is greed, more or less.

Nearly everyone is familiar with the meteoric rise in value of bitcoins, and the stories of bitcoin millionaires that were created when the hoards of digital coins they created or purchased for fractions of a penny were suddenly worth over $100. However, jumping on the bitcoin bandwagon now is quite a different story than it was four years ago. The barrier to profitable mining gets higher every day, and the current high price of bitcoins makes buying them directly prohibitive as well.

But what if you could simply “reset” Bitcoin? Make it 2009 again, when mining hundreds of coins a day on a modest computer, or purchasing huge sums for a pittance were both possible. That’s what the people creating these altcoins are trying to achieve. They’re hoping that their new coin takes off like Bitcoin did, giving them the opportunity to amass a future-fortune’s worth of them now, when it’s still easy.

Well, some of the altcoin developers probably hope that happens. Others are simply executing classic “pump and dump” scams with their newly-minted coins. Create a new coin, mine a massive hoard of them, do some clever “marketing” to make it look like the next big thing, then sell the coins when the price spikes.

But surely people don’t keep buying into these new coins, over and over?

It seems absurd, doesn’t it?

But one look at the alternative cryptocurrencies sub-forum over at bitcointalk.org should demonstrate to you that there are seemingly always people willing to buy brand-new digital currencies. Why? I can only assume that these people don’t want to miss out, “just in case” the new coin really does become the Next Big ThingTM.

The result is that with the release of most new altcoins, there is a flurry of activity at release while people scramble to get their hands on as much of the new currency as possible, either via mining or paying for large sums directly with bitcoins. Many times, the price of the new coin rises to levels that the more economically-oriented among us might consider insane.

And that is where you come in.

Ok, I get it—but how do I profit from all of this?

If you’ve read my mining guide, then you know that I recommend mining litecoins. And if you just want to keep things simple, that is still your best bet.

But if you’re interested in managing your mining operation a bit more closely, then there are potentially large profits to be made by mining other altcoins in the short-term, when conditions are right. For example, this past weekend, mining CHNCoins (a new coin released about a week ago) was over 800% more profitable than mining litecoins. Don’t want a bunch of CHNCoins? Neither do I. So trade them for bitcoins on an exchange as you mine them. One of the rigs from my guide would have effectively produced nearly 1.5 bitcoins a day using this method, a feat that would take about two weeks while mining bitcoins directly!

You’re probably wondering how to spot these opportunities. It’s easy. There are a couple of excellent online resources that do most of the work for you. My favorite one is CoinChoose. CoinChoose is a real-time cryptocurrency profitability monitor, and it’ll continuously rank the various altcoins according to which one will make you the most money at this instant. At the time of this writing CHNCoin is still on top, about 30% ahead of litecoin at #2 (a far cry from the situation this past weekend, but a lot of miners switched to the new coin, shooting the difficulty up and lowering profitability down to saner levels).

If you see that an altcoin has a profitability lead over litecoin that is compelling enough for you to make the switch, you’ll need to modify your cgminer script. This is pretty simple, too. If the altcoin is a scrypt-based currency (check the “algo” column in CoinChoose), then all you need to do is point cgminer at a new mining pool (sign up for a new pool for the altcoin you’re interested in first). You’ll probably want to keep your usual litecoin pool as a failover. If it’s a SHA-256 -based coin, then you’ll need to remove the “–scrypt” switch from your cgminer startup script in addition to changing the mining pool.

So now you’re mining a bunch of god-know-what altcoin that you don’t actually want. Solve that problem by signing up at Vircurex or one of the other cryptocurrency exchanges. Cashout from your new altcoin mining pool directly to your Vircurex address (so you don’t need to setup a wallet for the new coin). On Vircurex, trade your new coins for bitcoins (or litecoins), and then send them to your normal bitcoin/litecoin wallet.

It sounds like a lot of work, but once you have your exchange account(s) set up, and accounts at a few different mining pools, it doesn’t take more than a few minutes to switch over to a new currency. Make sure to save copies of any cgminer startup scripts that you create for new currencies so you can switch back to them later if necessary.

To summarize:

  • Check CoinChoose often.
  • If an altcoin is significantly more profitable than litecoin, switch your miner(s) over to it by signing up for a mining pool that deals with that particular altcoin and pointing cgminer at it.
  • Sign up for Vircurex, Bter.com, or another cryptocurrency exchange.
  • Cashout from the altcoin mining pool directly into Vircurex (you can generate addresses within the “accounts” section of Vircurex for this purpose).
  • Trade the altcoin for bitcoin (or litecoin, or whatever you want) on Vircurex.
  • Profit!

Just make sure to keep an eye on CoinChoose whenever you’re mining something that isn’t litecoin. The profitability of the smaller coins is extremely volatile, and usually good opportunities don’t last more than a few days.

And if you’re comfortable with a little bit of light scripting, you can automate the entire process of mining the most profitable currency and converting your gains into bitcoins by using CryptoSwitcher.

31 Responses to The altcoin explosion… and how to profit from it

  1. david g says:

    Another great post!

  2. Biggen says:

    Another great article! Wealth of information here.

    I hope in the the future you will have time explaining Pools and how to pick one. There are so many of them out there that it can be daunting selecting the good ones from the bad.

  3. aki says:

    Great article indeed! But I have a question:
    I go to http://www.coinchoose.com ahnd see that BBQCoin is the most profitable right now, BitBar is the second…
    I go to coinwarz.com/cryptocurrency and set Algo – Scrypt, Hashrate – 1700 kH/s, it shows that most profitable would be mining litecoins, BitBar is 6th, and BBQ isn’t even there.
    So which one should I trust more?
    Also, found this tool called CryptoSwitcher, you think it’s worth it jumping from one currency to another using this software?

    • CryptoBadger says:

      I hadn’t heard of coinwarz.com before – they don’t tell you where they’re getting their information from. Most likely, they’re limiting their price quotes to just one exchange per currency, which may or may not be the best price available. I like coinchoose.com because it looks at all of the major exchanges and automatically gives you the best price.

      Yup, I linked CryptoSwitcher at the bottom of the article. It’s a solid tool if you take the time to set it up properly. If you’re going to use it, you do have to keep an eye on prices and be pretty active about selling/trading when the exchange rate of your altcoins is favorable. Good luck!

      • aki says:

        would be great if you wrote a guide for cryptoswitcher. it seems like it’s a bit complicated on win7

        • Joe Cargo says:

          I would second that. I love this idea, especially since more profitable coins change quickly from one to another. If had several rigs i could see how doing this manually could be a real pain, but if there was an “instructional” on how to use this so that it was automated, that would be very helpful.

  4. FrodoBaggins says:

    Great website!!! :)

    OK… so I invested some of my hard earned money in hardware. I built the rig (using the info on this website) and have happily mined for a week, pulling about 1300 MH/sec (one of the 7950′s were bad so I’ll get to 1800 once the card is replaced)

    I now have about 15 lite coins. Wohoo…

    Now…

    Now I want to exchange the litecoins for real hard cash (to pay for my initial investment – it is way more fun playing with the bank’s money…)

    Now what? How do I get these $$’s back to my ‘real’ account so I can go buy another rig?

    Which exchange to use… What money transfer service??? (I’m not paying $150 for an international wire!)

    • CryptoBadger says:

      For litecoins, the easiest/cheapest way is to trade them for bitcoins on an exchange like Vircurex, and then from there, transfer your bitcoins to CampBX (until a couple days ago I would have recommended Mt. Gox, but they’re having some legal issues) and sell from for dollars. You can then transfer the dollars into Dwolla from CampBX, and from there send them to your bank account.

      It’s a lot of steps, but once you have everything set up, it doesn’t take long. Hopefully we’ll see some sites that support LTC to USD trades and Dwolla transfers in the near future, so we don’t have to deal with multiple sites.

      • Joe Cargo says:

        Or Coinbase. You could transfer your bitcoins there, and then have them deposited into a checking account. But you have to set it up first.

  5. PascalTurbo says:

    Great article.

    But I got some problems with switching: When using a stratum-based pool with the config from your tutorial everything went great. But when switching to a long poll pool (obviously most of the small coins only address longpoll) cgminer crashes immediately.

    • CryptoBadger says:

      Do you get an error when it crashes? If the window is closing too quickly for you to see what it is, trying putting “pause” (without the quotes) as the last line in your startup batch file.

  6. whitey says:

    most of these new coins can be solo-mined-having trouble finding the right flags on cgminer to mine them solo…

  7. Benny says:

    Great post CB. I’ve been looking at pools lately with regards to the popular coins on coinchoose, and am definitely considering coin hopping, but I have a question. A lot of the pools are PPLNS pools, and it is my understanding that they do not favorably reward jumping in and out. How profitable is switching coins say at most every hour or so under a PPLNS scheme? It seems to me you could really miss out, especially with automated switching such as cryptoswitcher. Please pardon my noob ignorance here, and I know I will learn a lot in actual practice, but I was wondering if anyone with experience with this could chime in as I am not finding much in my research of this issue.

    • CryptoBadger says:

      You are correct – one of the stated goals with the PPLNS payout scheme is to punish pool-hoppers. Since there is a short “ramp up” time before you start effectively earning your full share on PPLNS pools, you’ll likely lose out by trying to move around between multiple pools.

      If you want to mine multiple altcoins and you have a rig with multiple GPUs, another option is to mine a different coin with each GPU.

  8. Chris.Ryan says:

    Hey CryptoBadger,

    With all those PPLNS pools, what do you think about solo mining…
    up to how much difficult (according to coinchoose)is it worth to mine solo one of these new coins?

    And pardon another noob here, but how would I set up cgminer for solo mining?

    Thank you

  9. Julian says:

    What are thing to look for when choosing a pool? And is which cases would p2p mining be preferable? As far a I understand p2p is better when you have, for example, a 2600 KH/s mining rig. Is this true of would it still be better to join a large pool like litecoinpool.org or something like coinhuntr

  10. sam says:

    Here’s a question for you.. why would you even need to join a pool in the first place for some of these altcoins?
    coinchoose shows many of the alts that have good profitability as having 20-40 mh/s of total network power.. (meaning not many are mining them) wouldn’t you stand just as good a chance finding blocks solo mining on some of these alts?

  11. Bubblingfluff says:

    1.5 bitcoins a day

    That’s about $1500/day at today’s prices.
    Is that an incorrect number?

    Or did you mean 1.5 Litecoins per day?

  12. amilayajr says:

    Thanks for the informative facts again. However I do have a question, what is the way to exchange these crypto/digital coins for real cash? Is there a way of doing this. I heard you can go for VirWox but often gets nailed for humongous fees and very slow as if non working money transfer when you do sell/exchange the coins. What do you say about this?

    • FrodoBaggins says:

      https://coinbase.com/

      Very easy site. They do $$$ BitCoins. Just link up a bank account and you can transfer money in and out of BTC.

      Just trade your altcoins to BTC and from BTC to $$$. Takes about 2 business days.

      Cheers!

      • lax says:

        Does Coinbase handle international transfers as well for those of us outside the US?

        Are payouts able to paypal accounts or credit card accounts as well (if at all)?

        Regards

  13. Svetlin says:

    But, on both Cryptsy and Vircurex it says “DO NOT use Vircurex addresses for mining purposes.”. So we can’t really auto-transfer and convert funds as mentioned in the article?

    • Benny says:

      I think they mean solo mining or p2p mining directly to the deposit address. Typically what I do is mine at a pool and hold the coins there until I am ready to cash out (or set up auto cash out). This is simply transferring from the pool to the exchange (one address to another)… and not mining directly to the deposit address the exchange gives you. If you were to solo mine or p2p mine, you should be mining to your own wallet for that coin, and from there you would transfer to the exchange. Someone please correct me if I am wrong.

      In any case I can understand your confusion. I have been doing it this way for some time now though and it works. (Once in a while coins get “lost” during transfer though and need to be found by the exchange, so be ready for that…)

  14. Please donate Bitcoin. Be a nice person, no matter how small or big, in the name of the Lord Jesus Christ. BTC:

  15. Marcus Aurelius says:

    Can somebody teach me how to clone an altcoin?

    I got completely stuck on this tutorial

    https://andarazoroflove.org/how-to-create-alt-coin-scrypt-clones-for-fun-and-profit-bitcoin-litecoin-secrets-exposed/

    Please help if you can or make a video tutorial.
    Anyone who is willing to help will receive .05% of all profits made within the first year.

    Thanks,
    Marcus Aurelius

  16. [...] you’ve built your own mining rig, you’ve mastered the art of trading for profit on the cryptocurrency exchanges, but you haven’t given much thought to securing your digital fortune against theft and accidental [...]

  17. Ryan says:

    For anyone who is dealing with several altcoins, http://www.coinsmanager.com is a great tool to manage multi-currency portfolio!!!

  18. Armando says:

    Hi, i’ve to start mining altcoins X11 or X13 algorithm, the graphic card that i would start are 4 sapphire R9 280X (they have need 230 watt to one) with seasonic power supply, 4GB ram and a cheap sempron processor. By that I understood from October to Gennuary-Febbruary the price of cryptocurrency improve as happened for bitcoin litecoin…..
    I want mine the debutting X11 or X13 altcoins, and trade them for bitcoins

    12000 Mh/s X11
    9333 Mh/s X13

    It’s a good starting? I’ll gain money? Naturaly I want make new GPU rigs later

  19. Green.Druid says:

    I have been watching the all the mining activity, with various altcoin over the 8 months and now I am ready to pull the trigger on a mining rig and step into the fray. It seems like new coins are popping up everywhere and there associated website touts there’s the next Bitcoin.

    One coin that is very new and caught my attention is Execoin. There claim to fame is that their system is ASIC proof, giving the GPU miners a shot. They also have stores accepting the currency. The stores I did check did in fact, but they also accepted a boat load of other cryptocoin, some I never heard of.

    The difficulty is around 50 and I am going to keep an eye on it.

  20. SBENTER says:

    It also seemed to open one of altcoin exchange.

    In fact, it can be said that the current best bittrex altcoin exchange.
    If they close the door to many altcoin exchange was on the start up only
    Boyeojulji really expect any appearance of CCnex where ever is going to be interested in marketing.
    These are the first teaser site now seems that you are driving.
    If you register as an e-mail to share Open Event giving up the lottery 10btc.

    I should do that only 5000 people in a hurry to go …

    They are very impressive from the start that it would launch a teaser site
    And it seems to have seen the teaser photo exchange sites are very beautiful.

    I wrote a nerve with a lot of design ever since entering the eye symbol.

    Most places do not care about the design have to be well prepared.

    contact us also look for articles about and got aspirations.

    If you ought to use all means open. What they do open the exchange?

    Teaser Site ADD – http://www.ccnex.com

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