The most popular way to get cryptocurrencies is to buy them on the crypto exchange. However, did you know that you might as well mine cryptocurrencies on your computer? It is worth getting interested in the subject, even if you do not associate your future with the profession of a miner? What is this mining cryptocurrencies? In today’s lesson, we will answer these questions. So, get to work!
Cryptocurrency mining
Cryptocurrency mining is a process performed by miners. We can say that it is a way of creating new digital coins. Unfortunately, the whole process is not that simple.
So that the computer can “dig” cryptocurrency, it must solve a complicated maths puzzle and attach the dug block to the blockchain. In effect, it becomes one of the nodes in the cryptocurrency network and a full user of the network P2P.
For this undertaking, you need computers that are powerful enough – with a large processor and a huge computing power. That is why people who decide to become miners connect to their equipment, graphic cards or special devices. For some cryptocurrencies, you even need to install special software created by its creators (usually wallet cryptocurrencies) and then proceed mining.
Miners do not have an easy job. Take our word for it, mining cryptocurrencies is a very time-consuming job. The digital platforms they operate on can be easily manipulated. Therefore, newer and newer security measures are introduced, such as only verified miners can update transactions in the distributed ledger bitcoin.
It’s worth knowing that mining, it’s not just coin mining. There is no central authority in most cryptocurrencies, so miners are also responsible for the transaction approval process. What’s more, miners are encouraged to secure the network by participating in the validation process. They are then rewarded with newly minted coins.
Cryptocurrency mining – how does it work?
Miner uses his beefed-up computer to solve very complex maths puzzles/equations. You can say that it is a legitimate hacker and cracks complicated codes.
When the miner successfully solves the puzzle, he verifies the transaction and adds the data to the distributed ledger – the blockchain. For such actions, he receives a cryptocurrency as a reward.
Mining methods
There are several methods of mining cryptocurrencies. Let’s look at them briefly.
GPU. Maximizes computing power, by combining a set of GPUs in a dedicated asset mining platform. For this method to work, we must have a motherboard and a suitable cooling system. Moreover, with a GPU, a stable internet connection is required, not subject to interruption, and the miner himself must be a part of its mining pool.
ASIC. It’s definitely more expensive than a GPU, but can produce more crypto units. Computers ASIC are designed to be mined in specific cryptocurrencies and account for the majority of the mining capacity on most blockchains—computers ASIC mine cryptocurrencies, using a specific algorithm for a specific type of asset.
Cloud mining. With it, miners use the power of large corporations and dedicated facilities to mine cryptocurrencies. With this method, we have free and paid mining hosts to choose from. All in the online cloud. However, it is worth remembering that by mining coins using the cloud, we will not earn as much as we would like. In addition, we incur costs for the platform we use.
CPU. Often characterized as the slowest and least efficient way of mining cryptocurrencies. This is nothing but extraction by process, i.e. using a personal computer. Most of the standard CPUs we use daily don’t have enough computing power to mine digital currency. As a result, we can overheat our computer and expose ourselves to additional hardware purchase costs.
Who mines crypto?
People referred to as miners. As we mentioned, they solve a maths puzzle to add a new block to the blockchain. Typically, those of them who haven’t tweaked their hardware properly and don’t have a lot of computing power typically join the mining pool.
Of course, each of us has the opportunity of mining cryptocurrencies on your own, but the chances of you mining a block are negligible. The only plus is the prize, which in this case will be entirely yours.
Why do cryptocurrencies need to be mined?
The entire process is used to create new coins and validate existing transactions. Given its decentralized nature, blockchain, scammers might spend digital currency more than once. Thanks to miners, such a process is not possible. Mining reduces fraud, gives us coins, and increases user confidence.
Mining profitability
If you are interested in the whole process and want to profit from it, you need to know the ways that will maximize the efficiency of the whole process. Understand the factors that affect mining profitability.
- Currency. Choose the one you want to mine. Most miners focus on Bitcoin, however, you have other alternatives.
- Mine. And basically the cost of its construction. We mentioned earlier that for mining to be profitable, you need the right, often expensive, equipment to do so. Prices can knock you off your feet!
- Consider the degree of mining difficulties which grow over time. In 2009, it was possible to mine cryptocurrency bitcoin using a personal computer. Today, huge mines specially created for this problem have a problem with solving the puzzle.
- Power. Before deciding it, research its performance. How? Easy – divide your hash rate by power consumption.
- Electricity costs. Yes, you also need to consider electricity in the whole process. Especially since its price list is constantly increasing.
- Consider the time left until the block reward drops another 50%. I’m talking about, of course, paralysis.
- Variable prices of cryptocurrencies on the market.
If such counting is too difficult for you, you can use online profitability calculators for specific cryptocurrencies. The fact is that crypto mining can be a great way to make money. However, considering the above factors, we are unable to accurately calculate our potential earnings.
The pros and cons of crypto mining
The obvious advantage is earnings. On the other hand, Cryptocurrency mining costs a lot. The entire process is also extremely time-consuming, so you have to be patient. Of course, it may turn out that you are great at what you do, and you will get a block in no time. However, we know of few such cases.
The second significant disadvantage is the impact of mining cryptocurrencies on the environment. Bitcoin mining is said to consume around 91 tetra watt-hours of electricity. That’s more than the whole of Finland uses!
Summary
Being a miner, both in the crypto and real world, is a hard piece of bread. You already know the basics of the complete process. Even if you don’t see your future in mining, it’s good to know this technology and know where new coins come from.
Pssit! Fun fact: The topic is very closely related to mining, Selfish Mining. Have a look at our advanced level.