What Is Cryptocurrency Mining? How Can You Do It?
To mine cryptocurrency, computers have to solve complex mathematical equations to earn a reward of a ‘block’ that represents a token.
Are you interested in knowing what mining Bitcoin and other cryptocurrencies entail, and how you can acquire some crypto tokens without purchasing them from an exchange? In the first half of this year, crypto coins like Bitcoin, Ether, and Dogecoin saw their prices sky-rocket, causing many people to express interest in getting involved in the cryptocurrency ecosystem. In addition to buying and selling these tokens on exchanges, it’s also possible (though it may be time-consuming, like with Bitcoin today) to ‘mine’ these tokens by solving complex mathematical equations using your computer. You can earn tokens by mining.
To build cryptocurrencies such as Bitcoin, Ether, Dogecoin, and others, they utilize a technology known as Blockchain or the public ledger. This technology is protected by complex encryption techniques. In order to verify virtual currency transactions, solving complex mathematical puzzles is required when adding new coins to the ledger. This is then updated into the decentralized blockchain ledger. The miners receive cryptocurrency in exchange for their work. Using this process, new coins can enter circulation.
Most people think of crypto mining simply as a way of creating new coins. Crypto mining, however, also involves validating cryptocurrency transactions on a blockchain network and adding them to a distributed ledger. Most importantly, crypto mining prevents the double-spending of digital currencies on a distributed network.
The digital ledger must be updated every time an individual spends cryptocurrency, as it is debited from one account and credited to the other. Digital currency, however, poses a challenge since it is easy to manipulate digital platforms. A Bitcoin’s distributed ledger, therefore, allows transactions to be updated on the digital ledger only by verified miners. As a result, miners also have the responsibility of protecting the network from double-spending.
New coins are born in the meantime to reward miners for their efforts in maintaining the security of the network. The mining process is critical for validating transactions on distributed ledgers because they lack a centralized authority. Therefore, mining is incentivized by providing the network with security by ensuring transactions are validated and increasing the chances of winning newly minted coins.
To ensure that only verified crypto miners can mine and validate transactions, a proof-of-work (PoW) consensus protocol has been put into place. PoW also ensures the network is secured from any external attacks.
- Using mining, you can earn cryptocurrency from scratch without having to spend money on it.
- A bitcoin miner is rewarded with a bitcoin when they complete “blocks” of verified transactions.
- A participant is rewarded with crypto coins, i.e. bitcoins if he or she is the first to uncover a solution to a complex hashing puzzle, and the probability that that miner will find the solution depends on their percentage of total mining power on the network.
- Alternatively, ASICs (application-specific integrated circuits) or GPUs (graphics processing units) are needed for mining.
Many cryptocurrencies, including Bitcoin and Ethereum, use proof-of-work algorithms to secure their transactions. The majority of digital currencies have a central leader that keeps track of every user and the amount of money they own. Bitcoin, however, does not have such a leader in charge.
A proof of work is necessary to make online currency work without government or company involvement.
Furthermore, proof-of-work allows us to solve the dreaded “double-spending problem,” which is more difficult to overcome without a strong leader. The more coins users can double-spend, the greater the overall supply, causing the currency to become unpredictable and worthless.
Digital transactions are prone to double-spending because they are easily replicated, which is why it is so easy to copy and paste a file or send an email to more than one recipient.
With proof-of-work, doubling digital currency is nearly impossible. Essentially, it’s “proof” that someone has made an extensive amount of computations.
The purpose of mining pools is to combine miners’ computational power to increase the chance of finding and mining blocks on a blockchain. A mining pool gets rewarded according to how much each miner contributes to the pool if it succeeds.
Crypto enthusiasts are now joining together online to create their own mining pools in addition to the mining pools that are provided by most crypto mining applications. Mining pools differ in the rewards they offer, so miners are free to switch whenever they need to earn more rewards.
In addition to receiving frequent upgrades from their host companies, official crypto mining pools also provide regular technical support. CryptoCompare offers mining pools compared based on reliability, profitability, and the coin you wish to mine, allowing miners to select the most profitable pool.
Mining cryptocurrencies can be accomplished in several different ways. Here I will discuss the most important ones, starting with cloud mining.
#1 Cloud Mining
If you’re looking for the best cryptocurrency mining methods, cloud mining may be choice for you.
Cloud mining is a method of mining bitcoins that involves professionals (usually big corporations) providing you with a mining machine called a “rig” for a certain amount of money, and the mining process itself.
In exchange for renting the rig for an agreed-to-time period, you will receive all earnings (minus electricity and maintenance costs) in your cryptocurrency wallet.
Cloud mining companies (people that offer these services) typically have advanced mining facilities with multiple farms (tens or hundreds of rigs stacked and operated together) at their disposal and thoroughly understand how to mine cryptocurrency.
Mining on the cloud has become so popular because it provides the opportunity for people who do not have the money to purchase mining rigs or who may not be interested in owning one.
Currently, there is a free and a paid cloud mining option. The majority of people who are seeking ways to mine cryptocurrencies gravitate towards the “free” options, however, they do have drawbacks (very slow mining speeds, additional requirements, etc.). A typically paid cloud mining plan looks like this:
Your search for a cloud mining provider takes you online. You then look at the plans available through the host – usually, there are four or five of these plans, ranging from the most inexpensive to the most expensive; some hosts allow you to create and customize your cloud mining plan.
The idea is that once you know what you are going for, you try to execute the transaction (paying the intermediary), and register your cryptocurrency wallet code – and then you start mining cryptocurrency for the first time!
A variety of plans cost different sums of money and have different durations. A standard plan can cost between $500 and $5,000, and it could last for two years or even a lifetime.
It is usual to expect a break-even point around half a year into the business and profit from thereon. However, it is impossible to know for sure since cryptocurrencies have very volatile prices and tend to fluctuate quite a bit.
#2 CPU Mining
Cryptocurrencies mining with CPU mining involve use of processors. In the past, it was a viable way to mine cryptocurrency daily, but today it is becoming less and less popular.
It’s due to a couple of factors. The first thing to note is that CPU mining is incredibly slow. Months could pass without you noticing a single penny of revenue.
cryptocurrency mining with CPU is not worth it either — you make small amounts of money, but you spend ten times as much on electricity and cooling. You can mitigate the problem by finding a place that has nice air conditioning and low energy bills, but that is rarely the case.
What is even the point of CPU mining, then?
It’s mainly because it’s easily accessible from a desktop computer.
It only takes a computer and a couple of programs to be able to mine with the CPU method. Laptops are not recommended, as they will probably overheat and fry soon after.
Cryptocurrency mining is so easy to start that a new CPU miner is born every day. When people discover how to mine cryptocurrency, they don’t bother with the details – they just want to begin the process as soon as possible, and in any way, they can.
#3 GPU Mining
Cryptocurrency mining with GPUs is probably the most common and highly regarded method. A GPU mining rig is often one of the first things that you’ll see if you search for “cryptocurrency mining.”.
GPU rigs, for example, are used by cloud miners to process their data. In fact, they’re professionals who sometimes have hundreds if not thousands of rigs, so they obviously know their stuff, right?
The reason GPU mining is so popular is that it is both highly efficient and relatively inexpensive. While the GPU miner may be more expensive to build, it has a much better hash rate and a larger workforce.
A GPU mining rig uses graphics cards for cryptocurrency mining. Standard rigs consist of a processor, a motherboard, cooling, a rig frame, and a few graphic cards (2 – 8).
It is typical for a well-built and well-performing GPU mining rig to cost around $3000. This is a large investment, but it is much faster to recover than, say, a CPU miner. It is a good idea to check them out if you’re interested in mining cryptocurrency.
#4 ASIC Mining
An ASIC (Application-Specific Integrated Circuit) is a special piece of hardware that’s specifically designed to do one thing. This is what crypto mining requires.
ASICs are well-known and highly cherished compared to their competitors’ GPUs and CPUs because they produce enormous amounts of cryptocurrency.
How come I haven’t mentioned them sooner if they are so incredible?
The main reason is that they’ve been the subject of so much controversy.
There was a big uproar in the cryptocurrency community when the ASIC company announced its new version of the machine. People have demanded that these machines be outright banned. What’s the reason?
ASICS are so powerful, they render GPU and CPU miners uncompetitive as far as hash speeds and profits are concerned. In addition, ASICs have distorted the cryptocurrency economy – just imagine if all the earnings were given to one miner with an ASIC farm, what kind of chaos would follow.
Crypto miners should possess a strong sense of curiosity and continuous interest in learning. With the emergence of new technologies, the crypto mining space is constantly evolving. In order to improve their performance, professional miners constantly study the space, optimize their mining strategy, and study the space again and again.
Cryptocurrency mining if done correctly over a period of time, success is enevitable.