Crypto Mining: What is it?
Many users, visiting such resources as Binance, Kucoin , BitTeam, WallBTC, Coinbase and others to purchase a BTC or other coin, do not even think about what mining is. And this is a program in which a machine performs calculations to get some cryptocurrency. This is one of the ways in which new Bitcoins get into the network, although it is also a complex segment of the maintenance and development of the blockchain registry. This also includes validating data blocks and adding transaction records to the block chain.
Crypto mining can also be called a process in which you receive cryptocurrency as a reward for completed tasks. You get cryptocurrency by solving cryptographic equations using computers. This task is performed by very complex computers that can solve even the most complex computational mathematical problems.
Crypto mining involves a lot of hard work and leads to a slow accumulation of resources, similar to mining.
Cryptocurrency mining methods
Everyone can become a miner, but mining is not for everyone. Miners are rewarded for their work with new cryptocurrencies. We are talking about achieving even greater financial freedom without the intervention of the government or banks.
Many people are wondering: how does Bitcoin mining work? There are several ways to mine cryptocurrency; let’s look at some of them:
- Cloud mining: this is the most well-known method of mining cryptocurrencies, as it is quite simple and convenient. In cloud mining, you will have to pay someone a specific amount of money, and rent their mining machine.
This rent that you pay is calculated for a certain period. After that, all the profit that the installation brings is transferred to your cryptocurrency wallet, but electricity and maintenance costs are deducted from this amount. Organizations that provide cloud mining services have huge mining enterprises with numerous farms and know well how to mine cryptocurrency.
The main reason why this method has become so popular is that it gives you the opportunity to enter the world of cryptocurrencies, even if you do not have enough funds to buy cars.
The nice thing is that there are two options in cloud mining: free and paid. Many people choose the free version, but it has many disadvantages, such as low mining speed, additional conditions and much more.
The cloud mining process looks something like this: first, you will need to find a cloud mining host on the internet, view the various plans they offer, and choose one according to your requirements. After choosing a plan, you need to pay the host, complete the transaction and register your wallet code for cryptocurrency. The price of the plan is usually from $500 to $5,000, and the service life starts from two years to life.
But there is also a sad side: many cloud mining resources are either fraudulent or simply unprofitable.
- CPU Mining: This process is different from cloud mining, since it uses processors for mining cryptocurrency. Initially, this method was used by many people, but now its use has declined, because its process is quite slow, since it can take months to generate even a small income.
There are cases when people do not get a profit from this, or they get very little, because they spend a lot of money on paying electricity and cooling bills. The reason why people still practice this method is that anyone who has a desktop computer can do it.
CPU Mining Process: you should have a desktop and several programs. It is recommended not to use laptops for this, as they can overheat in just a couple of hours. Beginners usually choose this process, as it is simple and can be performed without any help.
- GPU mining: Usually all modern computers have a CPU and GPU. As the central processor is the brain of the computer, so the GPU is considered the muscle for mining. Currently, mining on the GPU has become one of the most well-known methods. Usually, all cloud miners have started using GPU installations for their services.
People are most inclined to this method, because it is very effective and relatively economical. The installation for mining on the GPU is convenient, since it has a hashing speed and a total workforce. GPU installations use graphics cards for mining cryptocurrencies.
Many things are used to make a standard installation, for example, the motherboard, processor, installation frame, cooling and graphics cards. The price of a well-built GPU is usually around $3,000. This may seem promising, but it will not pay off very quickly.
- ASIC Mining: ASIC stands for specialized integrated circuits. These are devices specially designed to perform one task – cryptocurrency mining. They have become quite popular because they produce a huge amount of cryptocurrency compared to other methods.
There is a lot of controversy about ASIC, because when its new version was announced, people demanded to ban these machines, because they are very powerful and can simply rob miners using the CPU or GPU.
And so, these were just some of the methods of cryptocurrency mining. Now let us understand in detail the process of mining cryptocurrencies, so that it will be easier for you to understand it.
How does cryptocurrency mining work
Here is a step-by-step guide to let you know the cryptocurrency process:
- The nodes check whether the transactions are legitimate.
The cryptocurrency blockchain is built on the basis of transactions. But to complete the transaction, it is necessary that it passes the verification process.
- Individual transactions are combined with a list of other transactions to create a block.
The second step is to put all transactions in the list added to the unconfirmed data block. The best side of this data is that it can neither be manipulated nor changed. In fact, he keeps a permanent public record.
- A hash and other data are attached to the unconfirmed block.
After adding adequate transactions to the block, some more information is added, such as header data and hash from the previous block in the chain, as well as a new block. After that, the header of the most recent block and the one-time number are combined to create a new hash.
Now this hash will be added to the unconfirmed block to get the approval of the miner node.
- Miners check the hash code of the block to make sure that it is authentic.
This step is crucial, since miners on the network verify the integrity of an unconfirmed block by checking the hash.
- After checking the block, it is published in the block chain.
Now the proof of work is complete. This is a time-consuming method of solving the hash and telling others that you did it properly so that they can check it.
Which cryptocurrency should I mine?
The choice of equipment will mainly depend on the cryptocurrency mining that you decide to do. Currently, the most popular among users are Bitcoin, Dash, Monero and Ethereum.
The fact is that there are thousands of different cryptocurrencies. According to Coinmarketrate.com as of August 2021, there are 11,370 cryptocurrencies, and the global cryptocurrency market was estimated at $ 2.156 trillion.
Remember that Bitcoin mining is the most difficult of all, since all miners are trying to get some BTC. This means that you will have to wait a lot to get at least a small part of the coin.
This is why it is recommended to bet on Ethereum or other relatively less popular currencies. In addition, the cryptocurrency that you mine will depend on your budget, return on investment and the method you choose.
Therefore, you need to understand and analyze what suits you best, and then make a choice in favor of it.
Is it worth mining cryptocurrency?
Independently engaged in mining is not as difficult as you think. If you have a desktop computer with a modern graphics processor, then you can easily do it yourself. Although it is not so easy to engage in mining through ASIC and is not suitable for everyone. However, there are several alternative ways:
1) Proof-of-Stake: If you are investing in Ethereum 2.0, you will not need expensive mining equipment. There is a method of mining-staking, an example of which is SpaceBot. To implement it, it is enough to have a minimum number of coins or tokens of the PoS algorithm for entry and a wallet that supports staking.
2) Mining power rental: NiceHash is one of the largest mining pools in the world. They provide you with a service for renting mining power produced by machines in countries with low energy costs. Thus, using this method, you will be able to mine without going into technical details.
3) Investing in the industry: Well, this will become possible when companies like Bitmain, Antiminer, NiceHash, etc. go public.
Cryptocurrency mining has many advantages, but at the same time there are also many risks that it is important to analyze before entering it. There are usually two types of risks associated with mining: financial and regulatory. There were many people who spent thousands of dollars to buy mining equipment, but did not receive a profit from their investments. As already mentioned, the reason for this is fraud and unprofitability.
To reduce the risk or increase the profit, it is always recommended to join mining pools. The next important point is that you should always read the rules and conditions of your country regarding cryptocurrency, and only then invest in it. If this is considered illegal in your country, then you should find another method.
The next thing that most affects the growth of mining of mining equipment is the increase in the energy used by the computer when performing mining algorithms. Although the efficiency of the microchip for ASIC chips has increased significantly, the growth of the network is outpacing the technological process.
Because of this, there are concerns about the environmental impact and the carbon footprint of Bitcoin mining. Nevertheless, efforts are being made to reduce this negative external impact by searching for environmentally friendly sources for crypt mining. Another great alternative is to switch to a less energy – intensive mechanism – PoS.
Like any other industry, mining is a new and insufficiently developed sphere, subject to great uncertainty. But with uncertainty comes the potential for huge growth. Just be careful.