What is crypto mining?
Mining a cryptocurrency is the process of randomly guessing the password of a block on the network and when this task is completed, a reward is being given to the miner. Each time a miner succeeds in unlocking yet another block, they prove that a lot of work has been done for this result to have been achieved, so with the consent of all the other miners on the network, they are incentivized with a certain amount of cryptocurrency coins. All cryptocurrencies that use the proof of work consensus mechanism have to be “mined”, in order for transactions to be verified on the native blockchain. It is called a “consensus” because it indicates that all the miners competing to unlock a block, have the same records, which have been continuously verified by each miner. Thanks to the mining process the distributed ledger is constantly updated, so that every participant has access to the same information on the database.
As the most popular cryptocurrency Bitcoin, too, uses the proof of work consensus mechanism, which means that it has integrated a working model, which helps the network operate based on the contributions of all participants and mainly thanks to their work bitcoin transactions are being validated.
How does crypto mining work
The goal of every crypto mining rig is to solve a mathematical problem, which would help mine a block. After the right calculation has been done, a new block is added to the blockchain and the miner responsible for this act receives a reward in the form of cryptocurrency coins and also determines which of the pending transactions will be verified. This new block is being attached to the other already mined blocks along with its solution. That way every computer that validates your solution can update its copy of the blockchain ledger.
Which cryptocurrencies can be mined?
Since Bitcoin was the first cryptocurrency that could be mined, it is still one of the most sought after crypto assets. However, its mining profitability may vary and people, who are just starting out in this field must work hard enough to reach their mining goals.
There are plenty of cryptocurrencies which use the proof of work model and therefore can be mined. Bare in mind that each crypto coin has its advantages and disadvanatges, so all hopeful miners should explore their options until they settle on the cryptocurrency, which they find more profitable.
Here are some of the most profitable cryptocurrencies, which are mined:
- Litecoin – a well-established cryptocurrency, which remains preferred and used by many because it’s less prone to volatility. Can be mined with an ASIC chip or a GPU.
- Monero – the crypto coins don’t have a limited supply and a block is unlocked on average every two minutes.
- Zcash – unlike other crypto coins Zcash is easier to mine and you don’t have to invest in convoluted hardware sets, all you can do is use a reliable GPU.
- Bitcoin Gold – requires minimal investments and can be mined mainly with a GPU.
- RavenCoin – it was established with the goal of making the transfer of crypto assets easier and is perfect for beginner miners because even less powerful GPUs can do a great job at mining this cryptocurrency.
How do I start mining Bitcoin?
- First, make sure that you’re well informed about the way bitcoin mining works.
- You need at least one decent GPU to start mining and be profitable
- If you want to join a mining pool, then you have to opt for a mining pool account which will make you a part of the community
- Secure Internet connection is a must – 2 Mbps at least.
- In case you decide to build a rig make sure to provide a cool, air-conditioned space for the hardware set.
- In case you decide to start Solo mining you need a suitable wallet to store your crypto
- Consider using a crypto mining platform – they are super easy to set and you can start mining within minutes!
Types of cryptocurrency mining
Figuring out the password of a block is very time and – effort consuming due to the difficulty of the block’s solution and the amount of energy the mining rig requires, in order to function effectively. Finding the right mining hardware is the main significant investment a potential Bitcoin miner could make, however the cost of the electrical power in the long run should be taken into closer consideration, too. Choosing the optimal set of mining software and gear will determine how efficient the act of mining will be. Although the ways of mining cryptocurrency have improved tremendously, it can still be tricky for beginner crypto miners to find their way up and become an integral part of the crypto mining network.
At the very beginning Bitcoin mining was done using the CPU or the Central Processing Unit of the computer. Because there weren’t that many Bitcoin miners, the difficulty of mining Bitcoin was also low. That’s why the working process of the CPU was enough for mining this cryptocurrency. However, it is no longer as effective as it used to be due to the ever growing interest in crypto and the greater amount of participants on the network. CPU mining is not preferred by miners nowadays.
The Graphic Processing Unit (GPU) is the graphic card of the computer, which is responsible for the proper display of pixels on the screen. GPUs are designed to solve mathematical problems and therefore complete the task of delivering the optimal graphic visuals. This component is also eligible for mining cryptocurrencies because of its great calculating performance. When matched with a suitable mining software, a GPU can do some pretty satisfactory mining tasks. Mining with a single GPU is perfect for beginners, who are not yet ready to invest in an entire set of new mining rig gear and just want to test how does the mining work in general.
The Application specific integrated circuit (ASIC) is a special type of a circuit board which is meant to solve specific blockchain problems. It is designed to carry out a certain hash function, which makes it more efficient and fast at mining the cryptocurrency of the miner’s choice. And although this circuit board may seem like the best choice for those who expect secure profits, it has its downside – it uses a lot of power.
Different ways to mine crypto
After you have decided which type of mining hardware you will use, there is yet one more decision a noob miner has to make – Do I do it on my own or do I join forces with a greater community?
The solo mining practice is very much self-explanatory – individual miners prefer to mine on their own, rather than in a pool. A solo miner has a node (a computer which is connected to the blockchain network) of his own, that is connected to all components of his mining rig. Although this way it may be harder to mine more popular cryptocurrencies like Bitcoin, some enthusiasts still attempt to try their luck even with less computing power.
Mining pools are essentially groups of miners who come together and unite their computing power, in order to have a greater chance of competing with all the other miners and consequently mine more blocks. In these circumstances the reward is shared between the members of the pools and the amount of crypto coins you receive is determined by the mining power you have contributed in the process. What makes the work of a mining pool so effective is that on the blockchain they act as a solo miner because only one node is connected to it, but exploit the computing power of all its members and therefore secures faster and better mining results. The biggest advantage of using a mining pool is that it is super easy to set up and start mining – it takes minutes to create an account, download their app and hit the start button.
With the improvement and implementation of the cloud technologies in many professional spheres, some crypto mining enthusiasts have not missed out on the opportunity of exploiting the core of this technology for mining purposes. Cloud mining may sound too good to be true because you don’t have to purchase and install any special mining hardware. The wannabe miner simply rents computing power from a cloud-based service and you receive a reward depending on how much mining power you have. Shamining and GMINERS are some of the most used cloud mining platforms.
Is crypto mining worth it?
In order to figure out whether crypto mining deserves a try, you should answer the following questions:
- Can I devote enough time for a detailed research?
- Am I prepared to invest in any type of mining hardware?
- Do I have a cool and dry place for the mining rigs?
- Considering the price of electricity will I be satisfied with the profits? We encourage you to use a crypto mining profit calculator for this purpose.
- Crypto market is still volatile – am I ready to cope with that?
- Is crypto mining legal in the country I currently live in?
After you have given a candid answer to all of the listed questions and have done some more research on this topic, you should be able to decide if crypto mining is worth jumping into.
Mining crypto is a great way to not only have a passive stream of income, but to dive deep into a new digital community, which allows people of all backgrounds to have an even chance of participating in a decentralized ecosystem, which provides all parties with helpful financial services. Therefore there is no doubt that everyone, who has interest in mining crypto, should give it a try – it is a learning process which will help you define the endless possiblities the crypto world has to offer.
As for whether mining is legal or not, for the most part there is a worldwide acceptance and even adoption for cryptocurrency mining and use, and it is safe to say that the crypto market is expanding all the time due to the great interest more people gain in it. Even if you don’t succeed to make mining your number one professional priority and main income source, you can still invest and trade in crypto, which will, too, help you put your best foot forward in the crypto world.
*This article lays out basic information regarding the subject of crypto mining; it is not intended for commercial or academic uses.
Zornitsa is the Editor-in-chief at Coinlabz. She is involved in researching the impact of blockchain technology and the way crypto is transforming peoples’ perceptions of finances.