Minefield: An Introduction to Cryptocurrency Mining
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Minefield: An Introduction to Cryptocurrency Mining
Anyone who decides to dive into blockchain and crypto is sure to encounter the concept of mining. We're launching a series of publications to help you understand this topic. Let's start with the basics.
Cryptocurrency mining explained
Mining is the making of coin units for circulation. In addition, during mining verification, validation of transactions and adding them to the blockchain is conducting.
A miner is a unit on the crypto network that gathers and processing all these transactions.
Mining Pool is a consolidation of miners' capacities to share it to the crypto network.
For now, the five largest crypto pools provide more than half of the capacity.
What types of mining are available
The mining type depends on the consensus algorithm i.e. the rules for writing blockchain actual blocks. The two best-known algorithms are Proof-of-Work and Proof-of-Stake. They are used in the Bitcoin and Ethereum networks, and the Dash and Stellar, for example.
As of this writing, there are 30+ Consensus Algorithms.
What kind of cryptocurrency mining hardware is needed?
In the early days of Bitcoin, even regular computers could be used to mine it. Nowadays, crypto mining is most often done in dedicated hardware processing centers, known as mining farms. Often this is a well-cooled room with a certain number of ASIC (application-specific integrated circuit) devices.
In fact, more than 60% of the microchips produced are ASICs. They are used in MP3 players, phones, navigation systems, Wi-Fi, and Bluetooth devices.
Depending on the method, there are different types of blockchain mining:
- Mining on video cards
- CPU based mining - where it all started but is hardly used today.
- ASIC farms
- Online mining (or web mining) - via a browser. Not profitable.
- Hidden mining - using other people's resources, e.g. by having employees start mining on corporate servers or by introducing the mining code into viruses and trojans.
- Cryptocurrency cloud mining - renting remote mining facilities.
- Mining on your smartphone. Of course, the profitability is tiny, but the battery wear and overheating of the device is ensured.
- News from April 2021 - Chia Coin will start using SSD and HDD for mining cryptocurrency
Cryptocurrency mining software
It depends on the hardware, video card, and operating system.
- Windows: Bitcoin Miner, CGMiner.
- Linux: CGMiner, BFGMiner, EasyMiner.
- OS X: RPC Miner, MultiMiner
Among Ethereum miners, GMiner, T-Rex, Ethminer are often recommended.
Is crypto mining profitable?
The cost-effectiveness of mining is based on:
- the price of the electric power
- hardware productivity
- ongoing complexity for the actual cryptocurrency
- the market rate of a coin/token in relation to other currencies.
For example, if at the very beginning of BTC's existence its mining used to be quite possible at home, today it requires very high computing power. Mining of other cryptos may be easier. But their price and prospects may not be as impressive.
The increase in the number of miners and the appearance of more powerful devices leads to an increase in the complexity of mining, which negatively affects profitability.
The most obvious options for increasing the profitability of cryptocurrency mining are to buy a more powerful ASIC miner and reduce electricity costs.
Mining profitability calculator
In the mining industry, one of the most popular services for calculating the current profitability of mining is WhatToMine. It shows the most profitable coins for mining, earnings, and electricity consumption
How to earn Bitcoins without mining?
The alternative ways to earn on crypto are to trade on crypto exchanges, to buy and sell on exchanges and through P2P. But it is important to understand the rules, to know the risks, to estimate the ups and downs of the prices, and to be able to detect fraudsters.
The legal regime for cryptocurrencies varies significantly from country to country. A number of countries officially allow transactions with cryptocurrencies. They are usually considered a commodity or an investment asset and are subject to the relevant legislation for tax purposes.
So, answering the question about is crypto and Bitcoin mining legal: be sure to research the relevant laws in your country to avoid complications.
As you can see, mining is actually the production of new units of crypto coins. Is mining crypto worth it? It can be either unprofitable or profitable. We will consider all the nuances in more detail in the following articles.