A Beginner’s Guide to Bitcoin and Cryptocurrency Mining
When Bitcoin launched in 2009, technological and financial experts wanted to see how a digital currency can function. Satoshi Nakamoto, the currency and blockchain creator, introduced proof of work algorithms designed to mine and increase coin circulation. Many blockchains that launched afterward used crypto mining to release new coins.
Crypto mining is primarily the process of gaining new cryptocurrencies by participating in block validation. It mainly involves solving computational puzzles, adding new transaction records to the blockchain, and creating new coins.
Mining leverages an algorithm called proof of work, a cryptographic algorithm where the validator must put computational effort. But how does POW in mining work?
How Does Mining Work?
As aforementioned, mining is the use of proof of work algorithms to release new blocks. The statement bears that to complete the validation of a transaction and release a new block with new coins, the participant has to put in a lot of effort.
However, proof of work is a very complex process, in that you cannot complete the process just by the use of the hand and the human brain. It requires a super-powered computer with high resource access to be able to complete those computations.
Recently, miners have continuously improved their machinery to speed up mining, but it has become quite clear that mining requires larger machines. The machines operate in an integrative manner to ensure the release of blocks.
Check out the following steps of what happens in mining;
- The blockchain nodes take the first task of verifying the transaction, origin, and details to ensure they are legitimate.
- After verifying the single transaction, it’s added into a list of many transactions to create a block of data. Adding the transaction to the block and later the blockchain reduces the double-spending risks since now the blockchain has a full, permanent and immutable record of transactions.
- After the block is full with the number of transactions required, more information, including the preceding block’s hash and the new block’s hash, are added to the block.
- Miners now have to verify the block hash, which is often a tricky phrase that is hard to understand.
- Finally, once the miners validate the block hash, the new block is published in the blockchain, and the proof of work consensus comes to an end. The process is continuous since, with every transaction, the guides are the same.
Methods of Mining
Cloud mining is the easiest way of mining without having supernormal machines. Primarily, cloud mining involves renting the mining power(rig) from a company for a stipulated period.
The companies offering renting services often have super large facilities with some of the best equipment. It’s the easiest way of earning mining rewards without having to invest fortunes to install your rigs.
Among the most common cloud mining sites include;
- IQ Mining
- Genesis Mining
- Crypto universe
CPU mining is the slowest kind of mining, and many people today don’t use it since investors could go for months without getting their revenues. Additionally, it’s expensive to maintain since it uses enormous amounts of time and electricity to operate and cool.
However, this slow method can still be deployed today as anyone with a computer can mine.
GPU mining is the most common cryptocurrency mining method since it involves making your mining rigs. Although the making of solo rigs is costly, the hassle bears results since GPU mining rigs are often fast.
The platforms use graphic cards in mining cryptocurrency, and a standard rig must have a processor, cooling, motherboard, frame, and between 2 and 8 graphic cards.
ASIC is an acronym for Application-Specific Integrated Circuits, which are tools designed for performing a single crypto mining task. They are incredibly productive tools, and as such, it’s every crypto enthusiast’s dream.
Benefits and Drawbacks of Crypto mining
One benefit of the whole crypto mining process is earning cryptocurrencies as rewards. When compared to buying crypto, mining has relevance since users can avoid supernormal trading fees.
However, mining itself carries a lot of problems. Foremost is the humongous consumption of electricity and resources. Mining processes often consume vast amounts of electricity.
Another mining risk is the 51% attack, where extensive mining platforms control more than 51% of the mining process. Having such control means they can control and manipulate the blocks for individual gains.
Crypto mining is the process of participating in solving complex computations to release new blocks. The process often involves consuming enormous amounts of electricity and high powered machines, i.e., computers. There are several types or methods of mining cryptocurrency, including cloud mining, CPU mining, GPU mining, and ASCI.
Cloud mining is relatively cheap since you do not need to have your rig; instead, you rent from companies with extensive facilities and agree from their profit-sharing method. ASCI is the fastest for solo mining investors, and it’s relatively quicker than CPU and GPU mining.
The primary purpose of cryptocurrency mining is to release new coins and use them to pay the miner. However, it would help if you were ready for the risks like colossal power consumption and the 51% attack that may affect the entire ecosystem. For investors interested in mining cryptocurrency, one needs to find the right hardware or the right online platform to maximize profits and enjoy the benefits.