At its peak, crypto mining was an arms race, driving demand for graphics processing units (GPUs). Indeed, Advanced Micro Devices, a GPU manufacturer, reported impressive financial results as stock demand skyrocketed and shares traded at their highest level in a decade.
Despite the increased demand for GPUs, the crypto mining gold rush was short-lived, as the difficulty of mining top cryptocurrencies such as Bitcoin increased at the same rate.
Mining cryptocurrencies, on the other hand, can still be profitable. So, what exactly is cryptocurrency mining, and how do you get started? First, we will show you how to get started.
What is a Blockchain?
Blockchain is a method of storing data that makes it difficult or impossible to change, hack, or cheat the system.
A blockchain is essentially a digital ledger of transactions replicated and distributed across the blockchain’s entire network of computer systems. Each block in the chain contains several transactions, and whenever a new transaction occurs, every participant’s transaction record is added to the ledger. Distributed Ledger Technology is a decentralized database managed by multiple participants (DLT).
Blockchain is a distributed ledger technology in which transactions are recorded with an immutable cryptographic signature known as a hash.
This means that if one block in a chain were changed, it would be evident that it had been tampered with. To corrupt a blockchain system, hackers would have to change every block in the chain across all of its distributed versions.
Blockchains such as Bitcoin and Ethereum are constantly growing as blocks are added to the chain, significantly increasing the ledger’s security.
What is a Crypto Hash?
As previously stated, you must find the hash to complete a block’s worth of transactions.
A hash appears as follows:
00000000000000000004b79b7874718f022311e5194547644b119d30220ca18f
Every block is assigned a different hash. Regardless of the transaction data, it is always a 64-digit code made up of numbers and letters. Any change to a single transaction will result in a different hash. Transactions are thus tamper-proof once recorded.
Furthermore, the hash of each block is related to the hash of the block before it. This contributes to the blockchain’s immutability.
Because any attempt to change anything in a single block changes the hashes of all subsequent blocks, any attempt to change anything in a single block will eventually result in a fork: a different blockchain, beginning at that exact point of change.
Depending on the length of the chain, it may necessitate massive computing power. Unfortunately, this process is so time-consuming (and costly) that it may become pointless.
Not all forks are the result of bad actors. Some are also system-generated forks that can be considered upgrades. For example, the Paris (The Merge) on Ethereum was created by design. It happened at 06:42:42 AM +UTC on September 15, 2022, from block number 15537394. The history of all forks on the Ethereum blockchain can be found here.
Cryptography is the solid process of securing blockchain transactions with hashes.
What is Crypto Mining?
Most people think of cryptocurrency mining as a method of creating new coins. However, mining also entails validating cryptocurrency transactions on a blockchain network and adding them to a distributed ledger. Most importantly, crypto mining prevents digital currency from being spent twice on a distributed network.
When a holder spends cryptocurrency, the digital ledger must be updated by debiting one account and crediting the other. The difficulty with digital currency is that digital platforms are easily manipulated. As a result, the distributed ledger of Bitcoin allows only verified miners to update transactions on the digital catalog. This places additional responsibility on miners to protect the network from double-spending.
Meanwhile, new coins are created to reward miners for their contributions to network security. Because distributed ledgers lack centralized authority, the mining process is critical for transaction validation. Miners are thus incentivized to secure the network by participating in transaction validation, increasing their chances of winning newly minted coins.
A proof-of-work (PoW) consensus protocol has been implemented to ensure that only verified crypto miners can mine and validate transactions. PoW also protects the network from outside attacks.
Proof-of-Work
Mining for cryptocurrency is similar to mining for precious metals. However, while precious metal miners find gold, silver, or diamonds, cryptocurrency miners cause new coins to enter circulation. Miners must deploy machines that solve complex mathematical equations in the form of cryptographic hashes to be rewarded with new coins. A hash is a shortened digital signature of a piece of data. To secure data transferred over a public network, hashes are generated. Miners compete against one another to find a hash value generated by a crypto coin transaction, and the first miner to crack the code gets to add the block to the ledger and collect the reward.
Each block uses a hash function to refer to the previous block, forming an unbroken chain of blocks that leads back to the first block. As a result, network peers can quickly verify whether specific blocks are valid and whether the miners who validated each block correctly solved the hash to receive the reward.
The difficulty of equations on the network increases over time as miners deploy more advanced machines to solve PoW. Simultaneously, competition among miners grows, increasing the scarcity of cryptocurrency.
How to Start Mining Cryptocurrencies
Mining cryptocurrencies necessitates using computers with specialized software designed to solve complex cryptographic mathematical equations. In the early days of the technology, cryptocurrencies such as Bitcoin could be mined using a simple CPU chip on a home computer. However, CPU chips have become impractical for mining most cryptocurrencies over the years due to increasing difficulty levels.
Mining cryptocurrencies today necessitates using a specialized GPU or an application-specific integrated circuit (ASIC) miner. Furthermore, the GPUs in the mining rig must always be connected to a reliable internet connection. Every crypto miner must also join an online crypto mining pool.
Different Types of Crypto Mining
Different methods of cryptocurrency mining require varying amounts of time. For example, in the early days of the technology’s evolution, CPU mining was the preferred method for most miners. However, many people today believe CPU mining is too slow and impractical because it takes months to earn even a tiny profit, given the high electrical and cooling costs and increased difficulty across the board.
GPU mining is yet another way to mine cryptocurrencies. It maximizes computational power by combining several GPUs into a single mining rig. A motherboard and cooling system are required for GPU mining rigs.
Cloud mining is becoming more popular as GPU and ASIC costs rise. In addition, individual miners can use cloud mining to tap into the power of large corporations and dedicated crypto-mining facilities.
Individual cryptocurrency miners can find free and paid cloud mining hosts online and rent a mining rig for a set period. This is the most hands-off method of mining cryptocurrencies.
Mining Pools
Mining pools enable miners to pool their computational resources to improve their chances of discovering and mining blocks on a blockchain. If a mining pool succeeds, the reward is distributed proportionally to the amount of resources contributed by each miner to the pool.
Most crypto mining applications include a mining pool; however, crypto enthusiasts can now collaborate online to form their own mining pools. Furthermore, miners can switch pools whenever they want because some pools earn more rewards than others.
Miners consider official crypto mining pools more reliable because they receive frequent upgrades and regular technical support from their host companies. CryptoCompare is the best place to find mining pools because it allows miners to compare different mining pools based on their reliability, profitability, and the coin they want to mine.
Is mining crypto worth it?
Several factors influence whether crypto mining is profitable. Whether a prospective miner chooses a CPU, GPU, ASIC miner, or cloud mining, the hash rate, electric power consumption, and overall costs are the most critical factors. In general, crypto-mining machines consume a lot of electricity and produce a lot of heat.
For example, the average ASIC miner will consume approximately 72 terawatts of power to generate a bitcoin in about ten minutes. But, of course, these figures constantly change as technology advances and mining difficulty rises.
Even though the machine’s price is important, it is also vital to consider electricity consumption, local electricity costs, and cooling costs, especially with GPU and ASIC mining rigs.
It is also necessary to consider the difficulty level of the cryptocurrency that a person wishes to mine to determine whether the operation will be profitable.
Conclusion
Curiosity and a strong desire to learn are required for aspiring cryptocurrency miners. As new technologies emerge, the crypto mining space is constantly changing. As a result, professional miners who receive the highest rewards continually study the environment and optimize their mining strategies to improve their performance.
On the other hand, climate change activists have grown increasingly concerned as more and more fossil fuels are burned to power the mining process.
Such concerns have prompted cryptocurrency communities such as Ethereum to consider shifting away from PoW frameworks, and toward more sustainable protocols such as proof-of-stake.
