Cryptocurrency mining: what you need to know about digital coin mining
In the familiar world of paper money and centralized banking systems, currency is issued by government agencies that also control the circulation of these funds. But how, then, is the mining of a cryptocurrency, which does not have a single issuing center, regulators, or even material equivalents?
This small material will help you understand the principles of mining electronic coins and where the cryptocurrency comes from.
What is cryptocurrency mining
So what exactly is digital money mining? This is, in the literal sense, the process of their extraction, which occurs by automatically solving voluminous mathematical problems with powerful computing systems. The essence of the problem, by solving which it is possible to "unpack" a new block with coins, is reduced to the selection of a special mathematical expression. It consists of 64 characters and is called a hash.
For finding the right solution to the problem, the system pays the miners a reward in the form of a certain number of cryptocurrency coins. However, only those who were able to find a solution first receive it. This mining mechanism works under the Proof-of-Work protocol (literally - proof of work). It is based on the mining of bitcoins and other coins on its blockchain.
There are other types of mining protocols such as Proof-of-Stake and Delegated-Proof-of-Stake. They do not require the use of high-power computing systems, but instead, the miners must have a certain amount of already mined money in their account. In particular, Ether, Ripple, Stellar and many other cryptocurrencies are being mined using the Proof-of-Stake protocol.
Equipment and services for mining
Here we look at the types of hardware and software for mining both at home and at an industrial level. First of all, this concerns cryptocurrency mining using the Proof-of-Work protocol, since it is chronologically the first and most widespread today.
It should be borne in mind that the operation of powerful computers and mining farms is a very energy-consuming process. An example of this is the history of Bitcoin mining. Until 2015, many enthusiasts mined it at home. However, with the arrival of the mining giants on the market, uniting thousands of computing devices, individuals could no longer compete with them both in terms of power and energy resources.
However, today it is possible to mine many digital coins other than BTC. For this, the following types of technical solutions are used.
A homemade or purchased mining farm is perhaps the most popular cryptocurrency mining equipment. They consist of interconnected video cards connected to a computer. Why do farms use video cards? The fact is that the central processors of computers are effective in solving a wide range of tasks, while the graphic ones do an excellent job with monotonous and similar solutions in large volumes.
Farms are still used by crypto enthusiasts to mine low hash coins. These devices usually consist of a medium-sized computer with 4 or more graphics processing units (GPUs) connected to it. The heart of the installation is video cards for mining, which create the necessary power of the farm. They must be provided with an efficient cooling system, and the farm itself needs an uninterrupted internet connection.
An alternative method of mining that does not require equipment costs is to rent a remote server for mining coins. Such a mining service is statistically more profitable than buying a farm. Cloud mining can be controlled both from a computer and from a smartphone or tablet.
However, it must be borne in mind that connection to the service is paid, and for good capacities you will probably have to pay extra at a separate tariff. In addition, if the cloud mining subscription expired and the miner did not manage to withdraw the mined coins, then you can say goodbye to them.
In fact, this is mining that uses the power of devices in which browsers a certain site is open. Here it is immediately worth making a reservation about the legality of this process. Sometimes such resources can be used by computers and smartphones of site visitors without their consent. There are viruses that pull user resources completely unnoticed, so you should be very careful with web mining.
However, this mining method can be used legally, notifying visitors to your site that their resources are involved in the mining of digital money. However, the profitability of this process is rather low.
Investment attractiveness of mining
Is it worth investing in cryptocurrency mining? In general, the profitability of this method of making money on cryptocurrency is proportional to the invested funds. Large mining pools have almost completely “squeezed” small private companies out of the market environment. But this mainly concerns the mining of well-known coins with a relatively high capitalization.
A small mining farm is quite capable of mining such coins as Ethereum Classic, Haven and some other coins today. True, when calculating the profitability of mining, it is worth considering the associated costs of electricity, the maintenance of premises for farms and an uninterrupted connection to the Internet.
Mining is one of the most important processes that ensure the prospects and popularity of cryptocurrency. It technically allows digital money to scale in crypto markets on the one hand, and maintain its privacy on the other. Cryptocurrency mining is an elegant technical solution that has fundamentally changed the concept of value formation in the modern economy.