If you’re a beginner in the crypto space, you’ve probably heard of the word “mining” being used now and then. It’s one of the most technical things about the crypto industry, and it determines a great deal of what comes out of the space.
Mining is one of the many ways that people get cryptocurrencies. But, there are a lot of nuances to it. The process of mining can be very capital-intensive, and it doesn’t necessarily mean you will be able to get cryptocurrencies for life.
Introduction: What is Crypto Mining?
To put it in its simplest sense, cryptocurrency mining is the process through which a computer performs several tasks to get units of a cryptocurrency. Most people use the term to mean “Bitcoin mining,” but Bitcoin isn’t the only cryptocurrency out there. Most cryptocurrencies are mined, and the process is quite extensive.
To mine a cryptocurrency, your device will need to perform several tasks that the blockchain has set. These tasks are known as Proof of Work, and they are designed to create a level playing field for all miners. Most of these tasks are math equations. So, your mining device will need to solve these equations to move ahead.
As more people come to the blockchain to mine, the equations required for them to solve will become more challenging. This way, the mining landscape is more balanced, and people can compete. However, it also has a bit of a challenge - more people looking to mine will get high-performance computers, and they can essentially gain an unfair advantage. But, nothing’s perfect.
There are a lot of factors that play a role in how mining turns out. But, the general idea is that you will get a share of the benefits if your device contributes to the network, you will get money.
The Goal of Mining
For most miners, the goal is to make money. Everyone wants to mine and make their money, so they don’t have to keep running the costs.
But, the blockchain also benefits from mining activity. Miners validate and confirm transactions on the blockchain, contributing to its security and functionality. At the end of the day, transactions won’t go through without mining. You could choose to send money, but mining is the work that goes on in the back end to ensure that your transaction goes through.
Take Bitcoin, for example. When a transaction is sent, all of its details are recorded to the Bitcoin blockchain. Note that this is everything that concerns the transaction - its details, sender, and receiver. When enough transactions are recorded, you get a block. The miner’s job is to validate all transactions in a chosen block and move them to the Bitcoin blockchain.
Cryptocurrency mining has grown significantly over the years. Today, there are several methods to mine, including:
With CPU mining, you look to use your computer’s processors to mine cryptocurrency. CPU mining used to be a viable option back in the day, but it’s no longer profitable. It is extremely slow, and CPUs don’t have enough mining power.
In the time it will take you to make money from CPU mining, you would have spent so much on cooling and electricity already.
This is probably the most popular mining method. It uses Graphics Processing Units to mine, and it is more efficient than CPU mining. GPUs are pretty cheap, although constructing your rig can be costly.
A standard GPU rig is made of a processor, a cooling unit, a motherboard, a rig frame, and between 2 and 8 graphics cards. You can get a GPU for about $5,000 today.
If you’re looking to get into high-gear mining, you’ll need an Application-Specific Integrated Circuit (ASIC).
ASIC mining is popular for several reasons, including its efficiency. Compared to CPUs and GPUs, these devices work really well. But, they also consume an incredible amount of electricity, so, if you get an ASIC, your electricity tab will immediately jump higher.
You should also know that ASICs are now very expensive. They’re way more costly than GPU systems.
With all the competition on cryptocurrency blockchains today, it is almost impossible for an individual miner to join and get money. Big companies are opening mining farms and taking large chunks of cryptocurrency networks.
So, some small miners have hitched their rides with big mining companies. With cloud mining, you “rent out” space in a company’s mining farm. The company maintains the rig and even conducts the mining process. When your rig mines a coin, you get paid.
Cloud mining is especially popular because it allows people to participate in the mining process even if they don’t have enough money to buy a rig - or if they don’t have time to maintain one.
Mining pools are another consequence of the mining landscape being overrun by big companies. In a mining pool, small miners come together and pool their computing power together. This way, they stand a better chance of mining these assets and making money.
When money is eventually made, the pool splits it between everyone in proportion to how much power they contributed.
Mining pools are especially great for people who don’t want to spend so much money on mining rigs. You contribute what you can, and you earn from there.