A cryptocurrency is a form of Digital Currencies that makes use of cryptography for the safety of transactions and also to control the establishment of new units. These are decentralized networks of computers, working without central authority, in fact without intermediaries. Bitcoin is a cryptocurrency that was created in 2009 as a basic incentive in the form of a cryptocurrency, by the initials of its creator, Satoshi Nakamoto. Other than Bitcoin, no cryptocurrency has gained as much popularity as Bitcoin, and has been a green light to other projects and innovations in the field.
Bitcoin is not the only crypto that is out in the market though. With the emergence of Bitcoin, there have been thousands of the alternative cryptocurrencies, called altcoins. The concept of altcoins is to enhance on the perceived limitation or weakness of Bitcoin, for example, scalability, rate, value, privateness, functionality, and innovation. For example, some altcoins build on the same code as Bitcoin, with variations (or extras) added or change, while some choose to start from scratch building on a different protocol/platform.
Launched in 2015, Ethereum is one of the most popular and promoted altcoins, founded by Vitalik Buterin as well as co-founders. It’s not just a cryptocurrency, Ethereum is a blockchain based platform where developers can build and deploy decentralized applications (DApps) and smart contracts. Applications run on a peer to peer network without intermediary or central authorities, are called Dapps. A smart contract is a self executing agreement, encoded on the blockchain and triggered by pre defined conditions. Similar to the rest of Ledger’s offerings, Ethereum is powered by its own native cryptocurrency, known as ether (ETH), which is used to pay for DApps and smart contract computation on the network, as well as transaction fees.
What is cryptocurrency mining?
Mining cryptocurrency means verifying the transactions of transaction chains and adding the newest blocks in a proof of work (PoW) blockchain network known as Bitcoin or Ethereum. They are miners people or organisations using heavily powerful computer hardware to solve difficult mathematical equations in exchange for units of cryptocurrency. Here we have miners which compete against each other to solve equations, to add new block to the blockchain. New units of cryptocurrency are given away to the first miner who solves an equation, and adds the new block to the blockchain.
Part of being a cryptocurrency is being a miner, and that helps protect and reinforce the integrity of the whole ecosystem. It also means that people can enter the market, and in theory, make some money in participating as they will provide part of their computing power with the network. But it can also be expensive and require tedious time as there are significant investments into knowledge through mining hardware and electricity consumption. In order to have success, the mining devices need to be well setup and extra money can be invested to ensure the operation is running smoothly.
How does cryptocurrency mining work?
how crypto is mined will all depend on whether you are mining a certain type of cryptocurrency or utilizing a certain type of algorithm to achieve it. However, there are some common steps that most miners follow:
• Choose a cryptocurrency to mine: And when I say there are many factors to take into account when it comes to deciding what cryptocurrency to mine, I don’t mean to sound negative, I mean that there are so many factors to consider that you not only have to worry about the fundamentals of blockchain and technology, but also acceptances in the world, price, difficulty, profitability, algorithm, hardware requirements and so on. A few of the most well-liked cryptocurrencies to Mine include Bitcoin, Ethereum, Litecoin, Monero, Zcash, etc.
• Choose a mining method: Mining of cryptocurrencies has its own methods and processes: cloud mining, CPU mining, GPU mining, ASIC mining and so on. Every method has it’s own with pros and cons in term of cost, performance, efficiency etc.
• Choose a mining pool: Mining pool is a group of miners who pool together computing power and share the said rewards proportionate to the input they've provided into gaining these. By mining pools finding new blocks and earnings rewards becomes easier and variance goes down. But they also have different payout schemes and rules, and they’ll have fees.
• Choose a mining software: A mining software is a program that connects the miner to the blockchain network to be able to perform mining task. You’ll instantly find many mining software suitable for specific cryptocurrencies and algorithms, such as CGMiner, BFGMiner, Ethminer, as well as more.
• Configure the mining device: To mine with cryptocurrency methods such as provably fair, favored currency, pool, software etc., they have to configure the miner to that rather than creating the hash on their computer. It can be anything from installing the drivers, updating the firmware to adjusting the settings, creating accounts, etc.
• Start mining: Then the miner can begin mining simply running their mining software and connecting to the network or the chosen pool. And then our hardware will begin to solve equations and get the work from the pool and network. The miner will also keep track of their performance, temperature, power consumption etc.
• Receive rewards: When the miner finds a solution to an equation, creates a new block of data, and adds it to the blockchain, he will be rewarded from his pool or network. Depending on cryptocurrency’s Block reward scheme, difficulty adjustment mechanism, halving the rewards may vary.
Is cryptocurrency mining still profitable?
Cryptocurrency mining can be profitable depending on various factors such as:
• The price of the cryptocurrency: The more expensive the crypto, the more profitable it is to mine it. All the same, the prices of cryptocurrencies can be unstable and unpredictable, and depending on time they could be sharply changing.
• The difficulty of the cryptocurrency: Difficulty of the cryptocurrency is a parameter to determine how hard it was to mine a new block. The more network / cryptocurrency algorithm the network has, the higher the difficulty will be, and naturally will also decrease the more network / cryptocurrency algorithm the network does not have. As the difficulty increases the cost of mining the cryptocurrency decreases.
• The cost of the hardware: The hardware is the first one and costs is the amount required to buy or to rent the mining equipment. This can have a cost range by type of equipment, the quality, and availability of the equipment. The cheaper the hardware is to mine the space, the better it is for the profitability of the cryptocurrency.
• The cost of the electricity: The thing that is going to keep the electricity running to power this mining equipment is the cost of the electricity. The price an atm given for electricity is relative to locatio and provider and plan etc. The more profitable it becomes to mine the cryptocurrency; the lower the cost of the electricity.
Cryptocurrency miners must calculate their expected revenue and expenses and compare in order to determine if cryptocurrency mining is still profitable. Online calculators such as WhatToMine, NiceHash, Minerstat, etc will help many miners to estimate their profitability.
Cryptocurrency mining is the process of using computer hardware to solve math equations in return for units of cryptocurrency. The same of cryptocurrency mining can be done in different ways; Cloud mining, CPU mining, GPU mining, ASIC mining and the like. However cryptocurrency is profitable or not depends on factors like cryptocurrency price, difficulty, price of hardware and price of electricity they are currently available. It’s also challenging and risky with the underlying technical knowledge, hardware investments, electricity cost, market volatility, competition, regulation, security threats,etc.
The topic of cryptocurrency mining is a complex one to describe that needs a little bit more digging! If you’d like to know more about cryptocurrency mining or do it yourself, see some of the resources covered in this article or find more online. While you should also know that there are potential risks and challenges associated with cryptocurrency or mining investment, you need to know your own side before investing into any cryptos or mining operations.