As years go by, Cryptocurrency is gaining more and more ground. People are trooping in to invest in Blockchain technology. Many people come to cryptocurrency because they see it as a good option for investment. The aspect of cryptocurrency that many beginners have little to no knowledge about is crypto mining. If you are a beginner, ready to invest and mine coins, or you are already a successful crypto trader, this article will provide a detailed guide on Cryptocurrency mining.
What Is Cryptocurrency Mining
Just like how we unearth gold and diamonds from the ground, cryptocurrency mining creates new coins. Crypto mining is an avenue of increasing cryptocurrency portfolios. However, it is as fascinating as it is frustrating. Why? Because it is not just about the creation of new coins.
A picture of a mining rig. Source: Tradersofcrypto
Mining a coin requires solving a hexadecimal math equation known as a hash function—the fastest machine to get a correct hash or something less than the hash, mines the cash. Crypto miners deployed devices to solve the equation all around the world. So, the probability of someone being the eventual winner is slim.
Therefore, if you are mining with a PC, it is not always profitable as it would incur colossal electricity and internet bills. Also, its mining speed is inferior compared to other mining machines. Even when you eventually mine, the cost of mining may not be worth the hassle.
People may think mining cryptos can lead to inflation. However, this cannot happen because there is a maximum amount of mineable coins. Take bitcoins, for example; only 21 million bitcoins can be mined. Currently, there are roughly 18 million bitcoins in circulation. And with its increasing mining difficulty due to many miners seeking it, bitcoins 21 million maximum will not be exhausted for the next 100 years.
How Mining Works
Take this example. You pick from a number 1- 500 in your head, and you tell your friends to guess which number you selected. Anyone that gets the number or a lesser number correctly gets a prize.
The number you picked is 45. Friend A guessed 42; Friend B guessed 46, while Friend C guessed 40. Therefore, friends A and C have equal chances of winning the prize, determining who first guessed right. However, Friend B takes nothing because his answer is more than the original guess even though it is closest.
Imagine giving a 16-digit number to crack by millions of people; this is what mining does. To mine a coin successfully, you have to guess the correct or more minor hash number. Miners deploy rigs to solve these Cryptographic hash functions.
The hash is a truncated digital representation of data. Miners use hashes to secure data transferred in a public system. Therefore, miners compete with their counterparts to detect the value created by a transaction. The first miner who cracks the code takes the reward and adds the block to his ledger.
Each hash function cites the previous block, forming a ring chain of blocks.
The deployment of better machines by miners makes the equation more complex. Also, many people working on a hash increases its scarcity. Hence, Bitcoin and Ethereum are more difficult to mine than their counterparts.
Fesschain summed up how data is stored and hashed in a tweet on October 20:
The principal aim of mining is to serve as auditors. Miners confirm the legitimacy of crypto transactions and get paid by minting new coins as a result.
Crypto miners are the digital alternatives to banks and brokerages in a traditional fiat system while keeping transaction integrity intact. Verification of transactions also helps solve the double-spending problem.
Double-Spending is when a crypto owner spends the same cryptocurrency twice. It cannot happen with physical currencies because when you pay a $50 bill, you don’t have it anymore.
However, it is not the same with digital currencies like Bitcoin. The crypto holder may make a fake copy of a bitcoin to make a transaction while retaining the original composition. Decentralized miner-auditors prevent this.
Cracking a hash code makes payment confirmation possible to prevent fraud. One person or body cannot defraud many people working on the decentralized crypto network. The system is known as the Proof of Work
How do I start mining cryptocurrency?
There are various methods of mining cryptocurrency. The one to choose is determined by what fits your taste best.
Crypto mining machine
Cloud Mining is the most popular and easiest way to mine cryptocurrency. It involves paying a fixed sum or amount of money to rent a mining rig from a company. These companies usually have numerous rig facilities working together at the same time.
Renting a mining rig will last for a while, depending on the amount you pay. After removing electricity bills and maintenance costs, cloud mining hosts transfer the remaining earnings to your crypto wallet.
Cloud Mining has a free and paid option. The free options capabilities are usually limited and very slow.
On the other hand, paid options offer various pricing options. There are cheap as well as expensive plans. After paying, you can register your crypto wallet code and start mining. Depending on the price of the program, cloud mining can last for many years.
CPU mining uses computer processors to mine coins. A few years ago, when cryptocurrency was not so popular, this was a good option. However, today, people are moving away from CPU mining.
It is because CPU mining is slow and costly. You could go months upon months but make little earning while spending ten times that amount on electricity bills. It is because, as the computer solves mathematical equations, it generates heat and consumes more power.
On the other hand, CPU mining is the most accessible and most affordable way of mining. All you need is an active desktop or laptop and a few programs on them. Then, you start mining. However, it is strongly discouraged.
GPU mining is the most popular method of mining cryptocurrency. It uses graphics cards to mine cryptos. A regular GPU rig has a microprocessor, a few graphics cards, a cooling, the rig body, and a motherboard. Cloud Miners also use GPU for their services.
Although owning a GPU is expensive, the hash speed is breakneck, and it mines coins faster than CPU mining. It makes the return on investment better than a CPU rig. Cloud miners also use GPU for their services
ASIC stands for Application-Specific Integrated Circuit. They are specially designed devices to produce a large amount of cryptocurrency compared to GPU or CPU mining.
Because Asics are so powerful, they deny other crypto miners using GPU an equal hash speed and opportunity of earnings. Thereby, it generates a lot of controversy among people. Some even asked for it to be banned.
Which Mining Method Should I Use?
Choosing a mining method depends on what suits you best; Are you willing to spend money on mining? How much? Do you want to use a rig or CPU? Do you want to acquire a rig? These questions will help you determine the type of mining that suits you best.
If you don’t want to spend anything on mining, the CPU is the go-to. If you don’t want a rig, then Cloud Mining is the best. Also, if you can maintain a rig, you can go for GPU or ASIC. But, if you are sensitive to controversy, Asics is not for you.
Which Crypto Should I Mine?
Your choice of cryptocurrency is solely your decision. Although, the huge favorites among people are coins like Bitcoin and Ethereum.
However, the more popular a coin is, the more difficult it is to mine. Therefore, Bitcoin is the trickiest as it has numerous miners worldwide who want to mine it.
Having a Safe Wallet for Your Mines
After deciding on the cryptocurrency you want to mine, you can check its wallet options. It is advisable to choose a reputable crypto wallet. This is so as not to regret using a wallet because lesser-known wallets are prone to hacking. Well-known wallets include Coinbase, Binance, Trezor and Ledger Nano S, among many others.
Legality of Mining
Mining cryptocurrency depends on the geographic location in question. Cryptocurrency mining is legal in most parts of the world. However, some countries ban it because it threatens the existence of fiat currencies.
For example, Bitcoin is illegal in Nepal, Bolivia, Egypt, Pakistan, and Morocco. However, most of the world accepts cryptocurrency. Also, the USA recently surpassed China as the largest country of crypto miners after Beijing banned crypto mining. A tweet by 8btc news on October 21 reiterates this.
Generally, crypto mining can be frustrating if you don’t know how to go about it or you are just a beginner. You can always compare the cost value and the earnings before embarking on it. This way, you will be able to determine whether you stand to gain from it.