Cryptocurrency is arguably one of the most important inventions in the 21st century. With its revolutionary features such as seamless, cost-effective, and transparent transactions, it has the power to improve the financial and banking sector as we know it.
For people who are unfamiliar with how cryptocurrency works, the process of acquiring digital assets can be a little confusing, especially with the amount of information that needs to be processed.
Cryptocurrency mining is the process of acquiring cryptocurrencies so that users can have assets that they send, receive and trade. Usually, the process can differ, depending on the asset being used.
If you’re curious to know more about mining and how it works, here’s a guideline that will help you get started on everything you need to know.
Cryptocurrency mining: How does it work?
In a nutshell, cryptocurrency mining refers to the process of acquiring digital assets through solving a complex set of algorithmic problems that can execute a transaction within the blockchain. Within the ledger, there’s a network of computers that handle crypto dealings and a record book that can be accessed by anyone within the blockchain.
Transactions within the blockchain are verified by auditors called miners. All the miners will ensure that the dealings happening within the network are double-checked to prevent the occurrence of double-spending problems. Once the miner collects all the information from the memory pool, it will then be assembled into a block that goes into the network.
Also known as the mempool, the memory pool in the Bitcoin Network contains all the unverified data within the blockchain. All the data stored within the mempool is sorted into an electronic device that allows it to be assessed and analysed in real-time.
Each block in the chain can be processed in 10 minutes. However, this time can be shortened if more energy and resources are dedicated to the transaction.
Mining Bitcoin and other cryptocurrencies can generate huge profits for miners. Acquiring digital assets may seem easy, but the process can be tedious and time-consuming, especially when it comes to solving the cryptographic problem required in order to execute the transaction.
Miners get paid in processing transactions. On average, a miner has to complete 1MB worth of processes in the blockchain. However, the catch is that the first miner who gets to solve the problem and add the block into the network gets paid.
Contrary to popular belief, there is no advanced math involved in coming up with the right answer. The first miner who achieves the 64-digit hexadecimal number or also known as the ‘hash’ will be successful in verifying the transaction.
What makes the protocol complex is that the possible number of combinations can reach up to trillions. That’s why miners need a massive amount of power and resources to obtain a high hash rate that can be measured in megahashes per second (MH/s), gigahashes per second (GH/s), and terahashes per second (TH/s).
Concepts in cryptocurrency mining you should know about
Mining pool – Mining pools are a group of miners who combine their mining capacity in order to mine cryptocurrencies and then split the profits among themselves. Usually, the pays they receive for their mining efforts depend on their contribution in processing transactions within the chain.
Some mining pools use high powered devices such as ASICs or Application-specific integrated circuits to increase their speed. This gained controversy in the crypto sphere because mining whales can manipulate the production of digital assets, which can defeat the decentralization of cryptocurrency.
GPU mining – While mining on regular computers can be done, using GPUs or Graphics Processing Units can increase the robustness of cryptocurrency mining. Usually, modern GPUs such as the GTX3080 can make the most out of mining digital assets. However, they come at a cost especially when used in countries that have expensive electricity.
ASIC Computers – When Bitcoin mining became a popular activity, ASIC computers were introduced to the public. These devices are high powered machines that can mine cryptocurrencies at a faster rate.
However, ASIC computers are highly specialized that they are designed to only mine crypto. For example, an ASIC used for mining Bitcoin cannot be used for the altcoin DASH.
Cryptocurrency mining: Is it worth it?
Mining cryptocurrency is not something that you can start doing overnight. You need to have expedients to produce satisfying profits. Here are some points you need to remember before you dive into the world crypto mining:
- It requires resources.
Mining cryptocurrency demands both power and electricity, especially for miners who live in countries with expensive electricity. Since generating algorithms might take a few tries, mining requires immense computational power that can cost a lot. So, if you’re planning to mine cryptos, you should take note of this.
- It is expensive.
Massive consumption of energy and expensive devices is one of the main expenditures you need to make if you want to become a crypto miner. If you want to make mining a source of income, you have to get the necessary machines to get the job done.
- Check with your current location.
Not all countries are okay with cryptocurrency mining, so you have to make sure that the state you’re in doesn’t have regulations against it. Before you mine digital assets, make sure that you won’t be flagged if you are involved in digital assets.
- Know what cryptocurrency you want to mine.
Digital assets do not have the same mining process. Before starting with crypto mining, make sure that you’re familiar with the crypto you want to mine. For example, you should know that mining Bitcoin is different from acquiring Ethereum and vice versa.
Delving in the world of digital assets needs time and preparation. Before you explore with cryptocurrencies, make sure you’re equipped with the right tools and information to make the most out of your cryptocurrencies.