Everything Crypto: All you need to know about mining [ChangeNOW’s Blog]
The process of producing Bitcoin and many other cryptocurrencies is called mining. This is one of the cornerstones of cryptocurrencies that distinguish them from fiat and other e-currencies. Mining cannot be compared to an ordinary printing of money because of its certain features. And, most importantly, mining is available to almost everyone. Don’t believe us? Then read this detailed guide for beginners with theory and practical examples of how to mine and what to do with the mined coins.
How cryptocurrency mining works
In complex words, this process is the activity of maintaining a network by closing and creating blocks in the blockchain using computing power. The miner uses the power of their hardware to perform special calculations, looking for a digital signature (hash) that will close the block. A miner who “finds” the digital signature receives a reward in the form of 1 unit of cryptocurrency. Mining supports the network and ensures its protection from duplicate transactions.
In simple words, mining is the production of cryptocurrency using the capacity of the special equipment. For Bitcoin and a number of other coins, this is the only way to increase the emission. Miners are rewarded because their activities ensure the functioning and integrity of the entire system. This is the main task of mining.
In the initial stages, an owner of almost any computer could be engaged in mining. When Satoshi Nakamoto launched Bitcoin in 2009, he specified the maximum of coins’ emission — 21 000 000 BTC. In Bitcoin, the complexity of mining is also recalculated every 2016 blocks (about 2 weeks of time). Such properties of the system protect Bitcoin from inflation and are the reason why the production of new coins requires more and more powerful equipment. According to forecasts, all BTC coins will be mined in the middle of the 22nd century.
Within 1–1. 5 years after the advent of Bitcoin powerful graphics cards launched in Crossfire or SLI mode started being used for mining. Then miners would manage to recapture their investments within a few weeks. But the minimum requirements for profit continued to grow. By 2012, bitcoin mining on the most powerful CPUs (processors) has become unprofitable. The era of rig installations connecting powerful video cards and ASICs (ASIC) — specialized mining equipment — had come.
It is possible to PC-mine such coins as Monero, FantomCoin, DigitalNote, but even powerful PCs do not yield more than a few dozens of cents a day. The situation is similar with single graphics cards on desktop computers.
Because the difficulty of cryptocurrency is constantly increasing, miners have begun forming miner unions, or pools. As we noted above, in order to receive the reward the miner needs to find a digital signature to close the block. In solo mode, even with a powerful rig, it will take a lot of time. Therefore, pools are used, where the miners’ calculational capacity is combined. Each member of the pool receives a reward equivalent to mining capacity.
PoW and PoS
In Bitcoin, where the efficiency of mining depends on the performance of the equipment, the Proof-of-Work protocol is used. It protects the network from double spending and is the basis of the reward system in mining. The more work a miner has done, the higher their reward will be.
Some cryptocurrencies use the Proof-of-Stake protocol. They don’t utilize mining as it is. Network protection is provided by the presence of cryptocurrency on wallets. The Ethereum platform plans to switch to this protocol. This means that ETH mining will stop in the future.
Types of mining
Mining can be classified according to the form and equipment used. Basic types are:
- CPU mining. It is an inefficient way of cryptocurrency mining. Yes, you can mine coins like Monero, but even powerful personal computers will not bring tangible income. It is suitable only for those who have access to a large number of computers and free electricity.
- GPU mining. It is relevant for most cryptocurrencies, including Ether, Dash, and others. It is effective with powerful Radeon or GeForce graphics cards. In the stationary mode, it is suitable only for the mining of cryptocurrency, the cost of which can potentially increase many times.
- ASICS is an effective tool for cryptocurrency mining. ASIC-processors are made with a specific architecture, suited especially for mining. Such devices have a high level of payback and are easy to maintain. Their cons are low liquidity in the secondary market and the rapid obsolescence of ASICs due to the growing complexity of the network.
- Rig mining. A rig is a cluster made of multiple powerful GPUs. It is connected to one or several computers. It works with high efficiency, while the equipment is easily sold on the secondary market. The increase in the number of miners has increased the demand and, as a result, the price of cards.
- Hidden mining means using somebody else’s equipment for mining with the help of some virus. Hidden miner is “glued” with ordinary files and is hidden from antivirus. The best builds of such viruses are almost impossible to remove from the computer memory or detect with anti-virus software.
- Mining on smartphones and laptops is not a common option as even the most powerful models show minimal efficiency. For Android mining, a special program was released by the Minergate pool, but you can’t earn a penny with mining on any smartphone. With laptops, the situation is similar. This is only a way to get acquainted with mining through Wi-Fi.
- HDD mining is based on the Proof-of-Capacity protocol. The more disk space the miner can provide for mining, the higher the efficiency will be. The pioneering cryptocurrency of Proof-of-Capacity protocol has become the BURST coin. To earn at least $1 per day, you need more than 500 terabytes of disk space. It is impossible to get Bitcoin or Litecoin using this method.
- Mining on servers is like CPU mining, but more efficient. It is relevant only for coins like Monero at low electricity rates. This kind of mining may have potential in the future when new cryptocurrencies will appear.
- Cloud mining means mining cryptocurrency on a rented server in a web format. Miners pay companies money to rent equipment and mine cryptocurrency remotely. The effectiveness of this method depends on the tariffs of cloud mining services, the current rate, as well as the complexity of the network.
How to start mining?
A simplified step-by-step guide for beginners:
- Step 1: define the budget;
- Step 2: select the currency for mining;
- Step 3: select equipment;
- Step 4: select a pool.
Before you generally “get” into mining, you need to think about your start-up capital. Mining on a computer or laptop is only a way to get acquainted with the software and the technical part. However, earnings from such activities are minimal.
The budget of several thousand dollars is the minimum bar, which is worth starting with. Although the cost of equipment may vary. But the price of new ASIC-miners is never lower than $ 1000. Having decided on the budget, you can look in the direction of the cryptocurrency that you want to mine.
Is cryptocurrency mining profitable?
This question cannot be answered in the affirmative form. Today mining is profitable, tomorrow it’s not, and the day after tomorrow it’s profitable again. It is almost impossible to calculate the efficiency and profitability of cryptocurrency mining in the long term because this process is influenced by fluctuating indicators:
- Digital currency rate;
- Mining difficulty;
- Electricity tariffs;
- Cost of equipment;
- The productivity of equipment;
- Technical changes in cryptocurrencies.
Uncertainty is one of the disadvantages of mining. Even experienced investors are not guaranteed profit in this area. Another potential disadvantage is the maintenance of the equipment if you are dealing with rigs.
However, mining can be passively profitable. It’s enough to invest once into equipment or a cloud mining contract to get a potential profit. Serious time costs are not required, especially when it comes to ASIC-miners or cloud tariffs. However, you do need a bit of luck — miners have to guess with the time chosen, with the equipment and the form of mining. Although, it is almost impossible to get huge losses on mining.
In the worst case scenario, the equipment can be sold, or you can wait for favorable conditions for mining because the environment behaves dynamically.
What can I do with the mined coins?
Of course, the final goal of the miner is to make money from the mined coins. If they just stay on your wallet, they will remain just electronic money which you can pay with for some purchase in an online store at best, especially when it comes to little-known (and therefore effective for mining) coins.
After you have accumulated a certain amount of coins from mining, we recommend you to sell them — that is, to exchange them for fiat money or another, more popular cryptocurrency. For example, if you want to trade on an exchange then, it is better to swap unknown coins to bitcoin, which is characterized by stronger price fluctuations.
Go to ChangeNOW.io, choose your coin and the exchange direction — and everything will be done in a few minutes! We have the best conditions for the exchange of the mined coins!