Crypto mining is a necessary step in the crypto world. This process is crucial because it provides the system with security and confirms transactions. Those who contribute to this procedure are called miners. Their role is to secure the network and examine every transaction. Without miners, the network would be dysfunctional and prone to attacks. Their contributions are then rewarded with newly created coins and transaction fees.
What Is Crypto Mining and How Is It Conducted?
Crypto mining refers to how new coins are generated and inserted into the system. However, this process also includes validating crypto transactions and adding them to a ledger, and avoiding the double spending of currencies. Some of the biggest cryptocurrencies currently on the market, Ethereum and Bitcoin, use the Proof of Work (PoW) system for new coins to be mined and rewards to be given.
PoW is a consensus pioneered by Bitcoin and revolves around solving complex mathematical problems. Whoever gets to the bottom of it and provides an answer first gets rewarded, and a new coin is added into the circulation. Miners can either work individually, where they get to keep all of the rewards to themselves, or in the so-called mining pools, where a group of people mine and share the rewards within the group based on how much computing power they have contributed. Generally, mining is done by following these steps:
Step 1 – Verifying the legitimacy of a transaction.
The users create cryptographically secure transactions, which are then broadcasted to the network. Whenever a transaction is initiated, data adds to a block and duplicates across several nodes on the network. Said nodes behave as administrators, and their job is to route out bad actors while validating transactions. Considering that the block hash depends on the data from a block, if even one character in a transaction is changed, it will invalidate it.
Step 2 – Transactions are added together to form a block.
Each transaction is stored on nodes, which contain a full copy of the blockchain, and then they are all added together to form a block. Although blocks contain several transactions, each block must necessarily have at least one. After the transactions are verified, they are grouped together, encrypted, and added as blocks on the blockchain. On the occasion that any of the transactions are not legitimate, the miners route them out.
Step 3 – The data is added to the unconfirmed block.
When a new block is created, certain data types must be added to the block header. This data includes the version number, a timestamp, the hash used from the preceding block, the hash of the Merkle root, the nonce, and the target hash.
Step 4 – The block’s legitimacy is verified.
For a block to be validated, the miners have to collect the transaction data and assign a hash to it. Each block contains the preceding block’s hash and a new hash that is created from its data.
Step 5 – The block is published on the blockchain.
Once the block is confirmed and validated, the block gets added to the blockchain. For a block to be added, they need to be approved by a particular miner or a number of miners in a mining pool. These blocks are added chronologically, and once added, they cannot be modified.
Types of Mining
Based on the miners’ preferences, they have many options to choose from when it comes to how they want to approach mining. The most popular types of mining are CPU Mining, GPU Mining, ASIC Mining, and Cloud Mining.
This method puts to use computer processors to mine currencies. CPU mining allows people to mine from their home computers. An average Computer Processing Unit can carry out this process. However, CPU mining is not very profitable on the network that is on the more complicated side. The odds of earning rewards are relatively low, whereas energy bills skyrocket. Given these disadvantages, people still use CPU mining since any desktop computer can handle it. Remember that CPU mining on laptops is not advised due to overheating.
GPU rigs use a gaming computer’s graphic processing unit to mine Altcoins. An average rig contains a processor, a motherboard, cooling, a rig frame, and 2-8 graphics cards. This method is one of the most well-known and trendy forms of mining since it’s quite efficient and also cheap. Companies such as NVIDIA and AMD are some of the most popular ones when it comes to the products the miners look for.
Compared to CPU mining, GPU mining uses less electricity; therefore, the miners get to keep more of their profits. They also aren’t limited and allow a miner to mine multiple coins at a time. On the other hand, for those who aren’t tech-savvy, GPUs can be quite hard to set up. Hence, this type of mining is a little bit harder to get started with, so a lot of research is needed before one can begin mining.
This type of mining utilizes ASIC (Application Specific Integrated Circuit) rigs for crypto mining. These circuits are designed for one specific purpose only, in our case, mining. ASICs are the most energy-efficient devices and the fastest hashing machines as well, which is why they are so popular amongst the more “serious” miners. However, they are often described as too powerful and hated amongst the GPU and CPU miners community to the point where there have been petitions to have them banned. ASIC devices are designated to only mine one specific, particular coin.
Cloud mining is the easiest and least laborious way of mining. This method refers to paying a person, or most likely a company, and renting their rigs. The renting lasts for a specific period of time, and all of the earnings the rig makes are transferred to the renter’s account. Of course, the electricity and maintenance costs are reduced from the earnings. The companies that lend these rigs have mining facilities with multiple farms which they use to mine. A farm contains tens or even hundreds of rigs stacked together.
Cloud mining gives people who cannot afford to buy their own rigs, or do not have the kind of commitment to do so, the possibility to participate in crypto mining. There is free and paid cloud mining. Free cloud mining is slower and less efficient, while paid mining is faster and more efficient. Of course, the higher price a miner is willing to pay, the greater deal they are going to get.
No investment can indeed be made without there being any risks. Unfortunately, one of the biggest risks that exist when it comes to mining is security. Miners can become the target of certain hackers or organizations and have malware downloaded into their mining devices. Another form of attack that is commonly used against miners is phishing. They get tricked into clicking links that load mining code into their devices, which slows down their device.
It is important to take precautions once someone starts mining. Some of the best ways to be protected from these attacks are: avoiding public wifi, securing the devices and keeping them up to date, and using a VPN.
Pros and Cons of Crypto Mining:
- There are a lot of benefits one can gain from mining crypto; some of them include but are not limited to:
- Huge profits – once a miner gains the necessary knowledge and expertise and gets the hang of mining, they can earn quite a decent amount of money.
- No bankruptcy possibilities – while it is true that the cryptocurrencies’ prices can be volatile, anything that can be found in a miners vault still has at least a little bit of value.
- Flexibility – where there is volatility, there is also the possibility for a cryptocurrency’s value to skyrocket; therefore, the miner’s profit is huge.
- Protection against theft – As long as a miner owns and keeps their private key safe, the chances of their coins getting stolen are slim to none.
On the other hand, some of the disadvantages include:
- Illegality – some governments are not exactly fond of cryptocurrencies, and some even plan on banning them and crypto mining altogether. If these bills are passed, that would mean that any involvement in the crypto field is illegal. The results would be dire for investors.
- High cost- Setting up a data mining device is a costly process that requires a lot of investments to be done before mining even starts. There are also a lot of continuous expenses such as electricity, internet, and device upgrading.
- Crypto mining enables new coins to be generated and enter the system.
- Mining also protects against double-spending.
- Mining can be done individually or in mining pools.
- The PoW terms state that whoever solves the puzzle first gets rewarded.
- There are many ways of mining: CPU mining, GPU mining, ASIC mining, and cloud mining.
- A miner should take many precautions before they begin and during the mining process.