In the past few years, cryptocurrency or ‘crypto’ has exploded in popularity. Now, crypto is one of the most sought-after alternative asset classes and also has one of the largest market caps. And, did you know that apart from buying your desired crypto coins on exchanges, there are other ways to attain them? You can create digital coins through crypto mining. If this topic sounds like something interesting to you, keep reading to find out more about crypto mining!
The ABCs of Crypto Mining
Crypto mining essentially injects new digital coins into circulation by solving hard computational math problems.
To prevent manipulation of the systems, security when mining is tight. As cryptocurrency is not regulated, mining is a way for transactions to be validated. Miners are thus incentivized to continue the validation process by mining, in return gaining newly minted coins.
How Does Crypto Mining Work?
The key to crypto mining starts with owning sophisticated hardware, which has the ability to solve an extremely complex computational math problem. After cracking the code, the transaction can be authorized and added to a public ledger — named the blockchain — secured by encryptions.
Proof of Work
In order to maintain high security within the system, only verified crypto miners can mine and validate transactions. The proof-of-work protocol is an established framework and is used to confirm and record cryptocurrency transactions.
Proof of Stake
Having proof-of-work is not the only way to validate transactions. A proof-of-stake allows cryptocurrency owners to validate block transactions based on the number of stacked coins. With less computational work needed, this method is considered more environmentally friendly compared to proof-of-work. According to the Society for Computers and Law, proof-of-stake uses 99% less energy than proof-of-work.
Kicking Off Your Mining Journey
To kick off your mining journey, you will first have to own a very powerful computer.
Once you have that, start creating a crypto wallet. A crypto wallet will allow you to store all the passwords you need, keeping them safe and easily accessible.
While not always needed, it would be encouraged to join a group of miners in order to maximize the potential of mining. This method allows for more mining success. Profits gained from group mining will be split among group members.
Different Methods to Mine Cryptocurrency
There are two main ways you can adopt when mining cryptocurrency. Firstly using a specialized graphics processing unit (GPU) or secondly with an application-specific integrated circuit (ASIC).
In order to maximize power and efficiency, a set of dedicated GPUs can be brought together to mine. There are three requirements for this setup to work. Firstly, there needs to be a motherboard and a cooling system to prevent overheating. Secondly, it needs to always be connected to a stable internet and lastly, each crypto miner must be a member of an online crypto mining pool.
GPUs are generally costly and can set you back about $3,000.
ASIC in mining plays a specific role — and that is to mine a specific cryptocurrency. While this method can reap more profits than GPUs, it can also cost a ton. The method has also racked up controversy over its use, as it prevents miners with lower starting budgets to keep up.
ASIC vs. GPU
It’s only worth it if you reap more than what you sow. As cryptocurrency mining is expensive, you might only stand to gain a small margin of profits. ASICs are known to have an edge over GPUs as they are designed specifically for the process of mining.
If you still think ASICs or GPUs are not your things, an alternative would be cloud mining. This method has gained popularity over the years, as it is relatively less expensive compared to ASICs or GPUs. By harnessing the power of large corporations and dedicated mining facilities, those who undertake this method can enjoy a hands-off mining experience.
But here’s the catch, cloud mining requires you to pay someone to mine for you, essentially renting their facilities for your benefit. It’s likely that you would be able to mine more if you were to do it yourself, but at least you would not have to fund your own rig. Free versions are available for use but bear in mind they may come with more conditions.
You can also use your own computer to mine cryptocurrency, but this would be the most inefficient way of doing so. Most conventional CPUs don’t have the processing power to sustain the period of mining cryptocurrency and will be subject to possible breakdowns from overheating.
What are Cryptocurrency Miners?
While mining independently is certainly possible, it does however put the miner at a disadvantage. As such, many miners prefer to pool their resources together to make the best bang for their buck. If you’re someone who is at a disadvantage in terms of computing power, it is certainly recommended to join a mining group to earn a solid income.
If however, you prefer to mine independently, the greatest benefit is that you wouldn’t need to split your profits with anyone else.
Pros and Cons of Mining Cryptocurrency
If you haven’t decided if mining cryptocurrency is your cup of tea, here are some considerations you can take note of.
The biggest motivation for most cryptocurrency miners is money. If everything is done right, you are likely to gain a substantial financial haul.
However, you can also rack up a hefty fee when mining crypto. Whether it’s splurging on good hardware or supplying electricity to it, both are very costly. Additionally, it can be quite environmentally damaging as large amounts of energy are required to keep the system running. According to the New York Times, mining a single Bitcoin can consume up to a whopping 91 terawatt-hours of electricity a year. A longer-term solution to counter this issue is proof-of-stake mining, which aims to reduce the negative environmental footprint left behind by mining.
With that, we’ve come to the end of this article about crypto mining! Nothing beats the feeling of satisfaction from mining your own cryptocurrency. While expensive, the journey to being a pro-cryptocurrency miner is definitely worth it.