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What is cryptocurrency mining?

The сrурtосurrеnсу creation process is called mining

What is mining

What is cryptocurrency mining? Source: shutterstock.com

Actually, it is the cornerstone of сrурtосurrеnсіes, which distinguishes them from fiat money or any other digital currencies. Mining cannot be compared to conventional money printing, because mining is featured with some specific functions.

How does it work?

To go into detail, this process is about maintaining the network by closing and creating blocks (related to blосkсhаіn) using the computing power of equipment. Miners use computing capacity, performing special calculations to find a digital signature (hash), that will close the block. The miner, who finds the required signature gets a reward (1 cryptocurrency coin). Mining maintains the network and guarantees its safety.

In the early stages, almost any computer owner could mine (using CPU). In 2009, Satoshi Nakamoto (launching bitcoin) set the maximum number of coins to be issued – 21 000 000 BTC. Also, bitcoin is featured with a recalculation of mining productivity every 2016 blocks (it is about 2 weeks). These system features help bitcoin to avoid inflation, while they cause the requirement for more complicated and powerful equipment to mine new coins. It is estimated that all BTC coins will have been mined by the middle of the 22nd century.

After only 1-1.5 years since bitcoin was invented, miners had started to use powerful video cards (using Crossfire or SLI). This helped miners to recoup their investments in just a couple of weeks. However, the minimum requirements (to earn any profit) continued to increase. By 2012, CPU mining had become unprofitable. The crypto-mining farms’ era had arrived. A crypto farm is a chain of powerful video cards and ASICs.

It is possible to mine using a PC, but it is uneconomical. Even powerful PCs can mine no more than several dozen cents per day. A similar situation exists for single video card stations.

VIDEO: What is bitcoin mining

How is сrурtосurrеnсу mined?

Generally, there are a lot of ways to mine сrурtосurrеnсу, so let’s consider some of them:

Cloud mining. Companies purchase hardware and create systems for сrурtосurrеnсу mining. Miners pay companies to lease this hardware and mine coins remotely. It is one of the most popular ways, and many miners use this way to earn coins.

CPU mining. This is an ineffective and obsolete way to mine cryptocurrency. You can still mine a couple of different currencies, but even the most powerful computers will not give you a sizable profit. It suits only those, who have access to multiple (and powerful) computers and free electricity.

GPU mining. This is a popular way, which is based on using a single video card. It is not the worst option, but it is not so efficient as a multiple video card station (also known as a farm). If a miner wants to achieve maximum efficiency he has to use only the most powerful video cards e.g. Radeon or GeForce.

ASIC mining. This option is a very efficient method. ASIC (Application Specific Integrated Circuit) – is a specialized circuit, customized for this use. We are talking about crypto, ASICs here apparently customized for mining. Such an apparatus has a good cost recovery rate and it is easy to maintain and service. One of the main “cons” is low secondary market liquidity along with rapid obsolescence (due to the growing complexity of network and mining productivity).

Cryptomining farms. As we’ve said before, a crypto farm is a number of linked video cards. Farms can be plugged in either one or several computers. Mining with crypto farms is considered to be one of the most efficient ways to gain digital coins, while it is easy to unload this equipment on the secondary market. You may ask why? It’s easy – gamers, for instance, have always and will continue to buy new more powerful graphics cards for new games.

Hidden mining. This is when someone mines сrурtосurrеnсу using the computing power of equipment that belongs to other people. It is possible due to special computer malware programs (viruses), that are sent to a user, or when a user visits infected websites. It is very hard to detect such a virus, and it is practically impossible to delete it. Computers are the most preferred and the most frequently attacked equipment, but hackers have previously also attacked VPS and VDS.

HDD mining. This way of mining is based on the Proof-of-Capacity protocol. The more HDD capacity – the more efficient the mining. Burst was one of the first coins in this field. A miner will have to use at least 500 TB to gain $1 per day. Also, it is impossible to mine bitcoin or lіtесоіn this way.

Mining pools

Since mining is becoming progressively harder, miners are deciding to cooperate with each other and mine coins together. They build big farms using all their equipment, and this all is called a “сrурtо mining pool”. As we’ve said before, the main principle is to find a hash to the right block, and it is hard to find one using only your own equipment, even if you have a decent farm. The more equipment is connected in the pool, the more your chances are increased of finding the needed hash. Working in a pool means dividing the returns according to the hаshроwеr percentage a member has contributed.

How to measure mining profitability?

All cryptocurrencies have a different value. The same thing happens with the mining process – it can be more profitable to mine one currency than to mine another, and vice versa.

There are several factors that determine the profitability of сrурtосurrеnсу mining, such as hash rate, the price of equipment, consumption of power, electricity rate, and the current altcoin price.

To calculate how profitable your mining is, it is necessary to use special calculators.

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