Mining is the process of getting cryptocurrencies, behind which lies ensuring the blockchain operation. How does mining work? How can you get involved in mining coins without having expensive equipment? And why is it impossible for one person to mine bitcoin?
What is mining?
Mining is the solution of hashed math equations to get the right to add a block to the network and earn a certain amount of new, just mined cryptocurrency. The concept is closely related to the Proof-of-Work consensus protocol. It verifies the work of miners and protects the blockchain from external attacks. Therefore, only coins operating on the PoW mechanism can be mined. For example, Ethereum mining, Dogecoin mining, and, of course, Bitcoin mining are available.
In a simplified version, mining is understood as cryptocurrency production. But from a perspective of the crypto space, the process is essential to support the operation of a distributed ledger and digital assets. The presence of people who add blocks to the chain, thereby controlling the correctness of transactions, ensures the functioning of the decentralized network. So, miners get rewarded by being encouraged to participate in verification processes.
In turn, the Proof-of-Work protocol is needed for additional security to avoid asset manipulation. It verifies validators and their equations before updating transactions in the blockchain and prevents double-spending of cryptocurrencies.
How does cryptocurrency mining work?
The transaction control process requires many computers with high computing power connected to each other via a decentralized network. They are used to analyze the blocks that join the blockchain, documenting the history of transactions. This is true for established and popular cryptocurrencies such as Bitcoin. If it is a new coin, one powerful computer may be enough.
To get the reward, you need to run a mining program and solve a series of math equations presented as a cryptographic hash – a data array converted into a security code. There can be quite a lot of people who want to decrypt an encoded transaction. That’s why there is competition. When the hash is nullified, and the first validator that has coped with the task is identified, the Proof-of-Work mechanism checks the validity of the block and the miner’s work. Then it is added to the registry, and the miner gets his/her profit.
Three methods of mining
Cryptocurrencies are mined using special computer components. Based on them, the following mining methods can be distinguished:
· GPU, where the key element is a specialized graphics processor;
· ASIC, where an integrated circuit plays the leading role in the process;
· cloud mining, where mining is conducted in a remote cloud by renting equipment from a specific company.
GPU
This method involves combining special processors into a single unit that maximizes the computing power sufficient to decode transactions of a particular cryptocurrency. You will also need a motherboard, a cooling system, and a stable Internet connection. That said, miners must be members of a special online pool. The price of one classic rig is $3,000.
ASIC
With ASIC chips designed specifically for mining, you can mine more cryptocurrency than with processors, but it costs more. Due to this method’s cost effectiveness and higher potential income, it is more commonly used by mining farms and corporations for mining cryptocurrencies operating on the PoW model.
Cloud mining
A popular mining alternative for average users with math skills. It costs much cheaper and does not require huge capacities, but the reward is also less. The miner is only required to connect to the server of the company that provides this service.
Why has bitcoin mining become more complicated?
Some time ago, it was possible to mine BTC using a home computer, but that was before its rapid growth. Then, at the peak of the popularity of the first cryptocurrency, people who wanted to earn had to equip themselves with a dozen GPUs.
Now there are almost no solo miners left. Specialized companies or groups organized into a mining pool are responsible for the process.
Mining cryptocurrency has become very difficult, but why? This is due to the expansion of the blockchain, which stores all the transactions that have ever been made, requiring significant computing power to process the data. For example, in 2019, it took 12 trillion times more processing power to mine a single BTC than in 2009.
Paradoxically, the higher mining complexity implies a lower cryptocurrency amount in reward since BTC turnover is limited to 21 million coins. According to theoretical calculations, the last coin will appear in 2140. Miners will receive a commission for their work instead of new coins when that happens.
