What Is Crypto Mining?

Most people think of crypto mining simply as a way of creating new coins. Crypto mining, however, also involves validating cryptocurrency transactions on a blockchain network and adding them to a distributed ledger.  Most importantly, crypto mining prevents the double-spending of digital currency on a distributed network.

Like physical currencies, when one member spends cryptocurrency, the digital ledger must be updatedby debiting one account and crediting the other. However, the challenge of a digital currency is that digital platforms are easily manipulated. Bitcoin’s distributed ledger, therefore, only allows verified miners to update transactions on the digital ledger. This gives miners the extra responsibility of securing the network from double-spending.

Meanwhile, new coins are generated to reward miners for their work in securing the network. Since distributed ledgers lack a centralized authority, the mining process is crucial for validating transactions. Miners are, therefore, incentivized to secure the network by participating in the transaction validation process that increases their chances of winning newly minted coins.

In order to ensure that only verified crypto miners can mine and validate transactions, a proof-of-work (PoW) consensus protocol has been put into place. PoW also secures the network from any external attacks.

Proof-of-Work

Crypto mining is somewhat similar to mining precious metals   . While miners of precious metals will unearth gold, silver, or diamonds, crypto miners will trigger the release of new coins into circulation. For miners to be rewarded with new coins, they need to deploy machines that solve complex mathematical equations in the form of cryptographic hashes. A hash is a truncated digital signature of a chunk of data. Hashes are generated to secure data transferred on a public network. Miners compete with their peers to zero in on a hash value generated by a crypto coin transaction, and the first miner to crack the code gets to add the block to the ledger and receive the reward.

Each block uses a hash function to refer to the previous block, forming an unbroken chain of blocks that leads back to the first block. For this reason, peers on the network can easily verify whether certain blocks are valid and whether the miners who validated each block properly solved the hash to receive the reward.

Over time, as miners deploy more advanced machines to solve PoW, the difficulty of  equations on the network increases. At the same time, competition among miners rises, increasing the scarcity of the cryptocurrency as a result.

How to Start Mining Cryptocurrency

Mining cryptocurrencies requires computers with special software specifically designed to solve complicated, cryptographic mathematic equations. In the technology’s early days, cryptocurrencies like Bitcoin could be mined with a simple CPU chip on a home computer. Over the years, however, CPU chips have become impractical for mining most cryptocurrencies due to the increasing difficulty levels.

Today, mining cryptocurrencies requires a specialized GPU or an application-specific integrated circuit (ASIC) miner. In addition, the GPUs in the mining rig must be connected to a reliable internet connection at all times. Each crypto miner is also required to be a member of an online crypto mining pool as well.

Different Methods of Mining Cryptocurrency

Different methods of mining cryptocurrencies require different amounts of time. In the technology’s early days, for example, CPU mining was the go-to option for most miners. However, many find CPU mining to be too slow and impractical today because it takes months to accrue even a small amount of profit, given the high electrical and cooling costs and increased difficulty across the board.

GPU mining is another  method of mining cryptocurrencies. It maximizes computational power by bringing together a set of GPUs under one mining rig. For GPU mining, a motherboard and cooling system is required for the rig.

Similarly, ASIC mining is yet another method of mining cryptocurrencies. Unlike GPU miners, ASIC miners are specifically designed to mine cryptocurrencies, so they produce more cryptocurrency units than GPUs. However, they are expensive, meaning that, as mining difficulty increases, they quickly become obsolete.

Given the ever-increasing costs of GPU  and ASIC mining, cloud mining is becoming increasingly popular. Cloud mining allows individual miners to leverage the power of major corporations and dedicated crypto mining facilities.

Individual crypto miners can identify both free and paid cloud mining hosts online and rent a mining rig for a specific amount of time. This method is the most hands-free way to mine cryptocurrencies.

Mining Pools

Mining pools allow miners to combine their computational resources in order to increase their chances of finding and mining blocks on a blockchain. If a mining pool succeeds, the reward is distributed across the mining pool, in proportion to the amount of resources that each miner contributed to the pool.

Most crypto mining applications come with a mining pool; however, crypto enthusiasts now also join together online to create their own mining pools. Because some pools earn more rewards than others, miners are free to change pools whenever they need to.

Miners consider official crypto mining pools more reliable, since they receive frequent upgrades by their host companies, as well as regular technical support. The best place to find mining pools is CryptoCompare, where miners can compare different mining pools based on their reliability, profitability, and the coin that they want to mine.