If you’ve been on the internet for long enough, you’ve probably come across the term ‘mining,’ specifically ‘crypto mining.’ If you’re wondering what it means, you’ve come to the right place to find out.
Crypto mining is the fundamental core of every cryptocurrency there is. It guarantees the operation of protocols and safety mechanisms that make up cryptocurrencies. Besides the underlying technology (blockchain), crypto mining is part of the reason why cryptocurrencies are unhackable, immutable, and valuable.
In a nutshell, crypto mining is the process through which new cryptocurrencies are entered into circulation. It is also the core protocol that ensures the right transactions are verified and aggregated onto the network. Mining often includes using sophisticated hardware to solve computationally complex math problems or using validators on a network to add blocks to the network.
Crypto mining can be painstaking, costly, and rarely rewarding; however, it still has a magnetic appeal for investors worldwide because miners are rewarded in crypto tokens for their work and resources to maintain the network and verify the right transactions.
Imagine if you were rewarded BTC for every block you aggregated onto the network. The current reward for mining on the Bitcoin Network is 6.25 BTC, which is about $390K at the time of writing. No wonder why crypto mining has been so mainstream.
Before you get yourself geared up, it’s essential to research and find out more about what crypto mining is, how it works, and if it is profitable. Interestingly, you’ve come to the right place to find out.
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So what is crypto mining?
Before we truly understand crypto mining, we need to understand cryptocurrencies. Cryptocurrencies are called cryptocurrencies because they’re secured by many cryptographic functions and protocols that ensure they’re safe, decentralized, transparent, and valuable.
Each transaction, each user, each key, each token is cryptographically secured. A lot of encryption, decryption, and cryptography takes place on the blockchain network to ensure everything remains digitally safe.
Given how everything within the blockchain network is supposed to be cryptographically secure, we’ll understand crypto mining a lot better now. Crypto mining is the process of ‘mining’ cryptocurrency tokens through solving cryptographic equations. Usually, these cryptographic equations are computationally complex. The complexity is dynamic and adjusts with how fast the average user can solve these equations to ensure the playing ground is safe and inclusive.
As we know how everything on the blockchain network is cryptographically secure, crypto mining ensures the right transactions and data is added to the main blockchain by ‘decrypting’ and ‘verifying’ the data.
Crypto mining is the fundamental core of cryptocurrency transactions and blockchain networks. Thanks to crypto mining, networks can ensure the block or the right set of transactions are added to the blockchain. To incentivize the process, cryptocurrency networks reward the aggregator of the block by creating new tokens. This way, Cryptocurrency networks stay cryptographically secure and safe and, in turn, also power the economy by adding more tokens in circulation.
The underlying purpose of crypto mining is to keep the network secure and ensure the correct transactions and blocks are added to the network by incentivizing miners and users with cryptocurrency tokens. However, it’s important to note that each cryptocurrency network has its own way of mining that follows a protocol.
Currently, there are two protocols that most cryptocurrency networks follow—Proof of Work and Proof of Stake.
Differences between Proof of Work vs. Proof Stake
Proof of Work (PoW)
Initially introduced as a protocol to deter cyber attacks such as DDOS attacks, The Proof of work protocol serves as the basis of crypto mining for many crypto networks such as Bitcoin, Litecoin, Dogecoin, and previously Ethereum.
The Proof of Work protocol chooses one user in the network to aggregate a block to the main blockchain. It chooses the user that has done the most computational work in solving those cryptographic equations. The user that solves the puzzle first or has done the most work in solving the puzzle is rewarded with new tokens.
By solving these computationally complex cryptographic puzzles, Users verify if the transactions taking place on the network are legitimate and correct. Once they authenticate the transaction, it is added to the next block in the blockchain.
Now it is very difficult to solve these cryptographic puzzles because the difficulty of these equations is dynamic and updated regularly in intervals so that the block time can stay consistent. For example, the block time for Bitcoin is roughly ten minutes. This means every 10 minutes, a new block is added to the network, which means the network ensures to provide such a complex cryptographic puzzle that’ll take about 10 minutes to solve.
With how well cryptocurrency mining has been doing, Proof of Work mining has become very difficult to get into, especially with the more popular networks. The Proof of Work mining ecosystem has laid out a very competitive environment thanks to its underlying nature. Users are putting a lot of computational resources into work to solve these equations and get rewarded.
Over the years, these computational resources started from regular processors to a swarm of GPUs, to ASICs, to mining pools scattered worldwide with multiple computers specifically working to solve these puzzles. Today the Proof of Work protocol is responsible for a lot of power consumption. Bitcoin and the computational resources that it needs consumes around 180TWh. That’s about the total power Poland consumes in a year!
The power-hungry nature of the Proof of Work protocol isn’t very sustainable for the future, which is why the Proof of Stake protocol was introduced.
Proof of Stake (PoS)
The Proof of Stake is another way users can mine cryptocurrencies. Instead of relying on power-hungry computational resources, the Proof of Stake protocol is a more eco-friendly way of mining cryptocurrencies. The proof of stake protocol essentially uses a method known as cryptocurrency staking to deterministically choose users based on the number of coins they have staked.
However, unlike the Proof of Work protocol where users are rewarded with new tokens, the Proof of Stake algorithm helps users earn through transaction fees. The Proof of Stake protocol was introduced to solve the power consumption and carbon footprint problems inherent in the Proof of Work protocol.
The Proof of Stake protocol requires users to stake their tokens to become validators in the network. This way, they can validate the transactions in blocks, add new blocks to the blockchain, and ensure the safety and operation of the network without the use of any computational resources.
The Proof of stake protocol is power efficient. Considering how expensive it is to get into Proof of Work mining, it has a lower barrier of entry thanks to its independence from expensive hardware. And most importantly, it’s highly decentralized, unlike the current centralized state of Proof of Work.
Validators in the Proof of Stake Protocol are chosen at random to create blocks, verify transactions with the blocks, and maintain the network. This, in turn, creates a less competitive environment, unlike the Proof of Work protocol. Validators are then rewarded for the work they put in to maintain the network. If validators fail to protect the network or validate the right transactions, they lose their stake and are barred from participating again.
The Proof of Stake protocol shows a lot of promise over its counterpart. New and upcoming projects are all shifting to the energy-efficient and faster Proof of Stake protocol. Ethereum has also moved its operations from the Proof of Work protocol to the Proof of Stake protocol as part of as part of Ethereum 2.0. Other popular Proof of Stake platforms include Solana, Cardano, Tron coin, and more.
Interestingly, Dogecoin is also expected to move from the Proof of Work protocol to the Proof of Stake protocol in the near future.
How to get started with crypto mining?
Now that we understand crypto mining, we can finally talk about how to get started. Mining differs with each platform. While Dogecoin and Bitcoin both follow the Proof of Work protocol, they have completely different mining requirements and operations. So for this part of the article, we’ll talk about how to get started with mining Bitcoins.
To begin cryptocurrency mining, you’ll need to get cryptocurrency mining hardware. In the early days of Bitcoin, it was possible to mine with your processor or GPU; however, today, you need custom computer chips called ASICs that offer performance up to 100x the capability of the prior systems.
Another way you can start mining Bitcoin is by purchasing a Bitcoin cloud mining contract. This way, you don’t need to buy expensive hardware and rely on mining hubs and pools to mine for you. Beware, there has been an increasing number of Bitcoin cloud mining scams, so you must do your own research before investing your hard-earned money.
Once you get your Bitcoin mining hardware, you’ll need to download software to mine Bitcoins. The two popular programs are CGminer and BFGminer. After you’ve set up your mining hardware to mine bitcoins, you could either mine solo or join a mining pool of miners working together to solve a block. With everything set up, all you need then is a Bitcoin wallet to receive the Bitcoins you mine.