A Detailed Guide On How Crypto Mining Works
Crypto mining is the process of earning cryptocurrencies by recording and confirming transactions on a public digital record of transactions known as a blockchain, and this is accomplished through the use of computers to solve cryptographic equations.
So what is crypto mining? Well, in a traditional setting a central body like a bank is the validator and keeper of all transactions. However, since blockchain infrastructure is trustless and centreless, a new consensus mechanism had to be established to validate transactions. Blockchain is a technology that supports a distributed public ledger. To maintain a decentralised public record of transactions, multiple nodes (computers) are employed to validate a transaction. It does by solving a complex mathematical problem. The validation of a transaction removes the chances of double spending a cryptocurrency. As soon as a node verifies a transaction, a new block is added to the chain and the validator is rewarded with the cryptocurrency in question for their effort.
Anyone can set up a system and become a validator. All you need to have is mining hardware, a crypto mining software and a cryptocurrency wallet to hold your crypto earnings. So what are the hardwares one can use for mining, what are the different types of crypto mining available, what are the risks and cost. We would answer all your questions about crypto mining in this article.
How Does Crypto Mining Work?
Back in the day, around 2010, Bitcoin mining was easier as very few people knew about it and a regular CPU would have done the job. But with time and growing popularity, the difficulty of solving the mathematical problem increased. So, today if you do want to become a cryptocurrency miner you need to spend money on either of the two hardwares. There’s an upfront cost associated with Bitcoin mining which includes the hardware (also known as rig) cost and electricity. The cost could exceed $15000 and it might take time before you break even. So, tread with caution.
Graphics Processing Units (GPUs) are devices that many miners use to mine cryptocurrency. They have an upper hand over CPUs as they have an improved hash rate. Another feature of GPUs is they can be used to mine more than one type of cryptocurrency of different blockchains. For instance, miners use GPUs to mine ETH, which is second to Bitcoin in terms of market cap.
ASIC or Application-specific Integrated Circuit is a hardware for mining cryptocurrency that was released in 2012. Computers with an ASIC rig are faster than GPUs by 200 times. As of 2021 ASIC can compute about 100 hashes per second making it a powerful tool for mining Bitcoin. However, it is costly as you must have already imagined and the installation cost can go up to $15000.
FPGA or Field-programmable Gate Array mining rigs are even faster than GPU and ASIC. It is compatible with many mining algorithms and one can use it to mine multiple cryptocurrencies which gives it the extra edge. Set up cost of FPGA could be around $6000.
Cloud Mining is a great option for those who wish to try out crypto mining cost effectively. Personally, we feel it is a great option too as there’s no guarantee as to whether a particular node will be able to validate a transaction. So, for regular miners there’s no point of spending so much on something that can’t warrant sure-shot results. Instead, you can buy a cloud server that supports mining or buy a contract from a cloud mining provider. You can make your buying decision based on the hash rate the provider is offering or the duration until which you can use the service. A typical cloud mining provider offers these contracts in lieu of the multiple ASIC miners they are running.
Is Crypto Mining and Crypto Minting the Same Thing?
People at times confuse between crypto mining and crypto minting. But these are two different concepts. Crypto mining uses a proof-of-work consensus mechanism whereby a validator works hard to solve the mathematical problem and thereby provides a proof of this effort and gets to mine a crypto as an incentive. On the other hand, crypto minting involves buying a certain cryptocurrency and locking it up to provide liquidity and getting a portion of the transaction fees as reward. For more details check out this article on crypto mining vs crypto minting.
- Buy a mining hardware like ASIC or FGPA
- Buying storage space at a cloud mining server is another cost-effective option
- Installing crypto mining software. (Check out this 2022 list)
- Get yourself a crypto wallet
Here’s a list of cryptocurrencies that you can also mine in 2022 other than Bitcoin and Ethereum.
- Haven Protocol
- Ethereum Classic
- Bitcoin Gold
Before concluding, we must let you know that crypto mining is not as profitable as it used to be in the early days. It involves a big investment and there’s no guarantee of when you would be able to mine a cryptocurrency and break even the cost. So, it’s a pursuit suitable for big investors. However, if you still want to give it a shot, feel free to get in touch with a cloud crypto mining service provider at half the cost of the actual investment. However, stay away from scammers and never share your private keys with anyone or pay crypto as the so-called ‘upfront cost.
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