Table Of Contents
- What Is Cryptocurrency Mining?
- Proof of Work
- Mining Pools
- How Much Can A Cryptocurrency Miner Earn
- How To Start Mining Cryptocurrencies
What Is Cryptocurrency Mining?
Cryptocurrency mining is a method of verifying and adding transactions to the blockchain through computing power. A transaction will be validated, or mined for verification if it receives certain confirmations from miners on the network.
Mining of bitcoin works on a generally agreed upon algorithm known as “Proof of Work”. Cryptocurrency transactions are only allowed to be updated when verified miners update the digital ledger. This prevents double-spending, but also gives these individuals with an extra responsibility of securing the network from being manipulated.
Proof of Work
Proof of work is a cryptographic zero-knowledge proof that allows one party (the prover) to prove to others (the verifiers) that they have done some computational effort.
A cryptographic hash is created by miners in order to access new coins. This cryptography secures data that has been transferred on the public network, and it needs solving complex mathematics problems. Miners compete with each other to solve these mathematical equations first so they can find their block of transactions onto a ledger for rewards.
Cryptocurrency mining pools allow miners to come together and combine their computational resources in order to increase the chances of creating a block on a blockchain. The reward is distributed across all members proportionately based on each member’s contribution. Some crypto mining applications even have built-in options for creating your own pool. However, enthusiasts can also join existing online communities that form their own custom pools as well, because some pools give more rewards than others, miners are free to change pools whenever they need to.
Miners looking to find the best mining pool can use a website like Cryptocompare. Cryprocomap, they will have access to all of the features and technical information that is needed for them in order to understand what makes a good crypto mining pool or which one would be most efficient with their resources.
Learning about the process of mining and determining which coins or tokens you’ll aim to mine is also useful because it gives you an idea of what equipment are required.
How Much Can A Cryptocurrency Miner Earn
The rewards for Bitcoin mining are reduced by half every four years. When bitcoin was first mined in 2009, mining one block would earn 50 BTC. By 2016, this had halved to 25 BTC and then on May 11th 2020 when it reduced further to 6.25BTC per block. With the price of a single coin currently at $50,345 that means completing just 1 block could have made you over $314,718.
How To Start Mining Cryptocurrencies
To start mining cryptocurrencies, you need to purchase all the necessary equipments. You’ll also need to join an online pool of miners that work together on blockchains and share the mining rewards. Then download software applications needed for your computer’s operating system so it can connect with others in the network who are solving these complex problems through math calculations, the more people there are working toward verifying transactions as fast as possible, the faster they all get paid out by their respective pools.
Not all cryptocurrencies can be mined, and each cryptocurrency that can be mined has its own specific method for mining it. One of the first steps you’ll need to know if you’re interested in cryptocurrency mining is figuring out what cryptocurrencies are available to mine and how they work. You also need figure out how much effort is required for your preferred type of coin – some require more power than others.
Step 1: Buy A Computer With The Appropriate Hardware.
You can’t mine cryptocurrencies with regular computers because the processing power isn’t enough to solve complex mathematics problems. There is a need for faster and more powerful computers in cryptocurrency mining. GPUs and ASICs are the best options to do this, because they can complete complex tasks quickly due to their high processing power.
You need a GPU (Graphics Processing Unit) or an ASIC (Application Specific Integrated Circuit) in order to set up a mining rig.
GPUs – Cryptocurrencies such as Zcash, Ethereum and Monero can be mined using a GPU. Some of the best GPUs include Nvidia GeForce GTX 1070, AMD Radeon RX580 and Nvidia GeForce GTX 1060.
ASICs – Cryptocurrencies like Bitcoin and Litecoin require a lot of processing power to mine them, which is why ASICs are so successful in mining these coins. Some best ASICs include the Antminer S9 and AvalonMiner 921.
Step 2: Prepare A Cooling System
When mining, it’s important to cool down the hardware system. Electric fans can be helpful in doing so while also ensuring that you do not overheat (which may cause damage to your hardware) when things get really hot, if heat is still intense, open the windows or turn on the exhaust fan/AC
Step 3: Prepare Your Wallet Address
Cryptocurrency exchanges such as Coinbase can be used to open an account where you will receive rewards from mining to set up a wallet on your computer, head to the Coinbase website and go through their quick verification process. This will allow you to generate an address that can be used for mining coins into your account.
Step 4: Download Mining Software
Download mining software, but beware of dodgy ones which can damage your computer. There are different types depending on the cryptocurrency you want to mine.
Once you’ve downloaded a legitimate one, connect it to your hardware.
Step 5: Join a Mining Pool
Mining cryptocurrencies on your own is only profitable when the currency is new. However, this will become increasingly difficult as time goes by because of increasing mining difficulty levels.
Mining cryptocurrency can be extremely lucrative in its early days but it gets harder to mine over longer periods of time due to increased competition and higher difficulties set for mining each subsequent block.
Nodes – These are the individuals and devices that exist within blockchain, such as your computer and other cryptocurrency miners.
Miner – Miners verify unconfirmed blocks in the blockchain by verifying their hashes, then add them to it when they’re rewarded with cryptocurrencies for doing so.
Transaction – A cryptocurrency transaction is an agreement between two parties to transfer ownership of a particular unit of the cryptocurrency coin. Each blockchain record contains information about sender, receiver and amount transferred. It doesn’t contain any personal data or other identifying material that could be used for accessing user accounts directly.
Hash – A cryptocurrency hash is a unique string of numbers produced by your mining software each time you successfully verify the blockchain. A hash function takes an input and returns a fixed-size alphanumeric string called, for example, ‘9a74b75f7e44d622045c353787ee6313’.
Nonce – A nonce is a number or value that can only be used once in authentication protocols and cryptographic hash functions.
Block – Blocks are files where data on the Bitcoin network is permanently recorded. A block records some or all of the most recent transactions that have not yet entered any prior blocks.