Beginners Guide

The Comprehensive Guide to Cryptocurrency Mining

Author: Qadir AK

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Author

Qadir Ak is the founder of Coinpedia. He has over a decade of experience writing about technology and has been covering the blockchain and cryptocurrency space since 2010. He has also interviewed a few prominent experts within the cryptocurrency space.

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You might be familiar with bitcoin, but, the question is “where do Bitcoins come from?”

Just like,,,

Every human is born from their mother, 

Every Traditional currency is printed out in the form of a Note,

Though, how this bitcoin was born or created?

Well, it comes from the Mining process…

Eventually, bitcoins can’t be printed like traditional currency (which could be printed in the form of notes), thus they’re mined from the system.

A miner is simply an individual who has a computer device that performs a mining program on it. 

Similar to real-world mining, a miner is required to invest their energy to mine these Bitcoin. This computer for miners needs to be able to solve complicated mathematical problems when it can solve these problems, new Bitcoins are issued and distributed to them.

The process of mining crypto is one way to produce cryptocurrency. It’s not just about simply creating new coins, it’s the method by which crypto-coin transactions are verified.

Therefore Miners get twice paid; one time for verifying transactions, and another when they are successful

It sounds profitable!!!

Well, let’s understand more in-depth about crypto mining, how mining work & how one can mine crypto and get a reward out of it.

What is Crypto Mining?

Mining cryptocurrency involves a complicated mathematical and computational process of verifying crypto transactions on the Blockchain network. Individuals who participate in the mining process are referred to as miners and that’s the reason why it is known as crypto mining.

Mining of bitcoin is a procedure that helps to verify bitcoin transactions and also create new bitcoin. In many ways, crypto mining is comparable to gold mining, and as these mining are very energy-intensive, both require an extreme amount of money.

Mining cryptocurrency is a method to protect the blockchain from attack and also to reward miners financially for their efforts on this network to help in its security of it. 

Anyone with a competent home computer could mine cryptocurrencies a decade ago. However, as the blockchain has grown, so has the processing power necessary to keep it running. As a result, almost all mining is now carried out by specialized firms or groups of people pooling their resources.

A decade ago, anyone with a decent home computer could mine cryptocurrencies. 

As the blockchain has grown, so has the processing power required to keep it running, due to this, most mining is now carried out by specialized firms or groups of people pooling their resources.

In 2009, you could’ve made more than 200 Bitcoins using your home computer. But in 2014, it will take you 99 years to mine 1 BTC…

This is the reason why the Application-Specific Integrated Circuit (ASIC) miners were created. They are super-powered computers specifically designed to mine Bitcoins. Since the number of miners has increased in recent years it’s nearly impossible to mine by yourself. 

To address this issue, mining pools were developed. Miners have formed groups to tackle the increasing difficulties in Bitcoin mining. Every miner gets paid his share of part of the work.

Eventually, there are numerous types of cryptocurrency mining that you can select from. So, let’s see what they are…

Various Methods of Cryptocurrency Mining

Below are the various types of cryptocurrency mining that you can select from, as there are numerous options to earn cryptocurrency.

ASIC mining:- This kind of device is developed to mine a particular cryptocurrency. It’s costly, but it typically has the most hash rate, which means it has more power for mining.

GPU mining:- mining using one or two highly advanced graphic processing units (GPUs) which are commonly referred to as graphic cards. They also offer a lot of mining power, however at a relatively high upfront cost.

CPU mining:- While this is the easiest method to mine cryptocurrency, central processing units (CPU) do not have an equivalent amount of computing power for mining in comparison to ASICs or GPUs. Therefore, the profits from CPU mining are low.

Mining pools:- Mining pools comprise miners that work together to earn crypto and share the block reward. Miners pay a tiny percentage of these rewards as a pool charge.

Solo mining:- It is much more difficult to get rewards from blocks by doing this, and therefore mining pools are typically the best option.

Cloud mining:- paying a business to mine cryptocurrency for you, using its mining equipment. Cloud mining is governed by a contract and the terms generally favor the company, not the mining company.

The best sort of mining is dependent on the form of cryptocurrency and the amount that you are willing to put into it. Most of the time the best option is to select ASIC mining, or GPU mining and join mining pools.

Now, let’s understand how this Crypto mining is done and what the various requirements are needed to mine a cryptocurrency. 

How does Crypto Mining Work?

The majority of people see cryptocurrency mining as just an opportunity to create new coins. Cryptocurrency miners can be found on all blockchains that use Proof of Work (PoW) which can be described as the mechanism for consensus that is used to securely process and verify transactions.  

In addition, cryptocurrency mining blocks double spending of digital currency through the shared network and prevent other hacks to the blockchain. 

Before a miner can begin the process of mining cryptocurrency it is necessary to create mining rigs made of computer power and other special tools to tackle the complicated mathematical puzzles effectively. 

The current method of mining cryptocurrency calls for the use of a special GPU (or an app-specific integrated circuit (ASIC) mining device. Furthermore to that, the GPUs within the mining equipment are required to be connected to an internet connection that is stable continuously. Every crypto miner is required to be a part of an internet-based crypto mining group too.

Let’s understand this crypto mining through an example, like how miners get mining rewards for solving a complex mathematical puzzle.

Let’s say Rohan wishes to send 1 BTC to Jack.

Step 1:- The data from the transaction of Rohan are shared with miners in the mining pool. Mining pools are an area where an unverified, or not confirmed transaction awaits verification.

Step 2:- Later, miners begin competing against each other to resolve the mathematical puzzle to confirm and validate the transaction with the proof of work.

Step 3:- Thus, the miner who comes up with the solution first shares his results with the other nodes (miners).

Step 4:- When all the miners have agreed to the solution, thus the new transaction block gets confirmed and then included in the blockchain.

Step 5:- Then the person who solves the challenge earns a bonus in the amount of 6.25 bitcoins and the new 6.25 Bitcoin will be mined in a form of a reward.

Step 6:- After the inclusion of the block transaction all 1 BTC related to the transaction’s data is transferred to Jack from Rohan.

In this manner, a cryptocurrency is mined by a miner and the mining rewards are distributed to the miner.

Well, before you get excited and jump directly on mining crypto, it is very essential to know the basic requirements to start cryptocurrency mining. 

Requirements to Start a Cryptocurrency Mining

Mining can be a way of earning passive income resources, but to earn that passive source of income you’re expected to configure the mining equipment correctly, and there are some expenses to maintain the operation. 

1. Select your crypto

Cryptocurrencies differ in their mining difficulty. The network must exert a lot of effort to mine a block. As more miners join the network, so does the competition. This leads to a higher hashing difficulty. However, if miners leave the network, hashing difficulty decreases, making it easier to mine new blocks.

2. Choose your mining equipment

One type of competition is cryptocurrency mining. Because they have a greater chance of finding the next block, the powerful mining hardware is a huge advantage to miners in the mining competition. 

ASIC miners have a specific purpose and are often the best choice for cryptocurrency mining. However, GPUs can still be used in certain networks. Their efficiency is dependent on the cryptocurrency’s mining difficulty.

3. Install a crypto wallet

To store keys to the cryptocurrency you earn through your mining efforts, you will also need a cryptocurrency wallet. The mining software will transfer the reward to the address you have specified once you have earned something. 

You can, for example, use Trust Wallet to secure your crypto and connect with thousands of projects across multiple blockchains.

4. Configure your mining device

To mine cryptocurrency, you will need to download special mining software. It is best to access the software from the website of the cryptocurrency that you are mining. You can be sure you have the correct software for your cryptocurrency, and you can avoid fraudulent programs.

5. You might consider joining a mining pool

Mining pools are a great way to save money on electricity and hardware as an individual miner. Mining pools increase the probability of finding the next block by creating a larger pool of mining power. 

This means that if you combine your mining power with a pool of mining power, you might be able to earn more than just mining.

But as we all know that mining requires an intensive amount of energy, so the question rises here, whether this crypto mining is worth it?

Let’s find that out…

Is cryptocurrency mining worth it?

Mining cryptocurrency isn’t worth the effort for the average investor since it’s so hard to make an income. While the cost of mining cryptocurrency has not changed significantly, the process that miners use for creating bitcoins has.

To earn a decent amount of profits from crypto mining, you’ll need an Application-Specific Integrated Circuit (ASIC) or Graphic Processing Unit (GPU), as the majority of popular options cost at least $1,000. 

Depending on the currency you mine and how the price fluctuates, breaking even for your mining device may take up to six months, one year, or more. These devices will eventually get obsolete or even fail to function.

The cost of electricity is another major aspect to consider. Mining for crypto is typically energy-intensive and you can’t earn lots of money if you don’t have cheap power.

You’d probably be better off putting the money you’d planned to invest in the mining equipment to invest in cryptocurrency. It could be like buying the cryptocurrency you planned to mine, or examining the cryptocurrency market.

If you’re interested in supporting your favorite cryptocurrency, or you’re willing to invest a significant amount of time to maximize profits mining can be a good alternative. 

Let, see what are various risks and challenges are faced by crypto miners these days. 

Crypto Mining Risks and Challenges

Every new venture is not 100% risk-free, as the miners earn their money in Bitcoin, the price volatility is a significant revenue risk. Operating risks include issues like the possibility of issues with connectivity to the internet as well as overheated ASICs and hacking of systems. 

However, considering the size and the protection and security of Bitcoin and security of the Bitcoin network, the risk of hacking is still low.

Most important is the reliability and availability of electricity, because electricity is so essential to the operating model, miners must examine the redundancy of their electricity supply. 

Down below we’ve listed out some of the risks and challenges which were faced by numerous early crypto miners, while they think of mining. 

  • High Upfront Cost Can Result in Operational Inefficiencies
  • Huge energy consumption and carbon Footprints from Mining
  • Introduction of New Blockchain Technologies May Affect Mining
  • The Volatility of Mined Cryptocurrency
  • Issuance of Additional Share
  • Involvement of Centralized authority
  • The fear of Bankruptcy when you run out of Funds
  • Uncertain Market Conditions
  • Dangers of a New Industry
  • Unstable Share Prices

Well, there are many risks and challenges which we could face while planning to mine cryptocurrency on our own. A few countries admire cryptocurrency but some nations are in a dilemma about accepting it. 

But, does this mean that crypto mining is illegal? Is it globally appreciated?

Is Crypto Mining Legal?

Authorities and jurisdictions across the world have not yet enacted regulations governing cryptocurrency, meaning that for the vast majority of nations, the legality of cryptocurrency mining is still unclear.

According to the Financial Crimes Enforcement Network (FinCEN), crypto miners are regarded as money transmitters and could be under the laws that regulate that operation. A country like Israel regards crypto mining as a business and therefore taxed under the corporate income tax. 

In India and other countries, there is a lot of uncertainty regarding the regulatory framework even though Canada and the United States appear friendly to cryptocurrency mining.

However, apart from jurisdictions that have specifically banned cryptocurrency-related activities, very few countries prohibit crypto mining.

Conclusion

Mining serves a crucial purpose to verify and validate new transactions added to the blockchain. It also helps to prevent double spending by criminals.

A certain amount of technical knowledge is required for mining, especially when it comes to acquiring and setting up your equipment. You should do your research to find out the details of the cryptocurrency you are interested in mining. To receive possible mining rewards, you will need to create a crypto wallet.

However, the cryptocurrency ecosystem is constantly changing, so be aware of the latest developments and updates to the projects. They could change the way that cryptocurrency mining occurs.

FAQs

  • What is Crypto mining?

Mining is the process by which Bitcoin and other cryptocurrencies generate new coins and verify transactions.

  • Which cryptocurrency is the best for beginners?

Monero, the most popular cryptocurrency, can be mined using browser extensions or free software found on websites.

  • Is it difficult to learn crypto mining?

Mining is a highly competitive business but it is easy to start.

  • How long does it take for 1 BTC to be mined?

It may take solo miners around 10 minutes to mine one Bitcoin, despite the higher difficulty rate and more advanced systems.

  • Is it possible to mine Bitcoin for free?

Bitcoin mining software can be downloaded for free, but there are significant electricity and hardware costs.

  • Are there high-risk crypto mining?

Cryptocurrency is volatile and can become liquid at any moment. It is best for high-risk investors who are willing to take on risk. Crypto investors could lose their entire investment.

  • Can You Mine Bitcoin on Your iPhone?

No. Bitcoin mining requires today huge amounts of computing power as well as electric power to run.

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