What is cryptocurrency mining?
Cryptocurrency mining (also known as crypto mining) is the method of creating new cryptocurrency and adding components to an existing blockchain. It is the process by which a blockchain network validates new cryptocurrency transactions and adds them to the distributed ledger. The process of crypto mining is used for cryptocurrencies that utilize the proof of work (PoW) method for validating and preventing fraudulent transactions.
Mining is performed using cryptocurrency mining software and hardware components like CPU miners and GPU miners. Crypto mining software can turn a computer into a full-fledged mining device or run in the background and allow normal computer usage.
This sophisticated hardware and software combination solves extremely complex mathematical problems verifying crypto transactions. When a cryptocurrency is successfully mined, for instance, a Bitcoin, the miner receives a predetermined amount of Bitcoin.
In that sense, cryptocurrency mining can be viewed as a competitive process that validates and adds new transactions to the blockchain. There are several reasons why individuals and businesses may choose to mine cryptos. Generating digital currency can be one, and gaining personal capital profit can be another.
However, crypto mining is an expensive process that requires enormous amounts of computing power and electricity. In order to complete the mining process and gain rewards, the miners must arrive first at the correct or closest answer to the mathematical question. This becomes even more difficult as more miners join the network.
Types of cryptocurrency mining
Since Bitcoin is the most ubiquitous cryptocurrency in the world, many a time, cryptocurrency mining is also referred to as Bitcoin mining. There are multiple ways individuals and businesses can mine cryptocurrency.
- Solo mining: Individuals can purchase mining hardware or download crypto mining software into their existing computers and start mining.
- Mining pools: It is the pooling of resources to increase the chance of gaining a reward. With the mining space becoming increasingly competitive, individual miners will have difficulty winning a reward unless they have access to customized computer chips like an application-specific integrated circuit (ASIC). Since such computers are expensive, individuals may have a higher chance of gaining a reward by joining a mining pool.
- Cloud mining: Individuals or businesses can mine by paying a monthly fee for a cloud-based crypto-mining service.
Key things to consider when starting cryptocurrency mining
The following are some of the things to consider or do when starting crypto mining.
- Understand the crypto space: Beginners should spend considerable time understanding the cryptocurrency and blockchain space and get acquainted with commonly used terminologies. Getting familiar with the mining process will help miners in the long run.
- Look for cryptocurrencies that require mining: Since not all cryptocurrencies use proof of work to verify transactions, individuals must look for cryptos that require mining.
- Use a profitability calculator: To compare mining devices while purchasing, use a profitability calculator for the selected cryptocurrency.
- Calculate the return on investment (ROI): When purchasing mining devices, make sure the return on investment is calculated to understand the time frame the miner needs to mine to start gaining profits.
- Reliable power and internet connection: Before starting mining, ensure a reliable internet and power connection.
Cryptocurrency mining best practices
As aforementioned, crypto mining is a resource-intensive process that may not always result in profit. The following are some of the best practices to keep in mind when performing crypto mining:
- Correct software: Choose robust cryptocurrency mining software.
- Secure rewards: Set up a cryptocurrency wallet to store rewards securely.
- Update drivers: Update GPU drivers regularly for efficient performance.
- Join a mining pool: To increase the chance of gaining rewards, join a mining pool.
Amal Joby
Amal is a Research Analyst at G2 researching the cybersecurity, blockchain, and machine learning space. He's fascinated by the human mind and hopes to decipher it in its entirety one day. In his free time, you can find him reading books, obsessing over sci-fi movies, or fighting the urge to have a slice of pizza.
