What Is Crypto Mining ?

30/12/2022 - Actualizado: 29/12/2022

Crypto Mining

What Is Crypto Mining ? Should You Go into this Business?

Crypto mining is a decentralized computing process for processing, securing, verifying, and synchronizing all cryptocurrency-related transactions.

Cryptominers can provide computing power for the complex computing tasks required for solo mining, as well as issuing, and processing cryptocurrency transactions in mining pools.

In fact, the transaction must first be approved by miners and completed by solving digital puzzles with mining machines. As a reward for the "mining process", miners receive cryptocurrency. In the mining pool, the reward is distributed in proportion to the computing power of each participant.

The two pillars of crypto mining are the miners' electronic wallets, where they receive cryptocurrency payments, and the blockchain, which compiles transactions into a list. Transactions are listed in blocks, linked between peers, and verified linearly using a unique "hash".

Therefore, miners record the chained transaction blocks in the virtual ledger of the blockchain. The value of the computing power of the miners is represented by a unit of measurement called hash rate or hash power, which represents the computing power available to solve mining operations.

The higher the hash rate of the miners, the higher the hash rate and the mining reward of the cryptocurrency.

Índice
  1. How Does Crypto Mining Work?
  2. Who Can Mine Cryptocurrencies?
  3. What Equipment Do Crypto Miners Need?
  4. What Are the Dangers of Cryptocurrency Mining?
  5.  Crypto Mining: The Importance of Digital Power

How Does Crypto Mining Work?

Basically, crypto mining is nothing more than a collection of computers solving digital puzzles, using massive amounts of energy in the process and thereby creating value.

Unlike gold miners, cryptocurrency miners don't get their hands dirty; they just provide the hardware and software, and the computer does the actual work.

The confirmation and publication of transactions on the blockchain is described below:

  • Equipment

Miners need electronic wallets and mining hardware and software to perform crypto mining hashes. Graphics cards/processors, cloud mining farms, or special mining hardware called ASICs are often used for this purpose. ASIC provides higher mining performance compared to traditional GPU/CPU.

  • Positioning

Miners can use private bitcoin mining or cloud mining. Miners can mine individually, join a pool of connected miners, or use a powerful mining operation through a cloud mining service provider.

  • Mining
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In mining, computers verify the authenticity of encrypted transactions by keeping track of newly created transaction blocks and recording them as cryptographic hashes on the blockchain when they match (proof of work). Tracking down new blocks can be compared to solving the corresponding coin counting puzzle. The mining process varies from one cryptocurrency to another.

  • Rewards

Miners are rewarded with transaction fees for hashes added to the blockchain and the generation of new cryptocurrency. However, miners are only rewarded if they are the first to add a hash to the blockchain.

Crypto Mining
Crypto Mining

Who Can Mine Cryptocurrencies?

The idea of the inventor of Bitcoin, Satoshi Nakamoto, was to create a decentralized, international and transparent currency that could be used by anyone and not controlled by financial institutions or countries.

Cryptocurrency is available to anyone with internet access as long as they have the necessary hardware and software. While crypto mining used to be profitable, even to a degree for individual miners, those days are long gone.

Cryptocurrencies are now the target of millions of miners. Bitcoin has doubled in value 60,000 times in ten years. What initially appeared to be a level playing field has turned into an arms race for computing power and electricity.

Anyone who wants to make money mining cryptocurrency needs a powerful machine because mining is becoming more difficult and time consuming. Therefore, mining is only profitable when it is done on a large network of interconnected computers or mining operations.

Independent miners will need to invest a lot of money in purchasing high-quality equipment. One of the reasons why mining requires more and more resources is the amount of cryptocurrency in circulation.

Since the value of a coin decreases with the number of currency units, the value of the coin is periodically halved. Therefore, mining requires twice the effort. For this reason, miners can only sustain the extraction of the most sought-after cryptocurrencies with favorable power consumption and high computing power.

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What Equipment Do Crypto Miners Need?

In addition to the required e-wallets or accounts to receive cryptocurrency payments, cryptocurrency miners often require ASIC chips or mining hardware in the form of mining pools or mining rigs.

  • Graphics and CPU

If you want to mine without specialized mining hardware, you need a computer with a very good graphics card (GPU) or a powerful processor (CPU).

  • ASIC miners

Even with the best CPU/GPU, mining rarely makes sense without a dedicated mining rig equipped with ASIC technology. ASIC miners, such as Antminer for Bitcoin, offer chip technology designed specifically for the mining process. The ASIC miner is connected to a router via LAN and configured via a browser. It usually comes with a power supply and does not require any additional hardware. It should be noted that ASIC miners have a high hash rate; that is, they can create many hashes per second. At the same time, there are more and more ASIC-resistant tokens in circulation.

  • Mining pools

It may be more profitable to join a mining pool or join forces with others to form a mining pool. Shared mining, pooled computing power, and distributed rewards based on computing power allow semi-professional users to engage in professional mining. A prerequisite for joining a mining pool is good hardware (such as ASIC miners).

  • Mining farms

Managed mining is highly recommended. In this case, the services of a mining service provider with the necessary computing power for mining will be used. The service also oversees administration and configuration. Mining providers often use mining with data centers dedicated to mining.

What Are the Dangers of Cryptocurrency Mining?

Crypto mining carries some dangers. Some of the threats are illegal mining and its impact on the environment and black-market trade.

  • Illegal mining

Illegal cryptocurrency mining includes online mining tools like Coinhive and malware that accesses other people's computing resources.

Mining programs and tools infect or exploit web pages designed to drain the CPU power of page visitors using Java commands.

Malware mining reuses the principle of encryption by introducing malware to a computer via an infected web page or downloading it and reserving almost all (75-100%) of CPU for mining.

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In most cases, an infected computer automatically becomes part of a mining botnet.

  • Environmental impact of mining

In addition to malware threats, large-scale encryption poses environmental risks. As the demand for hardware and computing power increases, the energy consumption of the farm-type mining process also increases.

Although there are no concrete figures, according to a study by the University of Cambridge and the IEA, cryptocurrency mining uses approximately 127 terawatt hours per year (as of 2021), which is the equivalent annual energy consumption of 17 million people in the Netherlands. China's mining industry alone is expected to consume 297 terawatt hours of electricity and generate 130.5 million tons of carbon dioxide emissions by 2024.

  • Black market and economy.

Comparing the energy consumption of crypto mining with the consumption of small industrialized countries is not unreasonable. Large-scale mining depends on cheap energy prices, which are often available in the poorest countries.

Thus, the big profits in the mining industry come at the expense of countries with the weakest economies and poorest populations. At the same time, the use of cryptocurrencies as a means of payment on the black market has further weakened the economy.

 Crypto Mining: The Importance of Digital Power

The phenomenon called crypto has haunted the financial world since bitcoin software was first released in 2009. With the exception of countries and banks, anyone can generate digital cryptocurrencies on the Internet to earn real money.

But in the world of cryptocurrencies a question quickly arises: what is real money? Cryptocurrencies can be settled through intermediaries just like physical currencies, but unlike gold, they do not represent actual physical value.

So, when it comes to crypto mining, what is it? Crypto mining converts electricity into money. Therefore, those with powerful hardware, high processing power, and cheap electricity have access to the best equipment, just like today's gold miners, and therefore, are more likely to succeed in crypto mining.

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