Blockchain technology is the fastest evolving development in the financial sector. In fact, technology is advancing so rapidly, and applications now buttress even to other niches of the society including social media, education, and medicine among others. Since the entry of cryptocurrencies in 2009, the most dominant thing is mining. In this post, we comprehensively look into cryptocurrency mining and demonstrate everything you need to know about it.
To delve deeper into cryptocurrency mining, it is important to go back at the beginning of cryptocurrencies.
What are cryptocurrencies and how do they work?
Cryptocurrency is digital money. It is a form of currency created to be secure and completely anonymous. Cryptocurrencies were invented to help make payments easy, fast, reliable, and completely anonymous. The currencies are crafted to avoid the risks that come with fiat (conventional) currencies because of direct control by central authorities such as banks and central administrations.
When Satoshi introduced Bitcoin in 2009, the blockchain technology was borne. The technology uses a decentralized system to initiate, execute, and confirm transactions. Because they are fully decentralized, it means that anyone can join and be part of the network. Most cryptocurrencies such as Bitcoin and Ethereum require users to signup and download user clients (blocks) that are installed on their computers. Once you install the user blocks, the computer becomes one of the inter-nodes that can be used for initiating transactions or confirming others. Here are some important terms in cryptocurrency world that you should understand when venturing into mining;
- Transactions: This is any form of funds transfer from one digital wallet to another. Once a transaction is made, it must wait for a confirmation from the different nodes.
- Public ledger: Once a transaction is confirmed, the details are stored in a public ledger. Note that identity of the transactions, as well as the confirming nodes, are fully encrypted.
- Cryptographic: This is a system of cryptography that helps to control coins creation for verifying transactions.
- Native currencies: These are individual coins that run in every blockchain network. They include Ether, Bitcoin, Ripple, Dogecoin, Golem, NEM, Monero, or Dash among others.
What is Cryptocurrency mining?
Mining is the process of confirming transaction in a blockchain network and adding them to the public ledger. For this process to take place, miners are required to solve complex computational problems (think of these as mathematical puzzles). Notably, mining is open source. This means that when a transaction is initiated, all miners in the network get into the race of confirming it. The first miner to get the puzzle right adds a block to the ledger.
The transactions, blocks, the ledger, and miners work together to ensure that no changes can be done after a block has been added. All the correlating transactions become permanent after a block is added. To motivate miners to solve the puzzles and confirm transactions a motivational reward is deposited in the miner’s wallet. Therefore, it is the mining process that gives the native coins value.
One notable thing about cryptocurrency mining is that it keeps evolving. In 2009, the process of mining coins was relatively simple. This could be attributed to the fact that only a few people understood about cryptocurrency and the designers wanted to attract more people. But this has since changed. Today, mining is very complex, and newbies might even find it extremely difficult to start if they have no idea about blockchain technologies.
Some people might ask; why cryptocurrency mining? Mining is a form of investment. The miner devotes his resources such as computer, space, and time to help with sorting multiple blocks when confirming transactions. If you purge out the miner, a blockchain technology will look like a hollow shell. The system would not work. Now, this investment (mining) is what has been drawing a lot of interest from all people.
So advanced is the mining investment that some people are now relying on it as the main source of income. As we are going to demonstrate, some companies have opened doors for cloud mining that rewards the users directly. For others such as Faucet.cloud, users are encouraged to refer other miners to get a proportion of their returns. This means that mining is moving from one level to another. Let us turn to the main mining methods.
The main methods of cryptocurrency mining
The blockchain technologies have demonstrated they have numerous benefits not just to the founders, but the extended communities. For example, the social media has found a unique way of encouraging people to create and publish high-quality posts using blockchain technology and mining. As more players enter the cryptocurrency world, the methods of mining have equally advanced. Here are the three main methods.
CPU/ GPU Mining
This is the least powerful method of cryptocurrency mining. All that you need is a computer with an Intel or AMD Central Processing Unit. Theoretically, the computer can be used to mine cryptocurrencies. But in practice, the process will be very slow according to the current mining standards.
What miners are required to do is enhancing their cryptocurrency hash rate by including additional graphics hardware to their computers. The graphics cards provide additional GPU (graphics processing units) that are meant for heavier mathematical work. This makes them ideal for SHA hashing calculations needed to solve complex blockchain transactions.
The top GPU providers in the market today are Nvidia and ATI. Though their high-end cards can be costly, they provide a significant advantage over the CPU hashing capability. For example, a standard 5970 graphics card will provide more than 800 MH/sec. When compared to a standard CPU that offers only 10 MH/sec, it means that your mining will be greatly enhanced.
At this point, it is critical to note that GPU mining leaves you with multiple options. Unlike other mining methods based on the cloud that is highly specific, GPU allows you to mine multiple currencies. For example, you can use GPU to simultaneously mine Litecoin and Bitcoin because they have different proof-of-work algorithms. You can, therefore, switch between the currencies to keep the risk low, move with shifting demand, and earn more. As blockchain technology keeps advancing, mining is fast shifting from GPU to ASIC.
ASIC/ FPGA mining
Many people especially those who find mining cryptocurrencies using GPU difficult turn to ASIC (Application Specific Integrated Circuits). The ASICs are highly reliable because they are designed to simply do one thing; mine cryptocurrencies at super-sonic speeds. Since these chips are crafted with high specificity, the technology and time required to generate them are very complex. This means they are equally expensive. You can get an ASIC device of between 500 Gigahashes/second to 2 Terahashes per second in the market.
Field Programmable Gate Array (FPGA) is an integrated circuit created to allow further configuration. This means that manufacturers of mining hardware can acquire them and incorporate in their mining equipment. Like the ASICs, the FPGA circuits are particularly programmed for cryptocurrency mining. A single FPGA chip can deliver up to 750 Megahashes/sec. To get more hashing power, companies prefer including more than one chip in every mining unit.
Mining in the cloud
For many mining enthusiasts, getting and managing the hardware is too complicated. With the popularity of cryptocurrency mining continuing to grow rapidly, technology has made it possible for people to mine their favorite coins on the cloud. The process involves mining companies that set distributed servers to allow miners operate from their standard computers.
Most mining companies have many server rooms with multiple graphics cards that multiply the hashing power. Then, they rent the hashing power to miners on a contract basis. They require clients to signup and engage either in fixed or short-term contracts. Most companies measure their hash power in BTC/GH/Day. For example, a client who wants to mine Stellar at 1GH/s per day would be set to 0.0681 BitCoins or R2315. Two great examples of companies offering this service include hashflare.io and genesis-mining.com.
Another type of cloud mining service is through companies that invest in the infrastructure and even help clients do the mining. This means that you simply invest in mining and wait to get returns. A company like faucet.cloud simplifies the mining process so much that anyone can venture into it no matter the experience. You simply signup and buy FCL (the native currency) to start trading. This means you are entirely passive because the system does all the heavy lifting.
Pros of using cloud to mine cryptocurrencies
- The process is quiet because you do not need to install additional hardware in your facility.
- There are no additional electricity related bills.
- You will not be left with redundant equipment after deciding to quit mining.
- The danger of getting let down by equipment suppliers is very low.
- There are no special maintenance costs apart from those associated with your normal computer use.
- It is very easy to start mining because the cost involved for subscription is very small.
Cons of using cloud mining
The main causes of mining failure
While cryptocurrency mining is a great way to get a lot of money, you will be surprised to realize that a lot of people rarely get through the first few steps. To some, even understanding the concept of cryptocurrency is difficult enough to deter them from making a move. But at a time when everything appears to be moving towards the blockchain technology, one can only succeed by understanding what makes others fail in their mining efforts.
Expecting to make a lot of money at once
While mining cryptocurrencies is no doubt lucrative, it is a big mistake to expect to become a millionaire overnight. For many people who have this intention, the chances are they easily get frustrated and give up. The best thing is starting and progressing gradually.
Starting with the most complex cryptocurrencies
Notably, the cryptocurrencies in the market today present varying complexities when it comes to mining. For example, if you start with Bitcoin, the mining complexity is very high compared to others such as Stellar and Ripple.
Not investing in the right system
While it was possible to mine cryptocurrencies using your computer about a decade ago, it is practically impossible today. If you are entering the mining niche, failure to invest in the right equipment will result in failure. The best thing to consider is ASIC or selecting a cloud mining service.