What is mining?
Over the past few years, cryptocurrencies such as Bitcoin’s popularity is quietly growing as more and more people buy and sell them. Now that Bitcoin has gone mainstream and has become a global phenomenon, more people than ever are looking to get into the cryptocurrency game.
However, the production of cryptocurrencies is completely different from the production of ordinary money. There is no central authority to issue new banknotes. Instead, bitcoin coins (or any other so-called "alternative coins") are generated through a process called "mining". So what is cryptocurrency mining and how does it work?
Cryptocurrency Mining and Blockchain
Before we can grasp the process of cryptocurrency mining, we need to explain what a blockchain is and how it works. Blockchain is a technology that underpins almost all cryptocurrencies. It is the public ledger (decentralized register) of every transaction made in that cryptocurrency.
These transactions are assembled into so-called "blocks". These are verified to ensure that they are legitimate by cryptocurrency miners. This will check that the same coins are not spent again before the transaction clears, and that the input and output fees match. Then connect the next sequential transaction block to it. This is how cryptocurrencies are created and new ones are made.
Mining new blocks
Since there is no central authority or central bank, there must be a way to collect every transaction made in cryptocurrency to create a new block. The network nodes that perform this task are called "miners". Every time a large number of transactions are aggregated into a block, they are added to the blockchain. Anyone who attaches a block is rewarded with some cryptocurrency.
To prevent miners from building a lot of blocks and devaluing the currency, making this task harder. This is achieved by having miners solve complex mathematical problems called proof-of-work.
Calculate the hash value (hash)
In order to successfully create a block, it must be accompanied by a cryptographic hash that meets certain requirements. The only feasible way to reach a hash that matches the correct conditions is to simply compute as many hashes as possible and wait until you get a matching hash. Once the correct hash is found, a new block is formed and the miner who found it is awarded cryptographic units.
Think of it as one of those contests where you have to guess the weight of the cake - only you get unlimited guesses and the first contest to submit the correct answer is the winner. Whoever guesses the fastest has a greater chance of winning.
Cryptocurrency mining restrictions
In practical terms, this means that miners are competing with each other to calculate as many hashes as possible in the hope of being the first to hit the correct hash, form a block and get their cryptocurrency spending people.
However, the difficulty of computing the hash also increases - each new bitcoins becomes harder to mine. In theory, this ensures that the rate at which new blocks are created remains stable. Many cryptocurrency pairs also have certain limits on the number of units that can be generated. For example, there are only 210,000 Bitcoin worlds. After that, mining a new block will not generate any bitcoins.
Requirements for cryptocurrency mining
While you used to be able to mine your own cryptocurrency with a standard PC, this is no longer feasible. The quality and quantity of hardware required for efficient mining increases with the number of excavators. Demand has taken a leap from reasonably capable processors to high-end GPUs, to multiple GPUs working together, and now to ASIC chips dedicated to crypto mining.
Today, you must spend over $1,000 on proper hardware to successfully mine most modern cryptocurrencies. At the same time, energy consumption is very high - you need to keep an eye on these rising costs when running your machine 24/7. Most miners spend the vast majority of their income on maintaining and running equipment.
Just as the Bitcoin hype is more or less completely shrouded in the wider public consciousness, organizations have invested more and more in it, effectively industrializing cryptocurrency mining . Huge warehouses are littered with expensive graphics cards, with floor-to-ceiling shelves lined up for the sole purpose of mining new units for mining. Bitcoin, Ethereum, Zcash and more have become the new normal.
What is cloud mining?
Cloud mining is bitcoin mining using remote data centers with shared processing power. This type of cloud mining allows users to mine bitcoin or other cryptocurrencies without managing hardware. Mining equipment is stored and maintained in a facility owned by the mining company, and customers only need to register and purchase a mining contract.
What are the advantages of cloud mining?
No need to deal with excess heat
No fan noise
Low electricity bills
No space required
No hardware/software/technical experience required.
No pre-order mining hardware that may not be delivered on time
You can start mining immediately
24/7 uptime
What are the disadvantages of cloud mining?
No fun! If you like building your own mining system.
Reduced profits – fees will be incurred for cloud mining services
Lack of ownership of mining hardware