Cryptocurrency mining is the primary means through which cryptocurrencies are generated. Mining is the process through which transactions are verified and become part of the public ledger and is the mechanism through which most new cryptocurrencies are released. Recent transactions are compiled into blocks (sometimes referred to as shards etc), each block is mined by solving a progressively computationally difficult puzzle. The first miner to solve the puzzle places the next block on the blockchain and claims the transaction fees associated with the compiled transactions in the block and the newly released cryptocurrency.
For Bitcoin, the block reward (new bitcoin released each mined block) is halved every 210,000 blocks (approximately 4 years). The block reward for Bitcoin has progressively gone down from 50 in 2009 to 12.5 in 2019 and the expected total release of Bitcoin will be 21M.
To keep block discovery (block mining achieved through solving the puzzle) constant most cryptocurrencies enlist self-correcting mechanisms. Thus, the more computational power is invested in mining across the cryptocurrency network, the greater the difficulty of block discovery and vice versa.
Almost as significant as the cryptocurrency generation nature of mining is its transaction verification function. The block reward represents a portion of the new block placed on the cryptocurrency network and so incentivise the process of driving the public ledger of verified transactions forward. This allows cryptocurrencies like Bitcoin to be safely and predictably created without centralised financial regulation. A proof-of-work is used to validate each block and is obtained after investing considerable processing power, e.g. Bitcoin uses Hashcash. Additionally, each obtained block is broadcasted to the mining network and so verified by all miners.
As blocks are mined through computational power, there has been a move away from CPU mining as was prevalent in the hay days of Bitcoin towards GPU mining, which was comparatively more cost effective, to Application-Specific Integrated Circuit (ASIC) mining specifically designed to mine cryptocurrency. The first ASICs for Bitcoin were released in 2013 and have since gone efficient redesigns. The key for cryptocurrency miners is to ensure that their energy bills are lower than the revenue generated through mining so that the venture remains profitable and worthwhile.
ASICs tend to be the most worthwhile means of cryptocurrency mining with dedicated manufacturers catering to the market, some doing so privately and others publicly. Bitmain is one of the first manufacturers of a consumer-grade ASIC miner, representing meaningful return on investment.
Readers should remember that ASIC mining has become necessary for more popular cryptocurrencies like Bitcoin because of how much computational power is currently invested in mining. Keen investors will note that one can dedicate resources towards more accessible GPU mining to acquire newer coins. These may represent more significant returns on investment.
Less well-known cryptocurrencies, with the potential to boom upon market discovery, particularly in bullish market seasons, may be mined with less expensive hardware, with easier block discovery because less computational power is being invested in block discovery because of present market non-discovery, and upon market discovery, the value of the coins might significantly appreciate. In such an eventuality, while GPU mining perhaps may not remain viable because of the increase in computational resource investment relative to increases in cryptocurrency demand, the cryptocurrency mine prior to this will have appreciated at a significant enough level to meaningfully give life to the phrase “rags to riches”.
These days it is common for miners to band together in mining pools where resources are pooled to mine blocks of data. The mining reward is split proportionally between all participants. This leads to much faster mining however it is important to be aware of specific reward allocation varying between mining pools.
How to get started:
- You can purchase an ASIC device specifically for Bitcoin mining (e.g. the Antminer S9 by Bitmain). These can be costly. To keep start-up costs low and to mine other coins, you can build your own mining rig. For this you need to invest in high-performance GPUs (the AMD Radeon RX 580 is a popular option) and set-up a PC. Upon assembly, you’ll have to install an OS (e.g. Windows 10) and install mining software (from the cryptocurrency’s website). Alternatively, you can rent hash power from cloud mining companies online. They will offer a fixed amount of GH/s of mining power for a fee. This will allow you to keep hardware and energy costs low, but you should be wary of how it compares to the rewards you are receiving.
- Set-up a wallet for the cryptocurrency you are choosing to mine. Instructions to do so will be available on the cryptocurrencies website.
- Choose a mining pool, create an account, download their software and enter your wallet details for pay-outs when applicable. F2Pool (largest variety of mineable cryptocurrencies), Slush Pool, AntPool, BTC.com and KanoPool are all respectable mining pools to get started with.
- To actually get started with mining, you’ll need to download mining software, e.g. GUIMiner, which has a user-friendly interface as the name implies. Once launched, you’ll select the Server of your mining pool from GUIMiner’s Server list, enter the username and password of the Worked allotted to you by your mining pool, select your graphics card from the Device menu and select “start mining”. GUIMiner will then communicate with servers to get shares of blocks for your machine to mine.
- You can improve your rig’s performance through overclocking and effective heat management.
- As a hobbyist miner (compared to large-scale mining farms in China), your goal of keeping mining profitable will be best realised through keeping up with the information NouVive releases on new and under-capitalised cryptocurrencies. This will allow you to maximise the tokens you gain through mining at the lowest cost because you won’t need specialist hardware given that less computational power will be invested towards mining on those networks than the Bitcoin network. Thus, when the cryptocurrency you’re mining appreciates in value, you can cash your tokens out for an impressive net profit.
You can calculate the revenue of mining various cryptocurrencies based on your set-up’s hash rate on F2Pool, a popular mining pool.
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