What is Cryptocurrency Mining

2 Years ago / Wiki / Mining of Cryptocurrency

The process of mining Bitcoin and many other cryptocurrencies is called mining. This is one of the cornerstones of cryptocurrencies, distinguishing them from fiat and other electronic currencies. Mining can not be compared with the usual print of money, because it has certain functions. And most importantly - almost everyone can do the mining.


 How Crypto-Currency Mining Works

The term mining itself comes from the word Mine. In technical words, this process is an activity to maintain the network by closing and creating blocks in Blockchain using computing power. Miner uses the power of equipment to perform special calculations to find a digital signature (hash) that will close the block. Miner, who "finds" a digital signature, receives a reward in the form of cryptocurrency. Mining supports network operation, it guarantees its protection against duplicate transactions.

In simple words, mining is the extraction of cryptocurrency using the capacities of special equipment. For Bitcoin and a number of other coins, this is the only way to increase emissions. Miners receive remuneration, as their activities ensure the functioning and integrity of the entire system. This is the main function of mining. 

At the initial stages, the anyone could be engaged in almost any computer using the processor's powers. When in 2009, Satoshi Nakamoto started Bitcoin, he initially laid the maximum emission of coins - 21,000,000 BTC. Bitcoin also recalculates mining complexity every 2016 blocks (this is approximately 2 weeks). Similar properties of the system protect bitcoin from inflation and are the reason why more and more powerful equipment is required to extract new coins. According to forecasts, all BTC coins will be mined in the middle of the 22nd century (arround 2140 year).

Already in 1-1,5 years after the begining of Bitcoin mining, people began to use powerful video cards, launched in the mode of Crossfire or SLI. This gave miners opportunity to repel their investments in a few weeks. But the minimum requirements for profitability continued to grow. By the 2012th year, Bitcoin mining even on the most powerful CPUs (processors) has become unprofitable. There came the era of farms installations that connect powerful video cards, as well as ASICs, specialized mining equipment.

Now even powerful PCs do not mine more than a few dozen cents a day. A similar situation with single video cards on stationary computers.


Mining pools

In connection with the growing complexity of the production of crypto-currencies, pools began to form - the merger of miners. As we noted above, in order to receive a reward, the miner needs to find a digital signature to close the block. In the solo mode, even a powerful farm will take a lot of time. Therefore, pools are created that unite miners. Each member of the pool receives a reward equivalent to the mining capacity.


PoW and PoS

When dealing with Bitcoin, the efficiency of mining depends directly on the performance of the equipment, the Proof-of-Work protocol is used. It protects the network and is the basis of the reward system in the mining. The more the miner did the work, the higher his reward will be.

Some cryptocurrencies use the Proof-of-Stake protocol. In this case there is no mining possible. Network protection is provided by the presence of crypto currency on wallets. The etherium platform plans to switch to this protocol. This means that the mining of ETH in the future will cease. This was announced by the creator of Ethereum Vitalik Buterin:

"When we move to the Proof-of-Stake protocol, the need for Ethereum mining will drop dramatically at the first stage. Proof-of-Stake uses an algorithm that does not require that a large number of computers constantly make calculations. This is an algorithm where a coin is used inside the platform itself. The consensus will become much cheaper and safer. And in fact, miners can lose their business. "


Types of Mining

pof-pow.pngMining can be classified according to the form and equipment used. Main types:

  • Mining on the server is essentially the same as mining on the CPU, only with high performance. May be suitable for coins like Monero at low electricity tariffs. It may have potential in the future with the apperance of new cryptocurrency.
  • Mining on phones and laptops - even the most powerful models show minimal efficiency. You will not earn anything on android. With laptops, the situation is similar. This is only a way to get acquainted with the mining through wi-fi.
  • Browser mining is the process of mining crypto currency through the implementation of a special JavaScript script. The effectiveness is minimal. Many browser-based services are created for fraudu purposes and implement a hidden miner into the file system of users without their knowledge.
  • Mining using asics (ASIC) is an effective way to mine the Cryptocurrency. ASIC - processors are made with a special architecture, sharpened for mining. Such devices have a high payback rate and are easy to maintain. Cons - low liquidity in the secondary market and rapid obsolescence of the ash due to the growing complexity of the network and ability to mine only one type of Cryptocurrency without possibility to switch.
  • Mining on computer processors (CPUs) is an inefficient way to mine cryptocurrency. Only may be suitable for those who have access to a large number of computers and free electricity.
  • Mining on video cards (GPU) is relevant for most cryptocurrencies, including Ethereum, dash and others. Effective when using powerful video cards like Radeon or GeForce (4gb+). It is suitable only for cryptocurrency mining, which price can potentially increase many times.
  • Farms - an installation that combines several powerful video cards (GPU). It shows high efficiency, with the ability to sell equipment on the secondary market it is rather safe. The increase in the number of miners increased the demand and, as a consequence, the prices for cards.
  • Hidden mining is the extraction of cryptocurrency using the capacities of others people equipment through the distribution of a special program (virus). The hidden miner is "glued" to regular files and is crooked by antivirus software. The best assemblies of such viruses are almost impossible to remove from the computer's memory or to be detected by antivirus software. For this version of mining not only PCs of other people are used, but also VPS and VDS.
  • Mining on HDD - is based on the protocol Proof-of-Capacity. The more "miner" can provide disk space for mining, the higher the efficiency will be. The pioneer among the crypto currency with the Proof-of-Capacity protocol was the BURST coin. To earn at least $ 1 a day, you need more than 500 terabytes of disk space. You can not get bitcoin or lightcoin by this method.
  • Cloud mining - the production of cryptocurrency on leased servers in a web format. Miners pay companies money for renting equipment and remotely cryptocurrency. The effectiveness of this method depends on the tariffs of services for cloud mining, the current exchange rate, and the complexity of the network.