imtoken下载钱包地址|cryptocurrency mining

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2024-03-14 13:29:50

最强科普--加密数字货币挖矿全景图 - 知乎

最强科普--加密数字货币挖矿全景图 - 知乎首发于eos切换模式写文章登录/注册最强科普--加密数字货币挖矿全景图钟亮比失败还失败/末本/真的是钟本聪他爹近期，一个名叫Chris McCann外国人发表了一篇《Overview & Landscape of the Mining Industry》文章，全面调研了加密数字货币挖矿产业链全景图，在这里和大家分享。As of July 2019, Bitcoin miners generate $6B+ in revenues (mining rewards + transaction fees) on an annualized basis.Mining and the underlying hardware that secures Bitcoin and other cryptocurrency projects is an often overlooked market within the cryptocurrency sector. However in conjunction with the exchange landscape, mining is one of the core markets which generates significant revenues.In this post I will share an overview of the Bitcoin & crypto mining space, the underlying hardware which powers mining, an ecosystem landscape, and dive into the revenue & market size of the space.截止 2019 年 7 月，比特币矿工年均创造了超过六十亿美金的收益（挖矿奖励+交易手续费）。在加密数字货币领域，确保比特币及其它加密数字货币网络安全的基础硬件和挖矿活动是一个经常被人忽视的市场。然而，挖矿和交易，都是创造可观利润的核心市场。在这篇文章中，我将分享比特币及其它密码学货币挖矿领域的概况、支撑挖矿的基础硬件、行业的生态，并深入探究这个领域的收益和市场规模。How Cryptocurrency Mining Works 密码学货币挖矿原理简介Proof-of-work (mining) is the process in which new transactions are added to the Bitcoin blockchain and how the correct order of such transactions are agreed upon (consensus).One of my favorite analogies of the process is to think of it like a sudoku puzzle. It’s a puzzle that takes a lot of brainpower to solve, but once it’s solved it's very easy for everyone else to verify that you have found the correct answer.（这里放了一个youtube的一个视频解释挖矿的原理，链接不过来，所以删除了）Essentially, miners (computers geographically distributed around the world) compete to solve a computationally intensive puzzle which verifies the next block in the blockchain (in addition to the underlying transactions within the block). The miner who solves this puzzle first is the person who is able to claim the reward (the “coinbase reward” + transaction fees). Once the next block is found all of the miners on the network are able to verify that the block is correct, and move onto solving the next block in the chain.工作量证明（挖矿）是指将新交易添加到比特币区块链上、并对这些交易的合理顺序达成一致（共识）的过程。关于这个过程，我最喜欢的一个类比就是把它想象成一个数独谜题（译者注：需要在一个 9*9 的盘面上根据已有的数字推演出其它数字，保证每一行、每一列、每一个粗线设置的九宫格内的 1~9 都不重复）。它是一个需要烧死大量脑细胞才能解出来的难题，但是一旦解出来了，其他人就很容易验证你的答案是否正确。从本质上来说，矿工（地理上分散在世界各地的计算机）相互竞争着解决一个计算密集型的难题，一旦解出来就可以确证区块链上可（连带打包在区块中的交易）产生下一个区块。第一个解决难题的矿工可以获得区块奖励（“coinbase 奖励” + 交易手续费）。一旦新区块被创建，网络中的所有矿工都可以验证该区块的正确性，然后进入到解决下一个区块难题的竞争中。The Role Miners Play in the Bitcoin & Crypto Ecosystem矿工在比特币和区块链生态系统中扮演的角色All of the computers around the world racing to solve the next puzzle are the participants that make up the mining ecosystem. The collective computational resources are one of the core ingredients which provides the underlying security guarantees Bitcoin provides.Through this network, Bitcoin participants are able to expect:Their transactions will be confirmed on the Bitcoin blockchain.Their transactions will be in the correct order (protect against double spends).The history of the Bitcoin blockchain will stay intact (immutability).In return miners are compensated both in newly minted Bitcoin (“coinbase rewards”) + the transaction fees associated with each transaction. If participants want stronger guarantees on when their transaction will be added to the Bitcoin blockchain, they can increase the transaction fees they are willing to pay for their transactions.世界各地竞争着解决下一个难题的所有计算机都是挖矿生态系统的参与者。可汇总的计算资源是为比特币提供基本安全保障的核心要素之一。通过这个网络，比特币的使用者们可以期望：他们的交易将被比特币区块链所确认。他们的交易将按照合理的顺序被打包（防止一笔钱花两次）。比特币区块链的历史将保持不变（不可篡改性）。作为回报，矿工可以同时获得新挖出的比特币（“Coinbase 奖励”）和区块中每笔交易的手续费。如果用户希望自己的交易被及时打包到比特币区块链上，他们可以自愿增加为自己的交易所支付的手续费。Hardware Used in Mining用于挖矿的硬件While in the beginning of the Bitcoin network, it was profitable to mine Bitcoin using consumer grade central processing units (CPU’s), the Bitcoin network has developed to such a scale where it is impractical to do so now.The Bitcoin ecosystem is largely dominated by application specific integrated circuits (ASIC’s). For most other cryptocurrencies, graphics processing units (GPU’s) and field-programmable gate array (FPGA's) are the dominant form factors. A number of coins also exist with the same hashing algorithm at Bitcoin (SHA256) that are compatible with Bitcoin mining ASICs.在比特币网络的早期，使用消费级的 CPU 挖比特币还有利可图，然而，比特币网络发展到如今的规模，再这样做已经不切实际了。目前，比特币生态系统内的矿机由专用集成电路（ASIC）主导。对于其它绝大多数密码学货币而言，图形处理器（GPU）和现场可编程门阵列（FPGA）是主要的矿机形态。还存在许多和比特币使用同一种哈希算法（SHA256）的密码学货币，它们也兼容比特币的 ASIC 矿机。Mining Ecosystem Landscape挖矿生态系统的景观Below is a graphic of the mining sector in its totality, from the chips to the end user services:下面是一张从芯片到终端用户的挖矿生态系统全景图：Foundry代工厂Taiwan Semiconductor (TSMC) and Samsung are the two core semiconductor foundries which produce all of the silicon wafers which go into mining hardware. Taiwan in particular has a dominant share of the chipset supply chain.For example: NVIDIA, AMD, Xilinx, Bitmain, and Cannan all use TSMC for their core production lines.台积电（TSMC）和三星是两家核心的半导体制造商，它们生产了所有挖矿硬件所采用的硅晶片。尤其是台积电，它在芯片组供应链中占据了主导地位。举例来说：英伟达、AMD、赛灵思（Xilinx）、比特大陆和嘉楠耘智全部使用台积电作为其核心生产线。Packaging, Testing, Assembly打包，测试，组装Once the wafers are complete you need to test them, cut them apart, package them into the final chip, and retest. This whole process is typically handled by OSAT companies (outsourced assembly and test companies) with the two largest of such being ASE Group (Taiwan) and Amkor Technology.晶片生产出来之后，你需要对它们进行测试，切分，并把它们封装进最终的芯片中，然后重新测试。整个流程通常由 OSAT 公司（外包封装测试公司）处理，其中最大的两家公司是 ASE 集团（台湾）与 Amkor Technology。IC Design and Manufacturers 集成电路设计与制造商* 绝大部分集成电路公司都没有披露它们的 OSAT 供应商。The companies which design and sell the chips are typically referred to as fabless chip companies (the fabrication itself is left to the foundry and OSAT companies).For GPU’s, the two top manufacturers are NVIDIA and AMD. For FPGA’s, the top manufacturer is Xilinx. For crypto specific ASIC’s, the top three companies are Bitmain, Canaan, and Pangolin Miner (producer of the Whatsminer line).In addition to these three manufacturers there are other IC design companies in the space including: Ebang, Innosilicon, Bitfury, Obelisk, and others.设计和销售芯片的公司通常被称为无晶圆芯片公司（制造本身由代工厂和 OSAT 公司负责）。对于 GPU 而言，最顶级的两个制造商是英伟达和 AMD。而对于 FPGA 而言，最顶级的制造商是赛灵思。对于专门用来进行密码学货币挖矿的 ASIC 芯片而言，最顶级的三家制造商则是比特大陆，嘉楠耘智，和穿山甲矿机（Pangolin Miner）（神马(Whatsminer)矿机系列的制造商）。除了这三类制造商之外，这个行业中还有一些其它的集成电路设计公司，包括：翼比特，芯动科技，Bitfury，Obelisk，等等。英伟达和 AMD 为所有的用例生产 GPU，而不仅仅是挖矿。市场份额来自 Jon Peddie Research 的估算。表中的估值是在比特大陆和嘉楠耘智赴港交所上市失败后的最后估值。Miners & Mining Farms矿工和矿场After the chips have been produced, they can now be used to mine cryptocurrencies. ASIC’s are especially designed to mine one mining algorithm (typically SHA256 & Bitcoin) while GPU’s have more flexibility built in.Miners include: people using one machine to mine, small mining operations (5-10 machines), medium sized mining farms (10-100 machines), large scale mining operations (100-1,000 machines) to industrial scale mining farms (1,000+ machines). Some of the largest operations I’ve heard of so far are in the range of 100,000’s of machines across multiple geographies.In addition to designing the chips some of the manufacturers mine themselves as well (Bitmain, Canaan, Pangolin). Bitmain, for example, publicly discloses their “self-mining” monthly.Any sized mining operation can be pointed at a mining pool (more on these later) or if large enough they can self mine - aggregating all of their hashpower to find blocks directly, without commingling their hashrate with other miners.*It is quite controversial that the mining chip producers potentially use their own machines to mine before selling them. However if you really do have a device that generates revenue, there is no reason why you would leave it unused in inventory, but rather you would utilize it until you could sell it.芯片被生产出来之后，就可以用来挖密码学货币啦。ASIC 芯片被设计成专门挖一种挖矿算法（通常是 SHA256 或者说比特币），而 GPU 则更具灵活性。矿工包括：使用一台机器进行挖矿的人，小型挖矿作业（5-10 台机器），中等规模的矿场（10-100台机器），大规模矿场（100-1,000台机器）到工业规模的矿场（1,000 台以上机器）。迄今为，我听说过的最大规模的矿场在多个地区运行了多达 100,000 台矿机。除了设计芯片以外，一些制造商自己也参与挖矿（例如比特大陆，嘉楠耘智，穿山甲）。举例来说，比特大陆每个月都公开披露他们自己的挖矿状况。大大小小的矿工都可以加入到一个矿池（将在后文详细介绍）中，如果矿场的规模足够大，他们还可以 solo 挖矿—— 只汇集自己的哈希算力来直接寻找区块，不与其他矿工混合算力。* 一个颇有争议的地方在于，挖矿芯片的制造商在出售芯片之前，可能会提前使用它们进行挖矿。然而，如果你真的有一台能产生利润的设备，你也没有理由把它闲置在仓库里，你也可能会在卖出去之前用它来挖矿。Pools (Single and multi-currency)矿池（单币种和多币种）For individual to non-industrial miners it is more economically rational to join a pool rather than to self mine. Pools aggregate the hashpower of many miners together to smooth out the reward curves for each individual miner. The pool is in charge of optimizing all of the hashpower, running the mining notes, collecting & distributed rewards, and taking a fee on top for the service.There are some pools that specialize in specific cryptocurrencies (Sparkpool: Ethereum & Grin) and other pools which have setup various pools covering all of the top cryptocurrencies (Antpool, F2Pool, Poolin, Slushpool, etc). All of these pools started by specializing in one cryptocurrency (typically Bitcoin) and have thus expanded to cover all forms of cryptocurrencies.One of my favorite analogies of how mining pools work is to think of it like the office lottery pool. By pooling together all of the lottery tickets, all of the individuals (miners) have a better chance of winning the reward (block reward).However with mining pools you are both trusting the service to both report the correct earnings and the correct number of tickets everyone in the pool has. To bring transparency there are services like PoolWatch that try to track and compare the reporting across various mining pools.对于从个体到非工业级别的矿工来说，在经济上更加合理的做法是加入一个矿池，而非自己单独挖矿。矿池把许多矿工的哈希算力汇集了起来，使得每个矿工的回报曲线能够更加平滑。矿池负责优化所有的哈希算力、运行挖矿程序、收集并分配奖励，并对这些服务收取额外的费用。有一些矿池专注于挖特定的密码学货币（例如星火矿池，专注于以太坊和 Grin），而其他矿池则设置了多种矿池，覆盖了所有主流的密码学货币（蚂蚁矿池，鱼池，币印矿池，Slushpool，等等）。所有的这些矿池一开始都是专注于挖一个密码学货币（通常是比特币），后来才扩展到涵盖所有形式的密码学货币。关于矿池的运行方式，我最喜欢的一个类比是将它想象成办公室的彩票池。通过把所有人买的彩票汇集到一起，每个人（矿工）都有更大的机会赢得奖励。然而，使用矿池就意味着要信任矿池 —— 每个人拥有的准确算力份额以及合理的收入，都由矿池来记录并分发。为了提高透明度，有一些类似 PoolWatch 的服务会跟踪和比较各种矿池的报告。Hashrate Marketplaces算力市场As a miner in addition to using your own hashrate for mining, you also have the option to sell your hashrate to someone else. Often, this is done in a marketplace - the biggest of such marketplaces is NiceHash. A smaller, peer-to-peer marketplace is Mining Rig Rentals.On these marketplaces, people can both sell their hashrate and/or purchase hashrate on any given set of mining algorithms across any kind of cryptocurrencies. Although there are a lot of reasons why someone would want to buy hashrate, one of the top reasons is buying hashrate is used as a form of onramp into cryptocurrencies.Often times people are using hashrate to speculate on various cryptocurrencies — e.g. want to purchase SHA256 hash rate and use it for Bitcoin SV instead of Bitcoin. (a terrible trade…)矿工除了直接挖矿以外，还可以把自己的算力卖给别人。现实中也是有这样的算力买卖市场的——目前最大的市场是 NiceHash。除此以外，还有一个更小的点对点的算力市场：Mining Rig Rentals。在这些市场中，人们可以同时出售他们的算力和/或购买算力——任何密码学货币的任何算法都行。尽管人们购买算力的原因很多，然而其中最主要的一个原因就是购买算力是一个拥有密码学货币的入口。很多时候人们使用算力来炒作各种密码学货币——例如，想要采购适合 SHA256 的哈希算力来挖 BSV 而不是比特币（实在是一笔不划算的买卖···）Cloud mining云挖矿Cloud mining are services where consumers can purchase hashrate contracts directly, instead of operating any hardware themselves. It’s similar to the hashrate marketplaces above the cloud mining services typically are operated by one central supply.Two of the biggest companies in this space are Genesis Mining (US) and Bitdeer (Asia). Again similarly to above one of the top reasons is buying hashrate is used as a form of onramp into cryptocurrencies. Through this method, people can use fiat to purchase Bitcoin and other cryptocurrencies directly without going through an exchange.云挖矿即直接买卖的算力合同，消费者无需接触任何硬件。有点类似于上面提到的算力市场，通常是由一个中心化的供应商来运营的。这个领域中最大的两家公司是 Genesis Mining（美国）和 Bitdeer (亚洲)。也与上面提到的类似，人们使用云挖矿服务的一个主要的原因是购买算力被当成获取密码学货币的一种入口。通过这种方式，人们可以使用法币来直接购买比特币或其他密码学货币，而不用通过交易所。Smart Miners智能矿工Smart miners is a new category that has emerged. Mining is a complex endeavor in which participants need to have an understanding of hardware, networking, energy, forecasts of hashrate, optimizing for specific algorithms, etc. On top of this, all of these inputs are constantly changing on a daily basis with new long tail cryptocurrencies constantly coming and going.Smart Miners, like Honeyminer, aim to optimize all of these factors to allow miners, both consumers and professionals, to earn as much as possible with the hashpower they have. Two other similar products are HashFish and Cudo Miner.In a short period of time these products have aggregated a considerable amount of the supply side hashpower of the marketplace.智能矿工是最近出现的一个新的品类。挖矿是一个复杂的任务，它要求参与者了解硬件，网络，能源，算力预测，以及针对特定算法的优化等等。此外，随着新的密码学货币不断涌现以及旧的密码学货币的消亡，所有的这些因素每天都在不断地变化。像 Honeyminer 这类智能矿工软件，旨在同时优化上述所有的因素，使得普通的消费者和专业人士都可以通过拥有的算力尽可能多地挣取收益。另外还有两个类似的产品——HashFish 和 Cudo Miner。在短时间内，这些产品在供应端聚集起了可观的算力。Size and Revenue of the Mining Market挖矿市场的规模和收益The crypto mining industry generates over $8 billion in revenue on an annualized basis.Revenue comes from both the block rewards + the transaction fees included in every single block on all proof-of-work blockchains. Based on the most recent CoinMetrics data on June 25th, 2019 the mining rewards, here is the weekly, monthly, and yearly revenue run rates of mining in total.以年为单位计算，密码学货币挖矿行业每年创造超过 80 亿美金的利润。在所有基于工作量证明的区块链中，利润来自区块奖励和每个区块中包含的交易手续费。根据 CoinMetrics 在 2019 年 6 月 25 日公布的最新的挖矿奖励数据，下面是挖矿行业每周，每月，以及每年的挖矿收益。比特币占到所有加密数字货币挖矿领域的75%However the overall revenue the mining sector generates is directly tied to the price of the underlying cryptocurrency, so it is highly reflexive back to the underlying cryptocurrency market (hence why Wall Street will have a tough time understanding the companies in this sector). More on this below.这也与今天（2019 年 7 月 1 日）比特币占据主导地位的市场份额相符合。根据 CoinMarketCap 的数据，比特币占据了 60% 的市值。然而，挖矿行业创造的整体利润与其所挖密码学货币的价格直接挂钩，所以它会反过来直接影响密码学货币市场（因此，华尔街很难理解这个行业里的公司）。下面将详细介绍。Understanding the Profitability of the Mining Sector理解挖矿行业的盈利情况The overall revenue, cost, and profitability of participants in the mining sector is hinged on a few key factors.挖矿行业参与者的整体利润，成本，和盈利情况受到少数几个关键因素影响。Capital Expenditure (Capex)The main capex expense for miners is the cost of the mining machines themselves + any facilities/buildout which are needed to run the operation.For example if you wanted to purchase 10,000 of the most recent Bitmain S17 models, this would cost $16M at retail price. Large miners can get special pricing; however, when machines are highly in demand it’s hard to even secure supply much less negotiate on rates.This does not take into account the cost of setting up the facilities which have turned from hobbyist activities into real professional industrial scale operations.资本支出（Capex）矿工主要的资本支出是挖矿机器本身的成本加上运营该机器需要的所有设施/建筑物。举例来说，如果你想要按照零售价采购 10,000 台最新的比特大陆生产的蚂蚁矿机 S17，需要花费 1,600 万美金。大型矿工可以特价采购。然而，当矿机的需求很高以至于很难保证供应时，价格的优惠力度会很小。这还没有把建设设施的成本考虑进来，这些设施将挖矿从业余爱好变成真正专业的工业规模项目。Operational Expenditure (Opex)运营成本（Opex）The main opex expense for miners is the cost of electricity to power the machines on a daily basis.For example. if you were running 10,000 Bitmain S17 miners 24/7 this would cost you $36,000 per day (~$13M per year) in energy cost at $0.05 per kilowatt hour (kWh) - just to power the miners alone.The average cost of electricity is highly variable based on where you live and what electricity source you are using:对于矿工来说，主要的运营成本是每天运行矿机所需的电费。举例来说，如果你 7*24 小时地运行 10,000 台比特大陆的 S17 矿机，按每度（kwh）电 0.05 美金计算，每天将会花掉你 36,000 美金（每年大约 1,300 万美金）的电费——仅仅是支撑矿机运行而已。电费的平均支出视矿机所在地域和所用电力来源而定，差别很大：Miners are inherently incentivized to find the cheapest sources of energy around the world, which is why Coinshares estimates that 75% of the energy that powers the Bitcoin network comes from renewable sources, largely hydroelectric energy.In addition to the energy costs to power the mining machines, the other ongoing opex costs include: cooling, staff, maintenance, security, and general facility operations. A general rule of thumb is to 1.5x the energy cost to give a rough estimate on the ongoing opex costs.Following our example above for a mining operating of 10,000 Bitmain S17 a rough estimate on the cost side would be:$16M Capex + $3M (import tax) + $4M (Facilities + security)$20M Opex (yearly)$67M Revenue potential (based on today’s Bitcoin price).This is a rough estimate just to show the scale of factors miners are dealing with. The true cost would be highly dependent on your geographic location, buildout, etc.However even these factors are always in flux, due the the market factors which will we will cover below.矿工的本性激励他们去寻找世界上最便宜的能源，这就是为什么 Coinshares 估计支撑比特币网络运行的 75% 的电力来自可再生能源，主要就是水力发电。除了维持矿机运行所需的电费以外，其它不间断的运营成本还包括：散热，人工，维护，安全和普通设施运营。一般来说，可以粗略地估计不间断的运营成本是电费的 1.5 倍。根据我们上面关于运营 10,000 台比特大陆的 S17 矿机的例子，可以粗略地估计其成本为：1,600 万美金的资本支出 + 300 万美金（进口税）+ 400万美金（设施+安全）2,000 万美金的运营成本（每年）6,700 万美金的潜在收益（基于今天的比特币价格）以上只是一个粗略的估计，仅仅是为了展示矿工需要付出的各种成本的规模。真正的成本将完全取决于你所处的地理位置和所用建筑等。然而，由于我们下面将介绍的市场因素，上述成本将不断变化。Market factorsWhile opex and capex are two factors miners can control, there are market forces at play which greatly determine the profitability of mining.市场因素尽管资本支出和运营成本是两项矿工可以控制的因素，但市场的力量在很大程度上决定了挖矿的盈利情况。Miner costs & available supply矿工成本 & 可见的供给Unlike many traditional products, the mining producers (Bitmain, Canaan, Whatsminer, etc) will vary the price on the mining machines based on the profitability (the Bitcoin price) of the machines.During big pull runs the price swings of the underlying cryptocurrencies + the mining machines themselves can swing wildly. In crazy periods there are whole secondary markets dedicated to just purchasing more hardware, and older machines can even become profitable again too.In general I would always expect the price of machines to be priced close to the fair value the machine can generate at that point in time.On top of this mining hardware tends to be supply constrained, especially with the newer machines. In keeping with our Bitmain S17 example, these machines are entirely sold out. Talking to some of the people on the team they don’t expect to have supply available until November at the earliest.与很多传统的产品不同，矿机制造商（比特大陆，嘉楠耘智，神马矿机等等）会根据矿机的盈利情况（比特币价格）来调整矿机的价格。当密码学货币的价格出现大幅拉伸时，矿机本身的价格也会随之剧烈波动。疯狂时期，整个二级市场都在抢购更多的矿机，即使是老的矿机也能咸鱼翻身。总的来说，我总是希望机器的定价能接近在那个时间点可以创造的公允价值。除此之外，矿机的供用往往是比较受限的，尤其是比较新的矿机。继续拿上面提到的比特大陆的 S17 矿机为例，这些机器已经被抢购一空了。与团队中一些人交流时，他们告诉我，他们并不指望在 11 月初以前能保证充足供应。HashrateThe chance of a miner solving the next block is directly proportional to their hashrate relative to the hashrate of the total Bitcoin network (using Bitcoin as an example for simplicity).An oversimplifying example to illustrate this is if you as a miner controlling 1% of the Bitcoin hashrate (compared to the overall Bitcoin hashrate) then you would expect to earn 1% of the total rewards from the Bitcoin network.算力矿工获取下个区块打包权的机会与他们的算力占整个比特币网络算力的比重成正比（为了简单起见，使用比特币来进行说明）。用最简单的例子来说明，如果你作为一名矿工，拥有的比特币算力占全网算力的 1% ，那么你就可以期望自己从比特币网络获得总奖励的 1%。However, the overall hashrate of the Bitcoin is always changing so the profitability of each miner depends on how many miners enter or leave the ecosystem. The Bitcoin protocol does have an internal method on adjusting the difficulty level .不过，比特币网络的总算力总是处于不断变化之中，因此每个矿工的盈利情况取决于有多少矿工加入或离开这个生态系统。比特币协议有一套内部的方法来调整挖矿难度。Bitcoin PriceSince the block reward is paid out in the underlying cryptocurrency. For example if you are mining Bitcoin, the block reward you earn is paid out in Bitcoin itself. Given this the reward amount is directly tied to the price of Bitcoin itself.The more Bitcoin is worth, the more mining rewards are worth. To engage in mining you have to be inherently long the cryptocurrency you are mining, because your profitability is dependent on it.One of the major reasons why Bitcoin is the dominant cryptocurrency (outside of being first) is Bitcoin’s transparent, open, and fair supply schedule. From the genesis block, Bitcoin has a fixed supply schedule with a fixed supply - there will only be 21M Bitcoin ever created.Mining is the way new Bitcoin are created and emitted into the world. Today each Bitcoin block reward is 12.5 Bitcoin; however, this amount decreases every 210,000 blocks. At block #630,000 (estimated around May 24th, 2020) this reward will drop to 6.25 Bitcoin - this is referred to as the halvening event.To see how halvening events have affected the Bitcoin and other cryptocurrency networks before, check out this great post by CoinMetrics looking at prior halvening events.If you would like to go even further into the supply schedule of Bitcoin and what happens after all of the Bitcoin is created, see these two posts about Bitcoins supply and overall security budget (shoutout to Dan Held for covering this topic throughly).TLDR - The price of Bitcoin and underlying supply schedule of Bitcoin greatly affects the profitability of mining itself.比特币价格因为区块奖励是直接以底层的密码学货币支付的。举例来说，如果你在挖比特币，那么你赚到的区块奖励就是用比特币来支付的。因此，奖励的价值与比特币本身的价格直接挂钩。比特币越值钱，挖矿的奖励就越值钱。要从事挖矿行业，你必须发自内心地看好你所挖的密码学货币，因为你的盈利情况取决于它。比特币在所有密码学货币（除第一名之外）中占据主导地位的主要原因之一就是它透明、开放而公平的发行计划。从创世区块开始，比特币就有一个固定的发行计划，规定了它发行的上限——最多只会有 2,100 万枚比特币被创造出来。挖矿是创造比特币并将其流通到全世界的一种方式，今天每个比特币的区块奖励是 12.5 个比特币；然而，这个数量随着每挖出每 21 万个区块就减少一次。当第 63 万个区块（估计是在 2020年 5月 24 日左右）被挖出来时，区块奖励将减少到 6.25 个比特币——这也被称为减半事件。想要了解之前的减半事件是如何影响比特币和其它密码学货币网络的，请查看这篇来自 CoinMetrics 的非常棒的文章，他们梳理了以前的减半事件。如果你想更进一步了解比特币的发行计划，以及当比特币都被挖完以后会发生什么，请参阅这两篇关于比特币发行和总体安全预算的文章（为 Dan Held 带来的全面报道打 call）。一句话总结 —— 比特币的价格和比特币的基础发行计划极大地影响了挖矿本身的盈利情况。My Key TakeawaysAfter diving deep into the cryptocurrency mining space here are my biggest takeaways:While often overlooked the mining industry & underlying hardware plays a very important role in blockchain networks.Hashrate = cryptocurrency = money. For many people hashrate is the key on-ramp into the crypto world.Just like we see the financialization of Bitcoin, I predict we will see a similar financialization of hashrate.If you are an entrepreneur working in this space building marketplaces, exchanges, financial products, or any related services within the mining industry I’d love to chat with you. My contact info is listed on our fund website: Proof of Capital.A big thank you to Edith Yeung. Noah Jessop, Jane Wu, and a few other large miners who prefer to stay anonymous for providing feedback on this writeup.我的主要收获在对密码学货币的挖矿领域进行深入研究之后，以下是我最大的收获：我们往往忽视了挖矿行业和基础硬件在区块链网络中扮演的重要角色。算力 = 密码学货币 = 金钱。对于许多人来说，算力是进入加密世界的关键。正如我们看到比特币的金融化一样，我预测我们将看到算力也会类似地金融化。如果你是在这个领域内开办算力市场，交易所，提供金融产品，或任何与挖矿行业有关服务的企业家，我很乐意和你交流。可以在我们基金的网站上找到我的联系信息：Proof of Capital。非常感谢 Edith Yeung，Noah Jessop，Jane Wu，以及其他几位愿意匿名为这篇报道提供反馈的大矿工们。（完）原文链接: https://www.chrismccann.com/blog/crypto-mining-101-overview-and-landscape-of-the-mining-industry发布于 2019-08-14 12:37btc挖矿比特币投资比特币 (Bitcoin)赞同 83 条评论分享喜欢收藏申请转载文章被以下专栏收录eos未来已来，你

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How Does Bitcoin Mining Work?

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Table of Contents

What Is Bitcoin Mining?

Why Bitcoin Needs Miners

Why Mine Bitcoin?

What You Need to Mine Bitcoin

What Are Mining Pools?

The Mining Process

Downsides of Mining

FAQs

The Bottom Line

Cryptocurrency

Bitcoin

How Does Bitcoin Mining Work?

Euny Hong

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Updated March 09, 2024

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What Is Bitcoin Mining?

Bitcoin mining is the process by which transactions are officially entered on the blockchain. It is also the way new Bitcoins are entered into circulation. Mining is conducted using hardware and software to generate a cryptographic number that is equal to or less than a number set by the Bitcoin network's difficulty algorithm.

The first miner to find the solution to the problem receives the Bitcoin reward, and the process begins again. The Bitcoin reward miners receive is an incentive that motivates them to assist in the primary purpose of mining: to earn the right to record transactions on the blockchain for the network to verify and confirm.

Before investing time and equipment, read this explainer to see whether mining is really for you.

Key Takeaways

Bitcoin miners receive Bitcoin as a reward for creating new "blocks" which are added to the blockchain.Mining rewards are paid to the miner(s) who discovers a solution, and the probability that a participant will be the one to discover the solution is related to the network's total mining capacity.You need a graphics processing unit (GPU) or an application-specific integrated circuit (ASIC) to set up a miner.

Throughout, we use "Bitcoin" with a capital "B" when referring to the network or the cryptocurrency as a concept, and "bitcoin" with a small "b" when we're referring to a quantity of individual tokens.

Why Bitcoin Needs Miners

Blockchain "mining" is a metaphor for the computational work that network nodes undertake to validate the information contained in blocks. So, in reality, miners are essentially getting paid for their work as auditors. They are conducting the first verification for Bitcoin transactions, opening a new block, and being rewarded.

Only 1 megabyte of transaction data can fit into a single Bitcoin block. The 1MB limit was set by the creators. This limit has become controversial because some miners believe the block size should increase to accommodate more data, which would effectively mean that the Bitcoin network could process and verify transactions more quickly.

Why Mine Bitcoin?

One of the primary reasons people invest time and money in mining is for the reward, which, over time, has become very valuable. For example, on March 8, 2024, Bitcoin's price topped $70,000 for the first time, closing at $68,285. The reward at the time was 6.25 bitcoin—at closing, that reward was worth $426,781.25.

However, the rewards for Bitcoin mining are cut in half every four years. When Bitcoin was first mined in 2009, mining one block would earn you 50 BTC. In 2012, this was halved to 25 BTC. By 2016, this was halved again to 12.5 BTC. On May 11, 2020, the reward halved again to 6.25 BTC. The reward is predicted to halve again in April 2024 to 3.125 BTC.

Due to the halving process and increasing prices, miners want to receive as many bitcoins as possible because the supply of new coins is slowly dwindling. Sometime around 2140, there will be no more new bitcoins created.

The competitive incentive to mine will disappear, with only the transaction fees remaining as a reason to participate in Bitcoin's network. Some miners might still participate to take part in a decentralized currency, but it's likely that without the reward, most people will not want to mine unless the fees increase enough to make it worth their while.

Image by Sabrina Jiang Â© Investopedia 2021

If you want to estimate how much bitcoin you could mine with your rig's hash rate, the mining pool NiceHash offers a helpful calculator on its website. Other web resources provide similar tools.

What You Need to Mine Bitcoin

The majority of the Bitcoin network capacity is owned by large mining firms and pools. It is still possible to participate in Bitcoin mining with a regular at-home personal computer if you have one of the latest and fastest graphics processing units. However, the chances of receiving any rewards mining on your own with a single GPU in your computer at home are minuscule. You'll need to find a mining pool (discussed later) to increase your chances.

For instance, a card you can purchase for a couple of thousand dollars would represent less than 0.001% of the network's mining power. With such a slight chance of finding the next block, it could be a long time—if ever—before you solve a hash because it's all about how many hashes per second your machine can generate. You may never recoup your investment.

Mining Hardware

To be able to mine, you'll need to invest in one of the top graphics processing units (GPUs, often called video cards) for your computer or an application-specific integrated circuit (ASIC). Capable GPUs can range in price from about $1,000 to $2,000; ASICs can cost much more, into the tens of thousands of dollars.

Today, most of the Bitcoin mining network's hashing power is almost entirely made up of ASIC machine mining farms and pooled individual miners. Today's ASICs are many orders of magnitude more powerful than CPUs or GPUs. They gain more hashing power and energy efficiency every year as new chips are developed and deployed. For the right price (more than $11,000), you could mine at 335TH for 16.0 joules per tera hash (16 watts at one trillion hashes per second). There are much more affordable versions, but the more you pay, the faster you can hash.

What Are Mining Pools?

Mining pools are operated by third parties and coordinate groups of miners. By working together in a pool and sharing the payouts among all participants, miners have a better chance of being rewarded than alone.

Most pools use a payout system based on how much work you contribute. For instance, if you have a GPU providing 121 mega (million) hashes per second and the pool has a total hash rate of 121 exa (quintillion) hashes per second, your reward would be based on the shares of work you contributed (and be very small).

The Mining Process

Mining is a complex process, but in a nutshell, when a transaction is made between wallets, the addresses and amount is entered into a block on the blockchain. The block is assigned some information, and all of the data in the block is put through a cryptographic algorithm (called "hashing"). The result of being hashed is a 64-digit hexadecimal number (called a hash).

The Hash

Here is an example of a hash:

0000000000000000057fcc708cf0130d95e27c5819203e9f967ac56e4df598ee

The number above has 64 digits. As you probably noticed, that number consists not just of numbers but also letters. Why is that?

The decimal system uses factors of 100 as its base (e.g., 1% = 0.01). This, in turn, means that every digit of a multi-digit number has 100 possibilities, zero through 99. In computing, the decimal system is simplified to base 10, or the numbers zero through nine.

"Hexadecimal," on the other hand, means base 16 because "hex" is derived from the Greek word for six, and "deca" is derived from the Greek word for 10. In a hexadecimal system, each digit has 16 possibilities. However, our numeric system only offers 10 ways of representing numbers (zero through nine). That's why you have to add letters—specifically, the letters A, B, C, D, E, and F.

Image by Sabrina Jiang Â© Investopedia 2021

Target Hash and Nonce

Miners are guessing a number that is lower than the target hash. The target hash is a hexadecimal number set to require an average number of attempts.

Miners make these guesses by adding "nonces" to the information being hashed. "Nonce" is short for "number only used once," and it is the key to generating these 64-bit hexadecimal numbers.

When information is hashed, it always produces the same output unless something changes. So, the mining program sends block information with a zero as the first nonce through the hashing function. If that number is wrong, the nonce is increased by a value of one, and the hash is generated again. This continues until a hash that is less than the target hash is generated.

Here are some examples of hashes and the criteria for whether they would lead to success for the miner:

Note: These are made-up hashes.

Image by Sabrina Jiang Â© Investopedia 2021

Hash Example

So, if you were to hash "Hello World!" using an online SHA256 generator, you might get:

7f83b1657ff1fc53b92dc18148a1d65dfc2d4b1fa3d677284addd200126d9069

Add a digit to the end, like "Hello World!0" and rehash it. You might get:

e59f8bdf1305e382a4919ccefd613d3eebae612aa4c443f3af2d65663de3b075

Then, increase the number by one—"Hello World!1" and rehash it. You might get:

9e2be792bcd092bd5ab7bdac7bda1ae5d0db9f6d052a3c819615900c7c06e9be

This is mining, but it's done automatically by the mining program. It takes trillions of attempts for the network of miners to find the solution.

The screenshot below, taken from the site Blockchain.info, might help you put all this information together at a glance. You are looking at a summary of everything that happened when block No.490163 was mined. The nonce that generated the "winning" hash was 731511405 (remember, the nonce starts at zero and increases by one every attempt). The target hash is shown on top. The term "Relayed by AntPool" refers to the fact that this particular block was completed by AntPool, one of the more successful mining pools.

As you see here, the contribution to the Bitcoin community is that the pool confirmed 1,768 transactions for this block. If you really want to see all 1,768 transactions for this block, go to this page and look through the Transactions section.

Blockchain.info

You'll also notice the difficulty level for this block. The Bitcoin network aims to produce one block every 10 minutes or so. The system is designed to evaluate and adjust the mining difficulty every 2,016 blocks or roughly every two weeks (based on the number of participants). This doesn't always result in a blocktime of 10 minutes, but it's close.

The mining difficulty number represents 2,016 divided by the average time it took to mine one block in the last period, multiplied by the old difficulty level, or:

= Old difficulty x ( 2,016 ÷ average time to mine in the last period )

The lowest difficulty level is 1.0—the higher the number is, the more difficult the solution is to find. The difficulty level on March 9, 2024 (measured on March 7) was 79.35 trillion. You might see this published as 79.35T.

Downsides of Mining

The risks of mining are generally financial. Bitcoin mining requires that you go through all the effort of purchasing hundreds or thousands of dollars worth of equipment only to have the possibility of no return on your investment.

In some jurisdictions, mining and using Bitcoin is not legal. It may be a good idea to research your country's regulatory stance and overall sentiment toward cryptocurrency before investing in mining equipment.

There are several concerns about Bitcoin mining's environmental impacts and carbon footprint. For instance, the energy required by the network is vast, approximated by some to equal the energy used by smaller countries.

Though microchip efficiency has increased dramatically for ASICs, large mining firms generate a large amount of electronic waste (e-waste) as they continually upgrade their equipment to meet the ever-growing hashing speeds needed to remain competitive. Digiconmist estimates that the amount of e-waste created annually is 27.66 kilotons.

Mining equipment also generates a lot of heat, so your cooling bill will likely increase—especially if you have one or more ASICs running 24 hours daily.

There are, however, efforts to mitigate this negative externality by seeking cleaner and green energy sources for mining operations (such as geothermal or solar sources) and utilizing carbon offset credits.

Switching to less energy-intensive consensus mechanisms like proof-of-stake (PoS), which Ethereum has transitioned to, is another strategy; however, PoS comes with its own set of drawbacks and inefficiencies, such as incentivizing hoarding instead of using coins and a risk of centralizing consensus control.

How Long Does It Take to Mine 1 Bitcoin?

The Bitcoin reward is expected to be cut in half in April 2024 to 3.125 every 10 minutes. In 2028, 1.5 bitcoin will be mined every 10 minutes; in 2032, it will take 10 minutes to mine 0.78 bitcoin.

Is Bitcoin Mining Legal?

In many jurisdictions, Bitcoin mining is legal. However, there are still some countries where it is illegal, so it's important to check the activity's status in your country before you start mining.

Does Bitcoin Mining Actually Pay?

Bitcoin mining can be profitable if you contribute enough hashing power to a mining pool to receive larger rewards. If you're solo mining at home on your computer, you might never see any rewards.

Is It Still Profitable to Mine Bitcoin?

You can still receive rewards by joining a mining pool, but because the reward halves over time and you're competing with businesses that specialize in mining, the chances of profit continue to fall.

The Bottom Line

Bitcoin "mining" serves the crucial function of validating and confirming new transactions on the blockchain. It is also the way that new Bitcoins are introduced into the system. It is possible to mine on various hardware and machines, but for a chance of profitability and to be competitive, you'll need to join a mining pool.

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Bitcoin.org. "Bitcoin: A Peer-to-Peer Electronic Cash System."

Bitcoin.org "FAQ."

NiceHash. "CPU/GPU Mining | Check Your Profits."

Bitmain Tech. "ANTMINER S21 Hyd."

Bitmain. "Shop."

KeyCDNTools. "SHA256 Generator."

BitInfoCharts. "Bitcoin Block Time Historical Chart."

Blockchain.com. "Bitcoin Network Difficulty."

University of Cambridge Judge Business School. "Cambridge Bitcoin Electricity Comsumption Index."

Digiconomist. "Bitcoin Electronic Waste Monitor."

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Bitcoin halving explained. Find out about Bitcoin's halving process works and what it means for Bitcoin's price and its users.

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What Is Crypto Mining? Overview, Benefits, & Risks | Britannica Money

Is Crypto Mining? Overview, Benefits, & Risks | Britannica MoneyHistory & SocietyScience & TechBiographiesAnimals & NatureGeography & TravelArts & CultureGames & QuizzesVideosOn This DayOne Good FactDictionaryLifestyles & Social IssuesPhilosophy & ReligionPolitics, Law & GovernmentWorld HistoryHealth & MedicineScienceTechnologyBrowse BiographiesBirds, Reptiles & Other VertebratesBugs, Mollusks & Other InvertebratesEnvironmentFossils & Geologic TimeMammalsPlantsGeography & TravelEntertainment & Pop CultureLiteratureSports & RecreationVisual ArtsCompanionsDemystifiedImage GalleriesInfographicsListsPodcastsSpotlightSummariesThe ForumTop Questions#WTFact100 WomenBritannica KidsSaving EarthSpace Next 50Student CenterSubscribe NowMoney HomeHousehold FinanceInvestingRetirementHistory & TheoryTable of ContentsIntroductionWhat is crypto mining?How does crypto mining work?Pros of cryptocurrency miningCons of cryptocurrency miningThe bottom lineTable Of ContentsInvestingWhat is crypto mining and how does it work?It’s like digging for digital gold.Written byAllie Grace GarnettAllie Grace GarnettAllie Grace Garnett is a content marketing professional with a lifelong passion for the written word. She is a Harvard Business School graduate with a professional background in investment finance and engineering. Fact-checked byKarl MontevirgenKarl MontevirgenKarl Montevirgen is a professional freelance writer who specializes in the fields of finance, cryptomarkets, content strategy, and the arts. Karl works with several organizations in the equities, futures, physical metals, and blockchain industries. He holds FINRA Series 3 and Series 34 licenses in addition to a dual MFA in critical studies/writing and music composition from the California Institute of the Arts.Table of ContentsIntroductionWhat is crypto mining?How does crypto mining work?Pros of cryptocurrency miningCons of cryptocurrency miningThe bottom lineTable Of ContentsOpen full sized imageThis mine looks more like a server farm.© Photocreo Bednarek/stock.adobe.comYou’re likely already familiar with gold mining, but what is mining for cryptocurrency? Crypto mining is how some cryptocurrencies—like Bitcoin—process transactions and mint new tokens. Mining for cryptocurrency is, by design, like digitally mining for gold.Let’s explore the depths of this proverbial mine to help you decide whether to delve deep into the digital trenches as a crypto investor or remain safely above ground.Key PointsCryptocurrency mining is associated with proof-of-work blockchains.Crypto miners compete with one another using extensive computing power.Anyone with the right skills and resources can choose to mine cryptocurrency.What is crypto mining?Cryptocurrency mining uses specialized computing resources to add blocks to a proof-of-work (PoW) blockchain. Adding a new block to a blockchain validates and records the latest batch of transactions and simultaneously mints new digital tokens.Learn more about blockchain technology.Encyclopædia Britannica, Inc.The process of cryptocurrency mining is the “work” in a proof-of-work blockchain. Crypto miners use vast amounts of computing power as they compete to solve a complex math puzzle. The fastest miner to solve the puzzle is awarded the privilege of adding the newest block to a blockchain. They also collect transaction fees and the newly minted cryptocurrency associated with that block.Cryptocurrency mining requires substantial computing power, which is typically measured in hashes per second—also known as a miner’s hash rate. (“Hashing” is a cryptographic function that converts variable inputs like transaction information into fixed-length strings of characters, or hashes.) Crypto miners use specialized hardware, including application-specific integrated circuits (ASICs) and graphics processing units (GPUs).Anyone with an Internet connection and enough computing power to compete with other miners can choose to mine for cryptocurrency. Crypto mining is decentralized by nature, which supports the security of a proof-of-work blockchain. (Learn more about decentralized public ledger technology and consensus mechanisms.)How does crypto mining work?Cryptocurrency mining is a complex process that requires sophisticated technical skills. But how exactly does it work? Here are the basic steps for using mining to process a pool of cryptocurrency transactions:Transactions are pooled for verification. New cryptocurrency transactions, initiated but not yet complete, are grouped into what miners call a pool. Each transaction consists of information about the transaction itself plus a transaction processing fee. Unverified transactions are bundled into a block. Miners bundle together some or all of these unverified transactions to form a block. If many transactions are pooled and awaiting verification, miners may prioritize the transactions based on transaction size, transaction age, or the associated processing fee.Miners race to solve a complex math puzzle. With a block assembled, the race to mine this new block officially begins. Miners use powerful computing hardware to solve a complex puzzle, which requires finding a specific number—a nonce—that produces a hash when combined with the block’s data.The fastest miner broadcasts the puzzle’s solution. The first miner to find the correct nonce and create a valid hash then broadcasts that hash to the blockchain network. Being the first to broadcast a valid hash is a lot like a gold miner shouting “Eureka!” during the California Gold Rush of the 1800s.Other miners verify the solution’s accuracy. The next step is for other miners in the blockchain network to verify the accuracy of the broadcasted hash. Consensus about accuracy is achieved once enough miners—as defined by the rules of the blockchain protocol—confirm that the solution is correct. A new block is added to the blockchain. The miner who first broadcasted the correct hash processes the transactions in the block, resulting in a new block being added to the blockchain. At the time that the new block is added, all of the block’s transactions are officially confirmed. New digital tokens may also be minted, depending on how the blockchain protocol operates.Mining rewards are distributed. The miner who added the new block to the chain is eligible to receive rewards, which are promptly distributed after the block is added. Rewards may consist of the transaction fees and any newly minted tokens.Cryptocurrency mining is an innovative digital practice that can yield significant benefits and rewards—but that doesn’t mean it’s without disadvantages.Pros of cryptocurrency miningHere’s what to love about cryptocurrency mining:Enables blockchains to operate. Bitcoin and other proof-of-work blockchains rely on cryptocurrency mining to process transactions and mint new tokens.Supports blockchain security. The decentralized nature of crypto mining can make a proof-of-work blockchain network extremely secure. Mining plays a crucial role in maintaining this security. Efficiently distributes rewards. Cryptocurrency mining supports an efficient mechanism for distributing digital rewards. Miners who successfully add blocks to a blockchain automatically receive transaction processing fees and new digital tokens.Creates economic opportunities. The accessibility of crypto mining is creating new business opportunities for tech-savvy people around the world. People in regions with low-cost electricity can particularly benefit from mining cryptocurrency.Cons of cryptocurrency miningThe practice of cryptocurrency mining has received substantial criticism—much of it well deserved. The negative aspects include:High energy consumption. Cryptocurrency mining uses an appalling amount of electricity—on par with the electricity usage of many midsize countries. The most popular blockchains consume the most energy because they have the most miners competing for rewards, and each miner needs a lot of electricity to power their computing equipment.Equipment costs. Purchasing a vast quantity of specialized computing hardware is prohibitively expensive for most people. The high cost of becoming a cryptocurrency miner is often a barrier to entry.Environmental impact. Crypto mining is typically harmful to the environment because of the significant energy and equipment that are required. Nonrenewable energy production and electronic equipment manufacturing are both associated with the emission of greenhouse gases.Technological complexity. Crypto mining is a technologically advanced process that requires extensive knowledge of hardware and software. The technical skills required for crypto mining are another barrier to entry.Diminishing profitability. The profitability of mining for popular cryptocurrencies like Bitcoin is generally decreasing. Competition among crypto miners is rising, requiring miners to purchase even more hardware to continue to compete. Many blockchain protocols also use a predetermined schedule to reduce the block rewards paid to crypto miners over time.Tax reporting challenges. Mining for cryptocurrency can create complex tax situations. Accurately reporting mining rewards and complying with the applicable tax laws—which vary across jurisdictions—may be challenging for crypto miners.Security vulnerabilities. Cryptocurrency miners may be vulnerable to different types of security risks. Hacking, malware, and cyberattacks can grant unauthorized access to a miner’s equipment, resulting in the theft of mining rewards and confidential data. Operational and financial risk. Crypto mining is operationally and financially risky. Mining hardware can break or become quickly obsolete, requiring downtime and expensive repairs. Fluctuating cryptocurrency prices and electricity costs impose additional financial risks that cannot entirely be mitigated.The bottom lineMany crypto miners would say that the best cryptocurrency to mine is the one that’s the most profitable. That may be true—but anyone who cares about the environmental impact of their crypto investments might consider avoiding proof-of-work tokens altogether. If you’re looking at Bitcoin, or another proof-of-work cryptocurrency, then do some research on the associated energy consumption and ecological footprint. Opting for proof-of-stake or another more energy-efficient consensus mechanism might align better with an environmentally conscious choice.Britannica MoneyHousehold FinanceInvestingRetirementHistory & TheoryAbout UsPrivacy PolicyTerms & Conditions© 2024 Encyclopædia Britannica, Inc.

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How To Mine Cryptocurrency: A Step-by-Step Guide

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By Iulia Vasile

17 March 2023, 14:46 GMT+0000

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7 November 2023, 19:17 GMT+0000

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Cryptocurrency mining has become increasingly popular in recent years, with many people looking to make a profit by mining coins. In this article, we look at how to mine cryptocurrency and the best mining algorithms to use. Whether you’re a beginner or an experienced miner, read on to learn everything you need to know about mining cryptocurrency.

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In this guide:What is cryptocurrency mining?How to mine cryptocurrency?Types of cryptocurrency miningIs crypto mining legal?Is mining crypto worth it?What’s the future of crypto mining?Frequently asked questions

What is cryptocurrency mining?

Cryptocurrency mining is the process of validating transactions and adding new blocks to a proof-of-work (PoW) blockchain network, such as Bitcoin. Miners carry out this process. These are powerful computer hardware to solve complex mathematical equations and earn units of cryptocurrency as compensation.

Miners compete with each other to solve equations. The first miner who solves an equation and adds a new block to the blockchain is rewarded with new units of cryptocurrency, which can then be sold or held as an investment.

Mining is an integral component of the cryptocurrency ecosystem, helping to protect and bolster its integrity. It also gives individuals a way to participate in the market and potentially earn profits by contributing computing power to it. Unfortunately, mining can be expensive due to the technical knowledge required and investments in hardware and electricity costs.

How to mine cryptocurrency?

Crypto mining can be a source of passive income. But there are different methods and processes for mining and creating cryptocurrency.

Note that before starting to mine crypto, one must research all the costs of the chosen mining process before determining the potential profit. Despite its potential rewards, mining may prove challenging and yield inconsistent profits due to fluctuating crypto prices and energy costs. To maximize success, it’s important to properly configure the mining devices and invest additional funds as necessary in order to keep running an operation smoothly.

Here is a step-by-step guide on how to mine cryptocurrency. This will help you start mining on your own, but these general steps may not be suitable for all methods.

1. Choose your cryptocurrency

Cryptocurrencies have varying mining difficulties, which is the amount of effort needed to mine a block.

Competition increases as more miners join the network, leading to greater hashing difficulty. Conversely, when miners leave the network, the hashing difficulty decreases, making it easier to mine new blocks.

But mining conditions are extremely tough for large cryptocurrencies like bitcoin, making it difficult for individual miners to earn revenue. That’s why it’s quite common for bitcoin miners to invest in powerful ASICs and join mining pools to increase their chances of getting rewarded.

Other proof-of-work (PoW) coins that may represent a good option for crypto miners are dogecoin and ethereum classic. The main reason smaller miners might want to choose altcoin networks is that they are less congested. Furthermore, altcoins may have greater growth potential due to their untapped resources. At the same time, altcoin mining requires less energy consumption since there’s not as much computational power required.

The downside when mining altcoins is their highly volatile prices. In the worst-case scenario, the protocol could get hacked or abandoned, leaving your tokens worthless. As certain cryptos become more sought-after, you may need to upgrade your mining rigs and spend more money than expected.

2. Choose your mining equipment

Cryptocurrency mining is a form of competition, and miners benefit from having powerful mining hardware as it increases their chances of finding the next block.

ASIC miners are generally the best option for cryptocurrency mining as they are specifically designed for this task. However, GPUs may still be effective on certain networks depending on the cryptocurrency’s difficulty and algorithm.

Some cryptocurrencies, like helium’s radio technology crypto miner, require specialized mining rigs. To get reliable coverage, the device needs to be placed in an open area with unlimited wireless network coverage. Therefore, it’s crucial you ensure you have all the necessary hardware for mining your chosen cryptocurrency.

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3. Create a crypto wallet

You’ll need a crypto wallet to receive your rewards when mining cryptocurrency. Some solid non-custodial crypto wallets on the market include Coinbase and Nexo.

Coinbase Wallet

Nexo Wallet

While Ledger, Trezor, or Safepal are all good hardware wallet options.

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Once your wallet is set up, you can generate an address to receive and store all of your digital coins.

4. Configure your crypto miner device

To mine cryptocurrency, you’ll need to download specialized mining software. The most convenient way to access the software is through the official website of the crypto you intend on mining; this guarantees the correct version and helps prevent fraudulent programs.

Most mining software is free to download and use. Many cryptos have multiple software options for various operating systems. Doing your own research (DYOR) before selecting one mining software is always wise.

Establishing a strategy to monitor electricity costs is another necessary component of setting up a mining device. Begin by reviewing past bills and estimating the cost of mining. Unfortunately, due to the high energy consumption from mining rigs, you may end up spending more on energy than what you earn from mining.

It is essential to remember that mining rigs can be noisy and generate heat. Therefore, consider placing them in a secure area with adequate cooling. It might also be a good idea to place them in a place that will not keep anyone awake at night.

5. Join a mining pool

Individual miners have had a slim chance of success. Only one block is mined at a time, and the reward goes to the first miner who finds the correct hash. Even with several powerful ASICs, your share of bitcoin’s overall hashing power remains small.

Mining pools combine the computing power of many participants to increase the odds of discovering the next block. By joining a mining pool and pooling your hashing power, you could potentially earn more money than if you were mining alone.

Mining pools typically employ a coordinator to organize their miners, thus minimizing the likelihood of mistakes. When the mining pool discovers a new block, they split the rewards between the participants according to their mining power. Usually, mining pools have a small fee, which is subtracted from the reward.

Types of cryptocurrency mining

Crypto mining encompasses several distinct methods, such as:

CPU mining

GPU mining

FGPA mining

ASIC mining

Cloud mining

CPU mining

A CPU (central processing unit) is an electronic component that provides processing power for software installed on computers.

CPU mining software such as cpuminer was once effective for hash rates of 10MH/sec (MegaHashes per second). Unfortunately, due to Bitcoin’s high hash rate, CPU mining became unprofitable. However, some cryptos can still use CPU mining, such as Monero (XMR).

To create a CPU mining rig, essential components include an air conditioner, high-frequency competition processor, RAM (random-access memory) for memory channels and bandwidth, power source, and motherboard to facilitate communication between all elements.

Individuals can either mine independently or join a mining pool to start CPU mining. Solo miners’ ability to add coins to their wallets depends on the hardware and network hash rates. Before beginning solo mining operations, you must consider the revenue potential against electricity costs and other expenses.

GPU mining

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Due to the increasing demand for computational power, CPU mining was unable to keep up. That’s why graphics processing units (GPUs) have also been used, alongside CPUs, for mining cryptocurrencies.

GPUs were first utilized for bitcoin mining in October 2010 when mining software for GPUs became available online.

Over time, this software has been improved and modified for use in various open-source projects. Modern GPUs offer significantly greater performance than 20 KH/s (kilohashes), with some providing up to 2,000 times the hashing power.

Furthermore, GPU miners can handle multiple operations in parallel, and some utilize multi-GPU mining rigs for increased output power or hash rates and payouts. Today, you may use GPU mining for mining coins such as Ravencoin (RVN) or Grin (GRIN).

FGPA mining

One of the biggest concerns of cryptocurrency mining is the cost of the mining equipment. Consequently, GPU mining became inefficient due to its high mining costs. This led to a need for machines that could make mining profitable. And field-programmable gate array (FPGA) machines are one solution.

A field-programmable gate array (FPGA) is an electrical circuit that can be programmed to perform specific logical operations and configured to mine a specific cryptocurrency. FPGA miners were less energy-intensive than GPUs, with a break-even cost within two to three years.

FPGAs are unbeatably fast when it comes to performing hashing calculations compared to any other hardware, with the fastest reaching 25,000 MH/s. When it comes to efficiency, FPGAs outpace both CPUs and GPUs when performing these calculations; plus, they require less electricity per hashing unit.

However, the popularity of FPGA mining was short-lived due to the arrival of ASICs, which offer a better ratio between cost and energy efficiency. Furthermore, high-volume GPUs running on more sophisticated process nodes proved more expensive per GH/s than FPGAs could offer.

ASIC mining

ASIC stands for “Application-Specific Integrated Circuit,” which is a type of chip created for a specific task.

In the context of crypto, an ASIC miner is a specialized device that employs ASICs to exclusively mine proof-of-work (PoW) digital currencies. These ASIC devices are specifically designed to provide superior performance on large-scale mining operations.

Installing an ASIC miner requires a power supply, followed by internet access, access router, IP address, wallet, and mining pool.

ASIC-based mining has dramatically increased the total hash rate of the Bitcoin network, making it unprofitable to mine with CPUs or GPUs.

Unfortunately, there are a few downsides to ASIC mining. The first one is the high barrier to entry because of the high cost of the mining equipment.

Another downside of ASIC mining is that organizations that possess and maintain many ASIC systems could potentially gain control of the blockchain network. This leaves ASIC-based mining more vulnerable to a 51% attack.

Also, ASIC devices are only produced by Bitmain. The manufacturer pre-loads them with an application that allows them to manage the device’s hashing power remotely.

Cloud mining

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Cloud mining offers individuals a chance to generate cryptocurrency without investing in or maintaining specialized hardware or software.

This mining solution is a method where miners rent an ASIC machine instead of buying one. Miners pay monthly rental fees, and this scheme offers more accessibility when cryptocurrency prices decline or network mining difficulty increases.

Cloud mining can drastically reduce the cost of hardware and software maintenance for businesses. For many, cloud mining offers an ideal chance for those interested in mining without making a significant upfront investment.

How to start cloud mining

ECOS is a leading cloud mining provider that was established in 2017. The platform has over 90,000 users worldwide. They offer a minimum mining contract of $150, a convenient calculator, and a detailed transaction history. Use THIS link to sign up on ECOS and get a free one-month BTC mining contract. ECOS also offers additional services such as a wallet, exchange, investment portfolios, and savings.

Is crypto mining legal?

Crypto mining is legal in most countries. However, its legality may vary from country to country. But generally speaking, if bitcoin is legal, so is crypto mining.

In some places, crypto mining may even be encouraged. You must research and comprehend the laws in your location before learning how to mine cryptocurrency. Furthermore, certain cryptocurrencies may have specific rules or mining requirements that should be considered before beginning.

Is mining crypto worth it?

When mining cryptocurrency, factors like price, performance, design, and implementation of mining machines all affect profitability. ASICs have become the benchmark when it comes to bitcoin mining due to their superior performance over other machines. However, their longevity against increasing mining difficulty and improving machines remains uncertain.

That’s why you have to think about the budget for investing in crypto mining equipment. Or perhaps you want to choose a cloud mining solution such as ECOS. Laptop GPUs are typically less powerful and more expensive than desktop counterparts, making effective crypto-mining equipment necessary to make a profit from mining.

Remember that cryptocurrency mining requires a great deal of computational energy. The high energy consumption generates a lot of heat which could eventually damage laptop fans due to the excessive strain placed upon them during mining operations.

What’s the future of crypto mining?

Mining cryptocurrency is not just a fun and exciting way to be a part of the crypto world; it’s also a crucial aspect of keeping the blockchain secure and functional. Knowing how to mine cryptocurrency is only one piece of the puzzle. The next is to calculate the potential reward and the costs of maintaining your hardware and electricity bills.

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Yes, costs and risks are involved, and you need some technical knowledge, but don’t let that discourage you. With some research and effort, anyone can start mining cryptocurrency and potentially earn some rewards. Just remember to stay updated on the latest developments in the crypto space. Any new updates may greatly impact the mining process.

Frequently asked questions

Can you mine crypto on your phone?

While it is technically possible to mine some cryptocurrencies on a smartphone, it may not be practical or profitable. Smartphones do not have enough processing power to compete with dedicated mining equipment such as ASICs, GPUs, or even CPUs. Additionally, mining on the phone can quickly drain the battery and cause the device to overheat, potentially damaging it. Therefore, if you’re looking for how to mine cryptocurrency on your phone, know that it is possible. But it is not recommended or reliable for mining cryptocurrency.

Can I mine cryptocurrency at home?

Yes, you can mine cryptocurrency at home. But it’s important to consider the costs and risks associated with it. Mining cryptocurrency requires a certain degree of technical knowledge, especially when acquiring and setting up your physical mining equipment. You will also need to consider the electricity costs and the potential returns from mining. In addition, it’s important to do your own research and understand the specifics of the cryptocurrency you want to mine, as well as set up a crypto wallet to receive potential mining rewards.

Are there crypto mining taxes?

Yes, there are taxes on cryptocurrency mining. In most countries, mining cryptocurrency is considered a business, and crypto mining profits are subject to taxation. The tax laws regarding crypto mining vary from country to country, so it’s essential to consult with a tax professional or accountant to understand the specific regulations in your jurisdiction.

Is mining cryptocurrency bad for the environment?

Mining cryptocurrency requires a significant amount of energy. This can have a negative impact on the environment. The high electricity usage may result in increased carbon dioxide emissions and, consequently, environmental pollution. The carbon footprint of mining can be minimized by utilizing renewable energy sources, such as wind or solar power.

Can I mine cryptocurrency on my laptop?

Yes, you can mine cryptocurrency on your laptop. However, it may not be the most efficient or profitable way to mine cryptocurrency. Laptops are not designed for the high-intensity processing required for mining, and their graphics processing units (GPUs) are typically less powerful than those in desktop computers. The heat generated during the mining process may also damage a laptop’s internal components and reduce its lifespan.

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Iulia Vasile is a seasoned professional in the cryptocurrency and blockchain industry, working full-time in the field since 2017. With a background in computer engineering, she has the unique ability to write about complicated topics, including DeFi, NFTs, trading, and AI, in a way that is easy to understand. Iulia learned multiple programming languages while completing her Software Engineering degree in Bucharest at Politehnica University.

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How To Mine Cryptocurrency: A Step-by-Step Guide

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First Steps

How To Mine Cryptocurrency: A Step-by-Step Guide

11 mins

By Iulia Vasile

17 March 2023, 14:46 GMT+0000

Updated by

Artyom G.

7 November 2023, 19:17 GMT+0000

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What is cryptocurrency mining?

How to mine cryptocurrency?

Crypto mining can be a source of passive income. But there are different methods and processes for mining and creating cryptocurrency.

Here is a step-by-step guide on how to mine cryptocurrency. This will help you start mining on your own, but these general steps may not be suitable for all methods.

1. Choose your cryptocurrency

Cryptocurrencies have varying mining difficulties, which is the amount of effort needed to mine a block.

2. Choose your mining equipment

Cryptocurrency mining is a form of competition, and miners benefit from having powerful mining hardware as it increases their chances of finding the next block.

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3. Create a crypto wallet

You’ll need a crypto wallet to receive your rewards when mining cryptocurrency. Some solid non-custodial crypto wallets on the market include Coinbase and Nexo.

Coinbase Wallet

Nexo Wallet

While Ledger, Trezor, or Safepal are all good hardware wallet options.

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Once your wallet is set up, you can generate an address to receive and store all of your digital coins.

4. Configure your crypto miner device

5. Join a mining pool

Types of cryptocurrency mining

Crypto mining encompasses several distinct methods, such as:

CPU mining

GPU mining

FGPA mining

ASIC mining

Cloud mining

CPU mining

A CPU (central processing unit) is an electronic component that provides processing power for software installed on computers.

GPU mining

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Due to the increasing demand for computational power, CPU mining was unable to keep up. That’s why graphics processing units (GPUs) have also been used, alongside CPUs, for mining cryptocurrencies.

GPUs were first utilized for bitcoin mining in October 2010 when mining software for GPUs became available online.

FGPA mining

ASIC mining

ASIC stands for “Application-Specific Integrated Circuit,” which is a type of chip created for a specific task.

Installing an ASIC miner requires a power supply, followed by internet access, access router, IP address, wallet, and mining pool.

ASIC-based mining has dramatically increased the total hash rate of the Bitcoin network, making it unprofitable to mine with CPUs or GPUs.

Unfortunately, there are a few downsides to ASIC mining. The first one is the high barrier to entry because of the high cost of the mining equipment.

Also, ASIC devices are only produced by Bitmain. The manufacturer pre-loads them with an application that allows them to manage the device’s hashing power remotely.

Cloud mining

Sponsored

Cloud mining offers individuals a chance to generate cryptocurrency without investing in or maintaining specialized hardware or software.

How to start cloud mining

Is crypto mining legal?

Crypto mining is legal in most countries. However, its legality may vary from country to country. But generally speaking, if bitcoin is legal, so is crypto mining.

Is mining crypto worth it?

What’s the future of crypto mining?

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Frequently asked questions

Can you mine crypto on your phone?

Can I mine cryptocurrency at home?

Are there crypto mining taxes?

Is mining cryptocurrency bad for the environment?

Can I mine cryptocurrency on my laptop?

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Features

What Is Crypto Mining, and How Does It Work?

Fergus O'Sullivan

Updated Mar 15, 2022

Want to know more about crypto mining?

Readers like you help support How-To Geek. When you make a purchase using links on our site, we may earn an affiliate commission. Read More.

Quick LinksWhat Is Crypto Mining? How Crypto Mining Works Mined vs. Non-Mined Cryptocurrencies The Future of Mining

With the cryptocurrency craze in full swing, you can't avoid hearing about the people mining these digital currencies---and destabilizing the graphics processor market. Here's what "crypto mining" actually is.

What Is Crypto Mining?

In short, crypto mining is how new units of cryptocurrency---usually called coins---are created. As you can imagine, this type of mining doesn't involve callused hands gripping pickaxe handles. Instead, it's computer processors that do all the hard work, chipping away at complex math problems.

Of course, you may wonder why these digital currencies even need to be mined: after all, it's make-believe money with no backing except what people will pay for it. Real currency, the kind backed up by governments, can be created by turning on a money printer, so it stands to reason that crypto could do the same.

The Blockchain

The fact that supply couldn't be restricted was the main hurdle for cryptocurrency for years: there were many ideas on how to create digital coins, but no way to ensure people wouldn't simply duplicate them at will. Without an authority like a central bank---an institution that regulates the flow of currency---it becomes very tricky to manage the supply of any currency.

This issue confounded the creators of digital currencies for decades until Satoshi Nakamoto (most likely a pseudonym) invented something called the blockchain. The full theory of how these work is pretty complicated---we go into more depth in our article on explaining the "blockchain"---but the easiest way to explain it is to picture it as a chain.

Related: What Is a "Blockchain"?

In this metaphor, each link is a block, and each block contains a set amount of cryptocurrency. For example, one block has 6.25 Bitcoin in it. To unlock a new block you need to solve a complicated mathematical equation, which validates the block and adds it to the chain. Also, because the blocks are chained in a linear fashion, you have to go from one to the next, you can't pick one at random.

The Ledger

Every time a new coin is unlocked, it's recorded in the cryptocurrency's ledger, a massive file anybody can access at any time to see which coins were mined when and by whom. The ledger also shows when a coin changed hands, and who was involved in the transaction, putting the lie to the claim that Bitcoin is anonymous.

To summarize, the ledger records the creation and movement of coins in the blockchain. Mining is validating new blocks and gaining access to the coins within. Interestingly enough, since the blockchain has to be finite, it also means that most cryptocurrencies have a hard limit to how many can exist: Bitcoin for example has a cap of 21 million.

How Crypto Mining Works

To unlock a block in the chain, you need to validate it by solving a complicated equation, usually in the form of something called a hash. A hash is a random set of characters and numbers which, with the right key, reveals the original message; it's a basic part of cryptography and is where the "crypto" part of "cryptocurrency'' comes from.

In a way, crypto mining is really just solving these incredibly complicated mathematical puzzles. Do it fast enough, and the reward is a coin. If you're slower than the competition, you don't get one. This method is called "proof of work."

However, hashes are, by their very nature, incredibly complicated puzzles to solve. The phone or laptop you're most likely reading this article on would probably take millions of years to solve one.

DIY Supercomputers

Of course, if you don't have a supercomputer, you can always build one. Plenty of people interested in making money from cryptocurrency---Bitcoin in particular---have started doing so, often by connecting several devices to each other to create powerful networks that can combine and amplify the processing power of each individual device.

The most powerful single component you can use in this case is a graphics processing unit, or GPU, the part of your computer that gives you the nice shiny graphics---if you're on an advanced computer, that is. They're generally more efficient and powerful than their cousin the central processing unit (CPU), and putting enough of them together gives you some serious computing oomph.

This brings a new kind of equation into play, one where several savvy individuals calculated that the price of GPUs times the cost of electricity came out a lot less than what one Bitcoin would bring in. This created a kind of arms race where these outfits would create bigger and better rigs to beat their competitors.

On top of the competition between these groups, there is also the problem that each next block is more complicated to solve than the last, a failsafe built into the blockchain to prevent it from being all unlocked at once.

As a result, the market for GPUs was practically destroyed, with these groups buying all the units they could get their hands on---even stealing them in some cases---and making it so regular consumers had to pay massive prices even for badly outdated models. Though, as of late 2021, this arms race is quieting down thanks to a number of factors (including a crackdown on miners by China), the GPU market has yet to recover.

Mined vs. Non-Mined Cryptocurrencies

Interestingly enough, though, not all cryptocurrencies are mined. Rather than use proof of work, some currencies---like Cardano and Ripple---use something called "proof of stake." They still operate on blockchain for reasons of security, but instead of mining new blocks you "stake " them instead, claiming them for yourself ahead of time.

The more you claim, the bigger the chances you'll be awarded blocks. It's a complicated system, even more so than mining, but it could very well be the future of cryptocurrency.

The Future of Mining

This brings us to an important final point: cryptocurrency does need a future beyond mining. Not only is it costly to mine new coins thanks to the price of electricity and GPUs, it's also bad for the environment, as this article from the Columbia Climate School explains.

What that future will be is hard to say exactly: maybe it's staking, maybe it's any of the dozen other solutions crypto enthusiasts are undoubtedly thinking up as you read this. Time will tell.

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ToggleCryptocurrency Mining ExplainedKey TakeawaysIs Crypto Mining Legal?What is Crypto Mining and How it WorksA Step-by-Step Look at the Crypto Mining ProcessHow Much a Crypto Miner EarnsA Quick Look at the Different Types of CryptocurrenciesWhy Is Crypto Mining Such a Big Deal?What Do I Need to Crypto Mine?What Are Coin Mining Pools?If Cryptocurrency Mining Is So Simple, Why Doesn’t Everyone Do It?Risks of Crypto MiningFinal Thoughts on Cryptocurrency Mining

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What is Crypto Mining? How Cryptocurrency Mining Works

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Home » Guides » mining

Author

Matthew Baggetta

Updated on: October 19th, 2022

This content has been Fact-Checked.

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Contents

What is crypto mining? Crypto mining is the process of creating individual blocks added to the blockchain by solving complex mathematical problems. The purpose of mining is to verify cryptocurrency transactions and show proof of work, adding this information to a block on the blockchain, which acts as a ledger for mining transactions.

This process uses a node run on a device with extremely high processing power called a mining rig or a Bitcoin mining app. As an incentive, miners receive a reward in cryptocurrency for each block added to the chain. This reward is how new coins are generated and put into circulation.

Crypto mining involves several proof systems depending on the type of cryptocurrency. Since the blockchain is decentralized, mining is uniquely different from central banks and the creation of fiat. The question is, how does crypto mining work?

Contents

Cryptocurrency Mining Explained

What is crypto mining for, and how does cryptocurrency mining work? The process of mining is energy costly and requires expensive hardware and software.

There are multiple processes miners must follow. These include verifying transactions and performing mathematical computations known as proof of work (PoW), and other later developed systems like proof of stake (PoS), and other proof methods such as proof of authority (PoA). These systems use a modified version of the original blockchain, such as the Ethereum blockchain.

Proof of work (PoW) is a form of cryptographic zero-knowledge proof in which one party (the prover) proves to others (the verifiers) that a certain amount of a computational effort is expended.

These blocks are made up of one or more transactions, equaling 1 megabyte per block. While miners compete at mining, the winner who successfully adds the next block gets rewarded with a specified amount of tokens.

Key Takeaways

Blockchain mining

Understanding the blockchain is crucial. Mining, as nodes and blocks, make up the crypto ecosystem. The name blockchain comes from the blockchain’s structure. Each block is connected to the last in a chain, thus creating an effective ledger. Without the blockchain, mining, crypto ledgers, and transactions would not be possible. The blockchain is a decentralized and secure cryptographic system.

Nodes

Nodes to connect to the blockchain network, mine cryptocurrency, and verify blocks and transactions. There are three types of nodes: full nodes, lightweight nodes, and mining nodes. Mining creates new tokens awarded to the miner who creates the block.

Decentralization for miners

Crypto miners make up a decentralized network of nodes. This process of individual nodes competing and working together to build the blockchain makes it more safe and secure and makes manipulation of cryptocurrency more challenging.

Traditional Banks Are Centralized Systems

A central bank is a financial institution responsible for overseeing the monetary system. Banks issue currency and set interest rates on loans and bonds. Banks control the money supply, increasing and decreasing it and deciding on required cash reserve deposits.

Banks work alongside the Federal Reserve, lending money to manage the money supply and control liquidity. These loan transactions can cause increased interest rates which lead to inflation.

Banks have control over currency built off a centralized oversight design. Banks see this as being crucial for managing the financial system. Despite this, it can lead to issues of potential corruption and temperament.

Cryptocurrencies Use Decentralized, Distributed Systems

Blockchain technology uses a decentralized distribution system. The system organizes through a network of nodes. There is no central authority that has control over the blockchain. The blockchain is a direct and transparent ecosystem between miners, exchanges, and the blockchain itself.

By storing data across the network, the blockchain eliminates most issues and risks that centralized systems have. Blockchain has no central point of favor, making it function resiliently and hard to manipulate.

Because blockchain works in a “Chain,” it is a self-reinforcing system allowing few possible vulnerabilities.

Understanding the Terms: Centralized, Decentralized, and Distributed

Generally, money systems tend to become more centralized with time and more central access to regulate the system.

There has been some critique over decentralized cryptos, namely altcoins, such as coins operated through the ethereum blockchain network. Blockchains that use proof of stake may be less decentralized. Stakers holding more tokens may have an advantage in the network over those with fewer.

On the other hand, proof of stake can achieve consensus and speed up the network process while consuming less energy. These systems are still highly transparent and decentralized because they use blockchain encryption.

The central bank is centralized because to use it to exchange money, we rely on a third party to hold our money and do our transactions. This reliance is a trust system that Bitcoin does not have. Bitcoin is known as a trustless system.

Is Crypto Mining Legal?

People often ask, is Bitcoin mining legal? What is crypto mining in the eyes of the law? There are still no uniform international laws that regulate cryptocurrency and crypto mining. A few countries currently do not allow cryptocurrency, including Algeria, China, Russia, Columbia, and Bolivia. In these countries, mining is generally still allowed and even encouraged with incentives.

Crypto mining has a reputation for its use by criminals on the dark web, which is why some countries have challenged its legality.

Inevitably, Bitcoin and other cryptocurrencies have gained ground and approval as they have become more widely used. The result has been ETFs and corporations in certain countries embracing Bitcoin.

What is Crypto Mining and How it Works

What is mining? How is cryptocurrency mined? Crypto mining is the process by which new tokens get put into circulation. The process begins when a transaction is submitted and authenticated. A block representing that transaction is created and sent to every node in the network. Nodes then validate this transaction.

The update is sent across the network after the transaction is complete. Then add the block as the next block in the blockchain. Nodes receive payment in cryptocurrency for their work in validating transactions. The process continues as the blockchain grows.

Proof of Work (PoW) is how they call the mining process Bitcoin uses. How mining works here is by a process involving complex mathematical calculations.

Blockchain networks have adapted to a process called proof of stake (PoS) validation consensus protocols. In this system, participants stake their crypto to gain mining access. The more cryptocurrency they stake, the more they can mine.

Breaking Down the Roles and Processes Within the Blockchain

By definition, a blockchain is a chain of blocks that grows continuously as each block gets added to the chain. The purpose of the blockchain is to validate transactions and assure that transactions are authentic, secure, and not spent more than once. The blockchain is a decentralized ledger designed to be added to but not altered.

Each block contains a timestamp, transaction information, and fixed information used by the miner to develop the cryptographic hash. The cryptographic hash is a central part of the blockchain network process.

A hash is a long string of numbers that comes at a set length. The hash has a fixed length to make it more difficult for malicious actors to crack the block using the hash output.

Miners use the hash to validate transactions on the block. Hashing is when miners process the data of a hash through a mathematical equation, resulting in an output hash. The purpose of Hash cryptography is to make the blockchain foolproof against malicious actors.

A Step-by-Step Look at the Crypto Mining Process

How does crypto mining work? What does it mean to mine cryptocurrency? When miners use computations to create a new block on the blockchain, they are trying to guess the target hash. Miners are rolling the dice using their GPUs and generating a 32-bit sized nonce or number only used once.

The 256-bit hash is much larger than the nonce. The first miner whose nonce generates a hash less than or equal to this target hash is awarded tokens for completing the block. Through consensus, the node is qualified to add these new transactions to the blockchain.

Each 1-megabyte block created contains a hash of the previous block, transaction data, and a timestamp when added to the chain.

1. Nodes Verify Transactions Are Legitimate

What is cryptocurrency mining transaction validation? Users create cryptographically secure transactions and broadcast these transactions to the network. When they initiate a transaction, data adds to a block and duplicates across multiple nodes across the network. These nodes act as administrators for the blockchain. Their job is to route out bad actors while verifying transactions through consensus.

Since the block hash depends on the data from a block, changing even one character in a single transaction would invalidate the reference. This system makes it apparent immediately if data has changed.

They incentivize the verification process through rewards, usually in the form of cryptocurrency. This incentive for verifying transactions encourages faster mining and quicker transactions as the blockchain develops.

2. Separate Transactions Are Added to a List of Other Transactions to Form a Block

They store transactions on nodes before being added together to form a block. Each node carries a full copy of the blockchain.

Every block must have at least one transaction and typically have many making up the whole block. Once transactions are verified, these transactions are pooled together for encryption, and the block adds to the blockchain. If any of the transactions are not legitimate, the miners will route them out.

On the Bitcoin network, the average confirmation time for one payment is 10 minutes. The network can process a maximum of 7 transactions per second.

3. A Hash and Other Types of Data Are Added to the Unconfirmed Block

When they create the block, the block header contains the items needed to solve the hash.

The block header has a version number, a timestamp, the hash used from the one before it, the hash of the Merkle root, the nonce, and the target hash. Cryptography uses block headers to validate transaction data before the block gets added to the chain.

The nonce appends to the hashed contents of the block that came before it and then hashed.

4. Miners Verify the Block’s Hash to Ensure the Block Is Legitimate

What is cryptocurrency mining hash verification? Before a block gets added to the blockchain, the network must verify the information contained on the block using the hash.

To verify a block, miners must collect the transaction data and assign it a hash. To verify the next block in the blockchain, miners will have to collect another set of transactions and then find a new hash. Each block’s hash contains the hash of the last block, plus a new hash created from its transaction data.

The hash is the primary security element in the blockchain. For a malicious actor to change any data in a block, the hash would change.

5. Once the Block is Confirmed the Block Gets Published in the Blockchain

To publish the block there needs to be confirmation through one or multiple miners in a mining pool. The miner’s job is to confirm and validate transactions.

They publish the block as part of a connected chain, and the block remains there as more blocks add on. These blocks are tamper-proof, meaning that it’s arduous to modify them once published.

This is an effective security method because the malicious actor would have to alter the entire blockchain to change the stored data of a single block. Even with modern technology, this is next to impossible because of the time and computing power it would require.

How These Components Work Together in the Blockchain Ecosystem

What is crypto mining as an ecosystem? The blockchain ecosystem circulates between users who make transactions, the miners who verify transactions and create blocks, and the block that is finally updated and stored on the blockchain.

Miners get incentives to validate transactions and create blocks, while users making transactions rely on the miners for their transactions to be confirmed.

The blockchain works as a public, decentralized ledger that is advantageous for miners and those transacting cryptocurrency. Miners have an incentive to make transactions faster, and users benefit from the encrypted protection of the blockchain network.

With the creation of new cryptos and applications for proof of stake mining every day, more incentive is added to mine and make transactions. This gives programmers everyone an incentive to improve on the blockchain.

Who Updates the Blockchain (and How Frequently)?

What is cryptocurrency mining used for, in terms of updates? The blockchain is decentralized. Therefore, it does not store any of its information in one central location. When a block gets added to the chain, every computer on the network updates its copy of the blockchain to reflect the change.

Through this decentralized network, the blockchain is updated constantly without the need for a third party. This decreases the chances of a nefarious actor or third party making negative updates to the blockchain. If there’s a mistake, decentralization routes it out.

The bitcoin mining algorithm targets finding new blocks every 10 minutes. If more miners join the network and add hashing power, the process is quicker.

KEY TAKEAWAYS

By mining, you can earn cryptocurrency without having to put down money for it.

Bitcoin miners receive bitcoin as a reward for completing “blocks” of verified transactions, which are added to the blockchain.

Mining rewards are paid to the miner who discovers a solution to a complex hashing puzzle first, and the probability that a participant will be the one to discover the solution is related to the portion of the network’s total mining power.

You need either a graphics processing unit (GPU) or an application-specific integrated circuit (ASIC) in order to set up a mining rig.

How Much a Crypto Miner Earns

How much a miner earns depends on the cryptocurrency they are mining and what proof method they are using.

In Bitcoin, the number of coins awarded decreases over periodic events known as a “halvening,” or halving, when the coin’s subsidy gets cut in half. After each halvening, the reward for creating a block splits in half.

This means that the miners who create blocks today make half of what they would have before the last halvening. The halvening also tends to correspond to the value of Bitcoin because as it becomes more costly to add coins to the circulation, supply vs. demand will go down.

Over time, if they hold their coins, the value is predicted to continuously go up. In this sense, the profitability of mining over a long period is dependent on the coin’s value. Many miners see this as a reason to mine coins, despite cost inefficiencies.

A Quick Look at the Different Types of Cryptocurrencies

What is cryptocurrency mining concerning different cryptos? The first cryptocurrency to be successfully adopted was Bitcoin. Now, with its success, cryptocurrency is beginning to be sought after by institutions and retail investors.

Since Bitcoin’s creation, more cryptocurrencies use the blockchain model at an ever-increasing rate. They call these coins “altcoins.” Some popular examples of altcoins are Ethereum, and Litecoin, Cardano, Polkadot, and Aave.

Similar to Bitcoin, altcoins use blockchain which allows secure peer-to-peer transactions with no central authority or banks managing their transactions.

NFTs or non-fungible tokens are another newly popularized system of non-monetary coins that use the blockchain system. NFTs are seen to many as collectibles, similar to trading cards, but serve many values and have a long way to go in terms of potential use.

As of September 2021, over 6,500 types of cryptocurrency exist. Many projects have failed, while some have grown enormously profitable to investors and achieved use in many applications.

Why Is Crypto Mining Such a Big Deal?

If you’re interested in crypto, you should know that mining is an integral part of the process. You can earn cryptocurrency without having to put money down. This means there could potentially be a big long-term profit if you play your cards right.

There’s a reason why huge mining farms exist that work continuously without breaks to mine as much crypto as possible. As crypto is such a valuable commodity today, getting your hands on this appreciating currency is a good thing, through whatever method you choose.

Mining crypto also means you get to be a part of growing the blockchain and supporting the blockchain system. Without miners, the blockchain wouldn’t work.

What Do I Need to Crypto Mine?

What is cryptocurrency mining requiring these days? You need a wallet, Bitcoin mining software or other cryptocurrency mining software, and mining hardware. Wallets are simply for encrypting and storing your earned crypto. There are two types of wallets; hot, and cold. A cold wallet is a physical storage system for your crypto data, like a hard drive. A hot wallets are for online purposes.

Buying and using mining hardware is the difficult part of the mining process. Your mining rig will require a computer with enough capacity to mine, and enough power to keep it running.

These costly computers come in different forms. GPUs that use multiple graphics cards, often powered by Nvidia and AMD can be used to handle mining calculations, such as a Bitcoin mining calculator, Ethereum mining calculator, Monero mining calculator, nicehash calculator, or other crypto mining calculator.

More commonly today, devices like ASIC miner “Application Specific Integrated Circuit” are used for mining because they are more efficient. Generally, people buy specialized mining hardware for mining.

What Are Coin Mining Pools?

Coin mining pools are when a pool of miners works together to solve the hash and create the next block in the blockchain. The crypto reward is then dispersed to everyone in the pool when the block gets created.

These networks cooperate and receive payments distributed through the pool, allowing miners to improve revenue in exchange for a slight discount in fees paid to the pool coordinator.

Being a part of a mining pool is like having a group of people each trying to guess a number between 1 and 100, vs just yourself. If everyone is guessing at the same time, the number will likely be guessed much faster.

If Cryptocurrency Mining Is So Simple, Why Doesn’t Everyone Do It?

What is cryptocurrency mining worth to you? To mine, it helps to have an understanding of hardware, software, cryptocurrency, and mining. Most people just don’t know much about these things and aren’t inclined or don’t have the time to learn.

Without an understanding of how to use mining tools and work with blockchain, you won’t be able to compete with other miners. You may also be setting yourself up to be hacked or taken advantage of by someone with illicit intentions.

It can be challenging to make a profit. Hence, you have large farms and mining pools working together. Trying and failing to make a profit mining is a reason why some might give up early on mining.

Cost is another factor. Mining and mining equipment isn’t cheap, and it’s important to factor in the ROI as you proceed. People who don’t have an understanding of ROI might get frustrated and quit early on after not making a quick profit. Nicehash calculator is also a great tool.

1. Crypto Mining Is Resource-Intensive

Cryptocurrency mining doesn’t just take expensive hardware, understanding, and time to perform. Proof of work is intensive because of the massive amount of computing power that goes into the process.

Graphics cards on Bitcoin mining rigs using Bitcoin mining software work 24 hours a day, 7 days a week to perform proof of work. Bitcoin mining rigs are costly. Proof of stake mining is less resource-intensive, but still can be costly.

A node with three GPUs, for instance, can consume over 1,000 watts of power while running. This is like adding another resource costly appliance to your home that runs around the clock, with the risk of overheating, or parts that may need to be replaced.

Before learning to mine, you should consider if it is feasible for you to use this much power.

2. Crypto Mining Is Expensive

What does cryptocurrency mining cost? The difficulty of mining is high, and it also requires expensive hardware, the right software, and a lot of electricity. Mining is costly and may even be unprofitable for some. The cost of electricity and efficiency of their mining rig will make a big difference in how much they spend.

Bitcoin mining pools have become popular. This is also why certain governments have created massive mining farms designed to mine at high efficiency.

With each Bitcoin halvening, fewer coins get rewarded to miners for mining blocks. You should know the rules and processes of whatever coins you are mining so that you can more easily maintain a positive ROI. Otherwise, miners may lose money or have a negative ROI.

As of July 2021, the top 5 mining pools control 64% of the total hash rates. A bitcoin mining calculator is a great way to keep track of hashing and costs.

3. The ROI Ain’t What It Used to Be

What is cryptocurrency mining ROI? ROI, or Return on Investment, is a ratio or percentage that reflects the profitability of a trade or investment. There are tools for calculating ROI on many crypto websites and exchanges.

ROI is the net profit divided by net cost. The higher your ROI value, the more profitable your investment. Another way of looking at it is the number of days between the purchase made and the day the buyer has made enough income to make up the cost.

Here are two ways of calculating ROI:

ROI = Net Profit / Net Cost

ROI = (Current Value – Total Cost) / Total Cost

If a trade has an 80% ROI but takes 9 months to complete, this would be less efficient than a trade with a 70% ROI reached in 6 months.

100% ROI means someone has doubled their money, while a negative ROI means the return was lower than the investment. ROI is useful for seeing the efficiency of your investment over time.

Risks of Crypto Mining

What does crypto mining mean to you? For some, it means risk. When mining, there is always a chance you could lose money on your investment. Price volatility can be a factor, as well as the risk of burning out your equipment or losing precious information.

An obvious risk to mining is security. It isn’t uncommon in the cyber world for hackers to target crypto traders and miners. This might come in the form of a security breach where hackers download malware onto a mining device, usually through an unsecured wifi network. Crypto mining software tagged as malware can also be a problem.

Another attack used is phishing, where victims get tricked into clicking links that load cryptocurrency mining code on their devices. They may also infect websites with malicious code. These attacks can happen without the knowledge of the miner, who may see little or no differences.

A common symptom that your device gets infected with malware is that its processing speed slows down.

Some tips to protect yourself from these risks are:

Avoiding public wifi networks

Use a VPN

Securing your devices

Final Thoughts on Cryptocurrency Mining

What is cryptocurrency mining for? Why should you be involved?

How crypto mining works is by releasing new crypto into the system and verifying and adding transactions. Mining is a crucial part of the crypto ecosystem.

Because the blockchain is a public ledger, mining is a novel process for creating digital money. Blockchain and mining have changed the way we look at currency, banks, legislation, and decentralization.

The challenge of mining comes down to the cost versus the reward of earning cryptocurrency. Mining is not only the pursuit to earn crypto.

It doesn’t matter if you are an individual with the hope of being a successful miner or a massive mining farm funded by corporate or government money. Mining will impact the future.

Mining is a legitimate means of being a part of a future where centralized banking becomes obsolete, replaced altogether by decentralized blockchain technology. It is also a movement that is changing the world.

Matthew Baggetta

Matthew is a B2B SaaS content strategist currently working as an Editor at a major financial technology services company. Before that, he worked at Blockgeeks as their Chief Content Officer; where he successfully created the most comprehensive and accessible library of crypto and blockchain courses in the world. Matthew is all about helping organizations master their buyer's journey and helping to create strategic content plans that achieve measurable business outcomes. He knows how to write a piece that readers will want to read and generate organic traffic. Creating high-ranking content is what Matthew enjoys but one day he aspires to travel the world and live off the radar. You can connect with Matthew on Linkedin while he’s on the radar.

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Home/

Mining

What is Cryptocurrency Mining?

6 mins

By Jessica Lloyd

16 December 2019, 03:41 GMT+0000

Updated by

Ish Bautista

27 November 2023, 05:50 GMT+0000

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Mining is a critical process in the cryptocurrency world, involving the verification of transactions, the addition of new data to the blockchain, and the release of new coins into circulation. It’s vital for maintaining the decentralized, peer-to-peer nature of cryptocurrencies, ensuring their smooth operation and integrity. This overview will delve into the intricacies of cryptocurrency mining.

In this guide:The primary functions of crypto miningMining bitcoin explainedWhat is a hash function?The future of miningThe next chapter in mining technologyFrequently asked questions

The primary functions of crypto mining

Crypto mining is the backbone of the cryptocurrency ecosystem. It plays a crucial role in ensuring smooth functioning and security for decentralized digital currencies. Key functions include generating and distributing new coins. Additionally, it secures transactions and maintains blockchain network integrity.

Issuance of new coins: Cryptocurrencies like bitcoin are mined, not issued by central banks, involving specialized nodes solving complex puzzles to “unearth” coins from the protocol.

Rewards for miners: Miners who successfully solve these puzzles are rewarded with a new cryptocurrency, bringing these coins into circulation.

Transaction confirmation: Each transaction gains confirmation and security once included in a blockchain block. More confirmations equate to higher security levels.

Enhancing network security: The overall security of the network increases with more active miners, as a distributed hash rate guards against vulnerabilities.

Preventing transaction reversal: Theoretically, one must control over 51% of the network’s mining hash rate to reverse bitcoin transactions.

Bitcoin hash rate November 2022-2023: Blockchain

Mining bitcoin explained

Bitcoin operates on a blockchain regulated by a network of nodes comprising two distinct types in this context.

Nodes are computers that communicate with other nodes within the network to document and synchronize information.

Some of these nodes are specialist mining nodes that are responsible for taking all the new transactions and adding them into blocks to make up the blockchain.

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Miners race against each other to solve complex mathematical problems. Once a miner has found the solution, they will share it with the rest of the network to verify the solution and confirm the addition of the block.

“I anticipate there will never be more than 100K nodes, probably less. It will reach an equilibrium where it’s not worth it for more nodes to join in. The rest will be lightweight clients, which could be millions.”

Satoshi Nakamoto on scalability: Satoshi Nakamoto Institute

Miners have to guess a number to “solve” the block. How does this actually work?

Miners must find the number that, when combined with the hash function, will produce a number within a specific range. This process, integral to the blockchain’s functionality, also plays a vital role in securing DeFi applications that rely on blockchain technology.

What is a hash function?

In simple terms, a hash function, particularly relevant in the realms of blockchain and DeFi, is a series of algorithms applied to data that produce a single ‘hash’ (essentially a number). There are basic hash functions and cryptographic hash functions, with the latter being crucial for use in blockchain technology.

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In every bitcoin, there is a special part of the block that can be filled with a random number, also known as a nonce (“number only used once”). Each miner takes information from blocks they already know about (from the memory pool) and builds a block out of them.

After hashing each transaction, miners organize them into pairs and hash them again to form a ‘Merkle Tree’ or ‘hash tree’. They repeat this process until they produce a single hash representing all previous hashes, also known as the ‘root hash’.

Basically, to solve the hash, the miner must, through trial and error, work out which sequence of numbers to use as the nonce.

If the output from the algorithm falls below the target number, the network will consider it valid and accept it. If the block’s hash is bigger than the target number, the miner must alter the data going into the hash function until they find the correct answer.

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In theory, altering transaction details in the blockchain could lead to the correct output value. Hence, proof-of-work is essential. Miners must share their solutions with other nodes for verification. Once a miner finds an answer that meets the ‘hash is smaller than target number’ rule, the miner will share the answer with the other nodes for them to verify. This process, crucial in maintaining the integrity of blockchain transactions, becomes increasingly significant in the DeFi space, where security and trust are paramount.

Difficulty metric

The difficulty level of the puzzle is determined by the number of users and the computational power of the network. As more miners join, the difficulty level of the puzzle increases to compensate so that the rate of block creation doesn’t increase. This ensures a steady currency production; currently, the average time of a block formation is 10 minutes.

Rewards

The miner receives a reward in cryptocurrency for each successfully mined block. To maintain a steady supply, the reward amount halves every 210,000 blocks, a cycle approximately every four years.

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The future of mining

Spoke with North American Bitcoin miners. They committed to publish current & planned renewable usage & to ask miners WW to do so. Potentially promising.— Elon Musk (@elonmusk) May 24, 2021

The current mining system, crucial for securing the network against attacks, also plays a significant role in determining the profitability of cryptocurrencies to mine. However, this process demands costly computer hardware and consumes substantial energy. In response, various alternative consensus methods are in development, aiming to address these challenges. Consequently, some cryptocurrencies might eventually abandon mining altogether, seeking more sustainable and efficient ways to maintain their networks.

The next chapter in mining technology

For those interested in mining, delving into the easiest methods and identifying the most profitable cryptocurrencies to mine is essential. This knowledge can equip you with the necessary insights to begin or enhance your mining journey. Understanding these aspects is crucial, whether you’re just starting out or looking to optimize your current mining strategies in the ever-evolving world of cryptocurrency.

Frequently asked questions

What is crypto mining?

Crypto mining is the process of validating and verifying transactions on a blockchain network by solving complex mathematical problems using computational power. Miners use specialized hardware and software to compete in solving these mathematical puzzles. Successful miners are rewarded with newly minted cryptocurrency tokens as an incentive for their contribution to securing the network.

What is the purpose of crypto mining?

The primary purpose of crypto mining is to maintain the security and integrity of a blockchain network. By solving complex algorithms, miners ensure the accuracy and immutability of transactions, preventing fraud and double-spending. Additionally, mining helps distribute newly minted cryptocurrency tokens into circulation while incentivizing participants to contribute their computing power to the network.

What are the challenges of crypto mining?

Crypto mining can be energy-intensive and require substantial computational resources. The mining process consumes a significant amount of electricity, leading to concerns about its environmental impact. Miners often seek energy-efficient solutions and explore renewable energy sources to mitigate the carbon footprint associated with mining. Additionally, the competition among miners for rewards has increased the demand for specialized mining hardware, contributing to hardware scarcity and higher costs.

How does crypto mining give you money?

Generating passive income through crypto mining entails utilizing computational power to solve complex mathematical problems and validate transactions on a blockchain network. Miners receive compensation in the form of newly created cryptocurrency coins, like Bitcoin, upon successfully solving these problems and validating transactions.

Is crypto mining illegal?

Crypto mining is not inherently illegal; the jurisdiction and compliance with local regulations determine it. In many countries, crypto mining is legal and widely practiced as a legitimate activity. However, some regions may impose restrictions or outright bans on mining due to environmental concerns, electricity consumption, or regulatory uncertainties.

What are the problems with mining crypto?

The environmental impact of bitcoin mining is a significant worry because of the substantial energy consumption involved. The process demands vast computing power, leading to elevated electricity usage and subsequent carbon emissions in cryptocurrency mining.

How to start buying bitcoin?

To initiate the purchase of bitcoin, begin by registering an account on a cryptocurrency exchange platform such as Coinbase, Binance, or Kraken. After setting up your account, connect it to your bank account or credit card to add funds to your wallet. Navigate to the exchange interface, specify the desired amount of Bitcoin, and proceed to execute the purchase order.

What is the cheapest way to start mining cryptocurrency?

Well, mining cryptocurrencies on a home computer in an area with cheap electricity is the least expensive method of mining cryptocurrency. Depending on your computer’s specifications, you might find it more lucrative to mine using a GPU or opt for coins with hashing algorithms efficiently mined on a CPU, such as Monero.

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Jess graduated in the United Kingdom with a Biology degree and then spent several years managing communications for companies in the United Arab Emirates, Africa and South East Asia. She believes that bridging the education gap is a vital step in mainstream understanding of what emerging technologies can offer societies worldwide.

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