What should you know when mining cryptocurrencies?

Many people looking for a way to make extra money are considering mining cryptocurrencies. This is not surprising. Their constantly growing price means that interest in them is also increasing. Mining cryptocurrencies seems like a good way to achieve passive income. Still, cost-effectiveness can vary due to electricity charges or hardware processing power.

A little bit of technology.

The foundation of the Bitcoin cryptocurrency is blockchain,i.e. a network of cooperating computers that update and verify the distributed ledger. Network security and privacy is ensured by a decentralized protocol. The opposite are banks, which are classified as centralized systems.

Bitcoin functions thanks to the Proof-of-Workalgorithm, i.e. proof of work, confirming transactions. Proof of work is shown to the entire network. On the Bitcoin network, users simultaneously verify transaction blocks and are called Bitcoin miners. They own Bitcoin miners,which, thanks to performing complex calculations, are rewarded by the network with virtual coins.

How are Bitcoin miners built?

Currently, the main role in Bitcoin mining is played by graphics cards or ASICs. The performance of cryptocurrency miners is determined by the number of hashes per second. Mining nodes, called nodes, use computing power to solve complex calculations. Their result is considered a so-called authentication stamp. The reward in the form of mined Bitcoins and the transaction fee from confirmed operations is given to the node that will be the first to calculate the correct result.

The quality of the mining equipment determines the speed of finding the right answer. The disadvantages of the functioning of the Bitcoin network include the high demand for electricity. When digging Bitcoin, it is worth considering increased electricity bills.

CPU mining.

Such a method is now considered obsolete. The chances of mining units with the CPU are slim,and the times when anyone could earn cryptocurrency units by using the CPU are over.

Gpu mining.

Some time after the advent of Bitcoin, miners realized that GPU processors are much better suited for operations on SHA-256 equations, and thus for mining new units of cryptocurrency. For this reason, the demand for new graphics cards in the market increased, and manufacturers began selling graphics cards to mining farms. This ended up with an increase in prices and an increase in waiting times. Demand from miners meant that mainly players suffered from the Bitcoin mining procedure.

Digging using ASIC.

ASIC miners have forever changed the cryptocurrency industry. ASICs are much, much faster than graphics cards, mainly because they are designed exclusively to solve a cryptocurrency algorithm. Since they are created exclusively for a specific cryptocurrency, they cannot be reprogrammed under another.

What is Bitcoin mining?

This process involves the calculation of the hash function of subsequent blocks. If such a string of numbers is found, it is presented to all nodes in the network and when it is correct, the miner receives a certain amount of digital currency. If you enter incorrectly, such a code is ignored.

According to the Bitcoin protocol project, each block is created every 10 minutes. It is true that in the case of higher computing power, blocks can be created faster,but every 2016 blocks in the case of Bitcoin, the blockchain is verified and matched to the computing power of all miners, so that blocks are created within a time distance of 10 minutes.

As more people mining Bitcoin increases the overall computing power of the network, this makes it more difficult to mine blocks. Looking back, it can be seen that initially a regular computer was enough to mine Bitcoin, later a GPU was added, and finally dedicated ASIC-based miners were produced. At this point, it is almost impossible to mine a block by 1 PC, and miners are mining cryptocurrencies as part of cooperation in the so-called " "mining pools".

What is "halving"?

Every 210,000 mined blocks, which is about every 4 years, the network halves the reward for mining cryptocurrency. The process will continue until around 2140, which is the date of mining the last Bitcoin. Later, the main earnings of miners will be a commission.

Halving has an impact on the price of Bitcoin:

  • The first raised it from $10 to $1200.
  • The other raised it from $650 to $20,000.

The impact of electricity prices on the price of Bitcoin.

The increase in electricity prices means that interest in mining cryptocurrencies is decreasing. It is best to dig where energy prices are low,which translates into the profitability of mining.

To reduce costs, some of the miners move to where electricity bills are cheaper and even decide to change country. One such target is Iran, where the price of 1 kWh is 2 cents.

The direction of development of Bitcoin mining.

The goal of the industry is to automate and increase the amount of production, while reducing its costs. Mining cryptocurrencies with ordinary computers is outdated and unprofitable. Each additional cryptocurrency miner increases network security with its computing power. The profitability of mining Bitcoin and other cryptocurrencies will depend on the price of electricity and the value rate. Certainly, digging is not a recipe for quick money. Since cryptocurrencies are a very risky investment field,the return may come after years or never.

Author

  • He describes himself as a cryptocurrency investment specialist. He had mined them many years earlier thanks to a self-constructed virtual coin excavator. Privately, he is passionate about hiking in the Karkonosze Mountains. In addition, he is a huge lover of photography, especially taking pictures of the mountains.

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3 Comments

  1. Author

    Bitcoin is a virtual casino. If a country wants to include it in the market, it also puts itself in trouble. I wonder how much more the price of virtual tokens has to drop so that people can finally see it.

  2. Author

    The project behind cryptocurrencies is synonymous with freedom. He even proves that the banking system is unnecessary. Some of the states seek to destroy what is still free. After all, cryptocurrencies can threaten the old political order.

  3. Author

    All blockchain-based cryptocurrencies are a great solution for today. See how inflation breaks down our financial system. See how governments massively reprint money to save the economy. Only decetralized cryptocurrencies can provide a simple and accessible medium of exchange.

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