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June Katz 23 Aug 2023 ◦ 4 min read

What Is Cryptocurrency Mining?

What Is Cryptocurrency Mining?

Cryptocurrency mining is the activity of maintaining a distributed platform and creating new blocks with the ability to receive rewards in the form of new units and commission fees in various cryptocurrencies.

How does cryptocurrency mining work?

In the process of crypto mining, a mathematical problem is being solved, as a result of what you can get currency. In other words, your computer’s performance converts into money, and a crypto miner pays just for electricity and the Internet. Network support consists of confirming transactions by including them into blocks and calculating the key (hash) of such a block. The block hash does not allow changing the information of the block in the future, which excludes the possibility of counterfeiting transactions made in the block. Finding (calculating) a key with the given parameters does not occur instantly – it is necessary to generate many keys in order to get the given one. But this is not all – after generating the key, you need to receive confirmation of the fidelity of such a block from other network participants. Confirmation consists of checking the block key. In the Bitcoin network, at least 120 confirmations must be received. Such confirmation is another degree of protection against distortion and additional verification of data on the blockchain network. The essence of cryptocurrency mining is the creation of a whole network of decentralized computers that solves complex computational problems using their technical capabilities. All these connections are called nodes in crypto mining. And the more of them are in the blockchain system, the more decentralized the network is, and all work happens much faster.

Types of cryptocurrency mining 

From the technical side, crypto mining can be divided into 3 types, depending on the equipment:

  • GPU mining, i.e. crypto mining on video cards.
  • CPU mining, i.e. crypto mining on the processor.
  • Crypto mining on ASICs (ASICs) – special cryptocurrency mining rig created for the extraction of cryptocurrencies that work on certain algorithms.

Depending on the method, cryptocurrency mining is divided into three types:

  • Individual mining. This is an independent production with using personal equipment and cryptocurrency mining software that connects your miner to the blockchain, without collective participation in pools. In this case, all the digital coins that you mined, as well as transaction fees, remain with you as a well-deserved profit. For individual mining the power of the equipment is important since a large hash rate is needed to ensure the complexity of the calculations. Solo mining is beneficial for mining relatively new cryptocurrencies.
  • Pool mining. A mining pool is a server that combines the computing power of many crypto miners. It is a common computer network that creates new blocks. The coins mined at the same time are then divided among the miners according to their shared participation in the process. Pooling has become necessary due to the increasing complexity of the network of popular cryptocurrencies.
  • Cloud mining. If the previous two methods use your own equipment in cryptocurrency mining, then in cloud mining you rent computing power from a service that is a mining farm on an industrial scale. In this case, you no longer need to start your own mining pool and maintain them. It is enough for you to pay for other people’s capacities and mine on the equipment of some industrial crypto pool. Cloud mining makes it possible to join crypto mining without large investments.
  • Web mining. One of the least popular methods of cryptocurrency mining. Web mining occurs through sites on which you need to register, install a special program, and configure it. The owners of these sites use the power of all users who register on their resource for the extraction of crypto coins. In order to decide whether to work with the help of web mining, you must initially evaluate the size of all possible investments. Check if all this is worth it comparing with profit and also take into account the fact that at the moment the extraction of cryptocurrency has become extremely complicated. Special sites, which are called “cryptocurrency calculators”, do well with such calculations. The power of mining equipment is determined in mega hashes.

Interesting facts about crypto mining

The total income of crypto miners amounted to about $15 billion since the launch of Bitcoin in 2009. $1 billion of this number is a commission.The terms of Bitcoin emission gave more advantages to those who took up mining with a small aggregate network capacity. So, the amount of work needed to generate the unit, in 2013 amounted to almost half a million times more than after releasing the network. With an increase in the total processing power of miners, block generation becomes more energy and hardware intensive. This is accompanied by a planned reduction in the size of the mining reward. This way Bitcoin halving came in sight. In the 2000s, fewer people knew about cryptocurrency mining than now. That's why the cryptocurrency mining profitability was much bigger. But anyway there were some risks. For example, you can find many stories where crypto miners got lost their keys and all the capital as well on Reddit. But if it is all right with keys, a miner from 2010 possesses massive funds now.

Cryptocurrency mining today. Is cryptocurrency mining still profitable?

Nowadays, it is quite difficult to start solo mining because of the high competition of mining farms, pools, and other entities. In addition, the start is expensive. In order to earn, you should initially invest quite a huge amount of money on expensive cryptocurrency mining hardware and electricity. So you need to weigh the pros and cons before purchasing assets.

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