Cryptocurrency is a type of digital money. There are three main ways to get it: purchase, donation or mining. What is cryptocurrency mining? How does it work and what is it?
Mining: What Is It
From the English word mining literally translates as “mining” and reflects the essence of the process. With mining, cryptocurrencies are mined – or released, in the analogy with physical money.
Coins and bills are issued by central banks. Cryptocurrency is not centrally managed. Therefore, the only way to get new tokens and coins is to mine them using computer power. This work is done by miners.
How Mining Works
Let’s imagine you want to transfer Bitcoins to a friend who wants to buy something on them or deposit BTC to https://vave.com/live. After the transaction, a new block will need to be added to the blockchain. To do this, the computer has to solve a mathematical problem – it has to find a special combination that will connect the previous record in the blockchain with the new one. The more power of the computers used, the faster they solve these problems. The machine looks for a specific combination – it’s called a “hash”. The total amount of processing power is called the hash rate.
For each combination found, the miner is rewarded with a new coin. This is how cryptocurrency is mined.
Methods of Mining
Let’s consider three main ways: cloud mining, solo mining and mining in a pool.
Cloud mining is considered the easiest. It’s suitable for beginners in this field. There is no need to buy, install and configure equipment to create coins – it’s enough to rent capacity on a remote server. All the basic work on mining digital coins will be taken care of by miners-professionals. A beginner has only to regularly replenish the balance on the cloud service and withdraw the “crypto” to his own wallet.
The problem with this mining method is the lack of guarantees. Starting to engage in mining, you need to be prepared for a possible loss of all your invested funds. Another disadvantage is the possibility of fraud.
Solo mining is different in that in this case the miner mines coins alone. He collects and configures the equipment on his own, and then tries to solve the mathematical problem. Today solo miners are in the minority: every year it becomes more and more difficult to solve problems, more and more productive equipment is required, and investments in it require capital.
Pool mining is all about teamwork. This method of cryptocurrency mining relies on combining the power of several computers – it helps to solve problems faster. A pool is a server for collective mining. It sends out simple tasks to the team and does the rest of the work itself.
What Is a Mining Farm
Mining “crypto” is getting more and more difficult. To open each subsequent bitcoin, more and more resources have to be spent. Whereas when bitcoin appeared, it could be mined with a home computer, now mining is effective only on an industrial scale. In this case, the main computing power falls on video cards, and the other components are only needed to keep the system running. The consolidation of devices for mining cryptocurrencies is called a mining farm. This term is used to refer to the premises where the equipment for computational work is located.
What the Profit of Mining Depends on
To start mining “crypto” isn’t so difficult. But first you need to know what the profitability of mining depends on:
- Cryptocurrency volatility. Since you will be remunerated in “crypto” for mining new coins, you can lose some profits due to rate fluctuations.
- Electricity rates. The more you have to pay for electricity, the higher the cost of coin mining. Electricity consumption of the equipment is different, so the higher it is, the more expensive it is to mine.
- The amount of remuneration for solving the problem – it depends on the mined asset;
- Computing power of the equipment – the higher it is, the faster the mining takes place. Different cryptocurrencies use different equipment.
Investing in cryptocurrency and its mining is still a risky venture, so invest only those funds that you are willing to lose. The high volatility of “crypto” can provide both high returns and losses.
