What is cryptocurrency mining (production). Review and description: principle of operation, types of cryptomining, parameters, pools, equipment
Mining (from the English mining – mining, mining) is a type of activity that verifies cryptocurrency transactions and creates new blocks in the network based on blockchain technology.
Mining is a key concept in making many cryptocurrencies work. Miners (people who donate the computing power of their devices) receive a monetary reward for each mined block, as well as income from on-net commissions. For example, on the Bitcoin network, the block reward in 2022 is 6.25 BTC. The editorial staff of Btcnewsweb.com reviewed and prepared a detailed overview of the cryptocurrency mining process.
- 1 What is cryptocurrency mining
- 2 Mining process
- 3 Where to sell the mined cryptocurrency
- 4 The complexity of cryptocurrency mining
- 5 Mining types
- 6 What is hidden cryptocurrency mining
- 7 How to start mining at home
- 8 Cryptocurrency mining equipment
- 9 Mining pools
- 10 Cryptocurrency mining software
- 11 Is cryptocurrency mining profitable in 2019
What is cryptocurrency mining
The blocks that make up the chain (blockchain) have a number of parameters. One of them is a hash, a certain number that needs to be figured out to generate a block. The search is carried out by enumerating the values. Specific computation models differ for different cryptocurrencies, but they all have similar features: finding the hash takes a very long time, and checking the finished result very quickly.
Cryptocurrency mining guarantees the reliability, integrity and normal functioning of the crypto network (namely, confirmation of the integrity of transactions, protection from hacker attacks and fake blocks, ensuring decentralization).
When two network participants have exchanged a transaction, it must be confirmed. Acknowledgment is the inclusion in the block. Only then can the funds transferred through the transaction be used further. The possibility of confirming a fake transaction is excluded.
From the point of view of ordinary users, mining is a source of additional income. But, before starting to deal with it, you should carefully calculate the payback of the equipment, the possible profit and, in general, the prospects of the chosen cryptocurrency.
It is advisable to watch a video that describes in simple words the process of mining or mining cryptocurrencies (you need to include subtitles in Russian):
During cryptocurrency mining, new blocks are created according to the following algorithm:
- Users look for a hash by performing computational operations for this.
- When the code is decrypted, a new block is opened with a cryptographic signature.
- The signature contains all the hashes of the preceding blocks.
- The first miner to guess the hash gets a reward.
In new cryptocurrencies, the hash is easy to look for, but in such as bitcoin and other top coins, it will not be enough life to find it alone. Therefore, miners are pooled to create blocks faster. And the reward is shared among all in fairness.
Where to sell the mined cryptocurrency
The cryptocurrency mined by mining can be saved as an investment or sold and get real income. Crypto is sold using special services – crypto-exchanges and cryptocurrency exchangers, which differ in functionality, interface, and the amount of commissions.
The following trading platforms are popular with the opportunity to receive fiat money or stablecoins:
For margin trading in cryptocurrencies, you can use:
The complexity of cryptocurrency mining
The emission of most cryptocurrencies is finite. For example, there cannot be more than 21 million bitcoins (according to calculations, they will be mined by 2140). But due to the growing popularity of the industry, more and more new miners are coming.
When creating Bitcoin, the developers set the approximate time for finding a block – 10 minutes, and this time period should not change, no matter how many people support the network. This is protection against uncontrolled coin creation. The mining difficulty parameter was created in order to keep the 10-minute interval at the same level.
Difficulty is automatically adjusted every 2016 mined blocks (approximately every 2 weeks). If, according to the system’s calculations, the miners mined this number of blocks too quickly, then the complexity increases, and vice versa.
The reasons why the complexity of mining cryptocurrency was introduced:
✅ Controlled emission. Eliminates the possibility of creating all blocks too early.
✅ Increasing the value of cryptocurrency. The more difficult it is to mine coins, the more they are valued in the market.
There is another indirect plus of the complexity of mining. This provides an incentive for the development of new technologies. New equipment with higher capacity is regularly released, which has an impact on the world’s economy.
The dynamics of the growth of the difficulty of mining cryptocurrency bitcoin:
Network hashrate, mining algorithms
Hashrate (hashrate) – an indicator that displays how much total computing power miners give to the network for its continuous operation. The network consumes a lot of energy, since it must constantly iterate over the codes to form the next block. To keep the search not too easy, there are hashing algorithms.
Bitcoin network hashrate (as of 02.02.2019, the total capacity is 44802504 TH / S terra hashes per second)
The mining algorithm converts any digital data into a permanent string of letters and numbers. The size of the fixed bit varies depending on which hash function is used. The algorithm has two main properties: it is a one-way function and produces unique results. Accordingly, it is characterized by linear execution – the network cannot be recovered from a ready-made hash.
The Bitcoin network uses the SHA-256 algorithm. For successful block generation, the “miner” must choose the block header so that it is equal to or less than the target value. The target value is a 256 bit number. The lower the target, the more difficult it will be to generate the block. Ethash algorithm is used for mining Ethereum.
Reward for the mined block
When a block is closed, miners are always rewarded. For Bitcoin, these are:
1. 2009–2012 – 50 coins.
2. 2012–2016 – 25 coins.
3. 2016–2020 – 12.5 coins.
The reward will continue to halve for every 210,000 blocks created. This phenomenon is called halving, or halving bitcoin, and performs similar functions with increasing complexity, in particular, it increases the value of an asset.
There are many types of mining, but not all of them will be effective for a particular cryptocurrency.
Processor (CPU) mining
Once upon a time, it was possible to mine bitcoin on a processor. There was no need to buy any additional equipment at all. But now those times are long gone – the complexity of the network does not allow using the CPU for mining bitcoins.
However, fresh cryptocurrencies, while still having low complexity, are available for mining on the processor. Another question is that it is impossible to say in advance whether the currency will be promising and whether it makes sense to spend time and electricity on it.
On video cards (GPU)
Most of the popular cryptocurrencies, except for Bitcoin, are now successfully mined using GPU “farms” – a combination of several powerful video cards (on average from 4 to 12). Video cards are capable of quickly processing information, since they were originally created for this – I mean support for demanding games or high-definition video.
Integrated models or cards from laptops are not suitable, only full-fledged discrete video adapters.
Hard disk drive (HDD)
Hard disk mining is carried out in accordance with the PoC (Proof of Capacity) algorithm. The method became known at a time when the market suddenly experienced a shortage of other important components for mining (GPU, motherboards). The cost of the cryptocurrency rose, the number of miners grew, and the manufacturers simply could not cope with the demand.
Then the developers of the crypt invented a new technology, which, with good efficiency, does not require sky-high capacities. Nowadays, cryptocurrency mining on HDDs is quite common.
Mining cryptocurrencies on ASICs (ASIC)
An ASIC miner is a special integrated circuit with high power, but programmed for only one algorithm (sometimes several related ones). For 2019, this is the most high-tech type of mining.
ASICs are now the only way to efficiently mine bitcoin. However, cryptocurrency developers do not like them for the harm of decentralization. Due to the high cost of equipment and long payback, not all home miners stop at this option, but large corporations see this as a benefit. Thus, the network becomes less centralized.
Cryptocurrency mining is carried out using the user’s equipment, but only during the period of time when the tab with the corresponding site is open. The percentage of resource use depends on a specific project and can be equal to either 10% or all free resources. The settings can be used to limit indicators.
If you set the power to maximum, the computer will slow down, but the profit will increase. Decreasing power will remove the brakes, but also reduce profits. It is best to combine the two options – set the power to maximum values at night or when no one is at home, and turn it down while using the PC.
When using cloud mining services, the user pays for a certain amount of capacity by purchasing a contract. He doesn’t need to do anything else. Mining is carried out on the equipment of the site owners, and the user who paid for the contract receives income in accordance with the purchased capacity.
Mining on a mobile phone
For mining on your phone, you need to download a special program to your iPhone or Android. This option is one of the least effective – the phone or tablet will get very hot, which can lead to damage. At the same time, the profit is clearly not worth it, you can literally earn a penny using this method.
Hidden mining is the extraction of coins on the user’s computer, who does not even know about it. It is carried out by secretly installing a botnet program on a PC. You can notice the hidden miner by the increased load – the video card or processor is usually loaded at 100%, even if no application is running. However, there are more cunning varieties that take only a fraction of the resources, making them harder to find.
The first hidden miners appeared in 2011, and a couple of years later it turned into an epidemic. Thousands of computers around the world have been infected. Most often, botnets were transmitted via Skype. The most dangerous thing is that they not only mined, but also stole confidential information and access to crypto wallets.
How to start mining at home
Mining cryptocurrency at home should start with choosing a cryptocurrency. Those who have settled on the most popular (Bitcoin) need to be ready to pay 100-200 thousand rubles for ASIC, and then up to 10 thousand every month for electricity.
If the choice fell on one of the less promoted, but also promising cryptocurrencies, then you will have to assemble a mining farm that includes several video cards, a motherboard, a processor, and a hard drive. All this is combined in one case and requires high-power cooling.
And if you decide to try your hand at mining freshly baked crypt at no extra cost, then you just need to download the mining program and start mining it using the processor. You need to make sure that an appropriate cryptocurrency wallet has been created, where the earned funds will be stored.
Cryptocurrency mining equipment
A bit of history. How cryptocurrency mining devices have evolved:
- CPU. Was relevant from 2009 to June 2010.
- Video cards. Since 2010.
- FGPA – since 2011. These are powerful, but at the same time, compact devices that have already gone into oblivion due to the fact that the development of chips did not pay off, and manufacturers abandoned them.
- ASIC. Since 2012.
Of course, progress does not stand still. As cryptocurrencies develop and new mining algorithms appear, inventors are also working hard. New ASIC models come out almost every year and there is no end in sight.
Equipment for mining cryptocurrency from the manufacturer Bitmain (Antminer T15, S11, S9 and others):
The cost of miners is from $ 307 to $ 710 without delivery.
A mining pool is a server that provides dividing large-scale computing tasks into smaller ones and distributing them across all devices connected to the server.
Mining pools make it possible to reduce the time required to generate a block by a factor of thousands by combining the capacities of the participants’ equipment. Thus, even a miner who does not have significant capacity available can count on a certain share of the reward.
The higher the total hash rate of the pool, the higher its “luck” – the chance of signing a new block. Therefore, large pools work much more efficiently than small ones.
Cryptocurrency mining software
Having acquired equipment and registering a wallet, it’s time to move on to choosing software for mining. Several programs are most popular:
- Minergate xFast GUI Miner.
- Bitmint. Mine on the SHA-256 algorithm.
- CUDA miner. Mine on MaxCoin, SHA-256D and Scrypt.
- CGMiner. Mine on NeoScrypt, CryptoNight.
- BFGMiner. Mine on RPC, Scrypt.
- MultiMiner. Mine on a variety of algorithms, including all popular ones.
Applications differ not only in algorithm, but also in the level of commission to developers. On average, 1-2% of earnings always go to the creators of the application.
Is cryptocurrency mining profitable in 2019
Even experts do not give an exact answer to this question. However, if you look at the facts, the payback of a farm or ASIC in a year has already become an unrealistic undertaking. Those who acquired equipment earlier continue to mine by inertia. The influx of new miners into the industry is minimal: too high risks and low prospects. The hype period is in the past, the price is kept at a relatively stable level.
Trading is of much greater interest now, but there is also a suspicious lull. Bitcoin as of January 2019 is very calm, and the only question is where it will go next, up or down. The relevance of further cryptocurrency mining will depend on this.