Crypto mining

Last Updated April 20, 2024 11:02 pm

If you’re interested in owning crypto, your first thought might be how to buy or trade cryptocurrency. But that’s not the only way to get your hands on crypto – you can also earn it, via a process called crypto mining. In this article, we explain how cryptocurrency mining works, why it’s important and your different options.

In this definition...

What is crypto mining?

Crypto mining is when nodes in a proof-of-work blockchain (such as Bitcoin) compete for the right to add a new block of transactions to the blockchain. The winning node will add the new block and earn a block reward for doing so. This process is achieved using machines with enormous computational power, or hash power.

Cryptocurrency mining is the mechanism through which new coins are put into circulation on proof-of-work based networks.

Technically speaking, cryptocurrency mining is something any individual or organization can do with adequate hardware and energy resources. However, in reality, the huge amount of power required to compete with other huge mining operations means mining cryptocurrency is normally only possible as part of a large mining pool.

Let’s take a deep dive into cryptocurrency mining.

How does cryptocurrency mining work?

Blockchains are decentralized ledgers, enabling peer-to-peer value transfers. The network’s nodes are responsible for ensuring every transaction is valid before it is added to the blockchain.

Validation is effectively a race between mining nodes to solve a complicated mathematical problem. Whichever node achieves this first adds the new block and receives the mining reward.

But with no central authority, how can the network ensure miners validate blocks of transactions honestly?

The answer lies in something called a consensus mechanism. In proof-of-work based blockchains, validating new blocks requires miners to solve an incredibly complex equation. The problem itself has no real value. Rather, its purpose is to impose a cost on the miner nodes. In other words, miners must “pay to compete” for the block reward.

This system ensures there is no incentive to lie about new blocks of transactions. Doing so would compromise the security and value of the whole network, and decimate the value of the block reward.

For example, if you were trying to add a fake transaction to the ledger, you’d first need to solve the hash function. The computational power required to even attempt this is huge, leaving no incentive for bad actors to try and cheat the system. It is simply too expensive.

Proof-of-work explained

Thus, the proof-of-work mechanism has multiple purposes:

It ensures the integrity of blockchain transactions despite the absence of any central authority
It rewards miners for their expenses and effort, thus incentivizing them to keep the blockchain functioning
It deters threat actors who hope to manipulate the blockchain for their own gain, by making any such attempt too costly.

How to start mining cryptocurrency

Crypto mining requires extensive processor power and specialized equipment. This creates a barrier to entry for individuals who want to start mining. However, there are the different crypto mining options that exist, each one offering different rewards and barriers to entry.

Different methods of mining crypto

Here are your two main options if you want to start mining crypto yourself:

Operate a crypto mining rig

You can own and operate a crypto mining rig yourself. Mining cryptocurrency using your own crypto mining rig is known as solo mining.

If you choose solo mining, you take home all of the mining rewards. However, you must also buy the mining equipment yourself, and provide the significant amount of power required for the process.

Owning and operating a mining rig comes with the upfront cost of specialized hardware and ongoing operating expenses like electricity. Yet, it offers the most control and profit potential to miners.

Cloud mining

Cloud mining is when individuals purchase mining power (or hash rate) from a large mining operation. You will then earn a proportional share of the block rewards earned by the whole operation.

The advantage of cloud mining is that it doesn’t require an upfront investment from you. There is no need to buy an individual mining rig or provide power, or keep any equipment in your home. So it provides the option to benefit from crypto mining without the costlty barriers to entry.

However, the rewwards are also smaller. The cloud mining service will take a cut of your block rewards in exchange for having provided equipment and power.

Also read: How NVIDIA Got Creative with Crypto-Miners | eWEEK

What’s a cryptocurrency mining app?

Crypto mining apps serve as the platforms for mining pools, connecting interested miners with or without rigs, to combine hashing power and mine cryptocurrency.

Mining software is essential for average miners with limited resources to participate alongside a mining farm effectively.

Learn more with our in-depth guide How to Mine Cryptocurrency.

What’s the best cryptocurrency mining app?

Best commercial crypto mining apps

Awesome Miner

Launched in 2014 by Swedish company IntelliBreeze Software AB, Awesome Miner is a free and premium Windows or Linux-based application for managing and monitoring mining popular cryptocurrencies like Bitcoin (BTC) and Litecoin. Awesome Miner has everything a prospective miner needs to get started, including options for cloud mining (Managed Miner), ASIC firmware, mining pools, and connecting an external ASIC rig. Additional features include native overclocking, GPU monitoring, and organizing miner groups by tags.

Cudo Miner

Cudo Miner is another premium option offering miner, mining, and cloud mining solutions compatible with Windows,macOS, Linux, CudoOS, and ASICs. Targeting personal device owners up to enterprise mining farms, Cudo Miner includes advanced features like auto coin switching based on profitability,multi-factor authentication (MFA), and advanced algorithm settings for customized mining. Cudo Miner currently allows mining of BTC, ETH, Monero (XMR), and Ravencoin (RVN).

Also read:Ethereum cheat sheet: Everything you need to know | TechRepublic

ECOS

As a decentralized finance (DeFi) platform, ECOS goes beyond just mining with additional crypto investment tools forwallets, trading, and portfolio management. ECOS offers cloud mining contracts for BTC based on the forecasted BTC price, contract term, and hash rate (TH/s) for interested miners. With instant quotes and a profitability breakdown, ECOS is best for passive miners who want to participate in BTC mining without the existing resources or expertise to manage mining operations.

MinerGate

While crypto mining once only involved BTC, MinerGate opens the door to a host of altcoin mining opportunities from nearly any device. In all, MinerGate offers ten coins to choose from, including LTC, XMR, Zcash (ZEC), and Bytecoin (BCN). Its pools support over 300,000 active miners with GUI applications for Windows, macOS, Linux, and Android devices. With automatic switching to mining the most profitable coin and hardware benchmark analysis, miners can easily manage mining activity.

NiceHash

Another full-fledged cryptocurrency platform, NiceHash, offers solutions for crypto miners, investors, and traders. Unlike other crypto mining platforms, which offer mining pools for specific coins, NiceHash leans into being a marketplace for hash power no matter the currency, consensus, or algorithm. Interested users can start by choosing GPU mining or CPU mining or linking an existing ASIC miner. With more than 600,000 daily users, NiceHash facilitates the sale of hash power for many other crypto mining pools.

Slush Pool

One of the earliest mining organizations, Slush Pool, has been a dominant BTC mining pool with over 1.25 million BTC mined since 2010. While no stranger to BTC mining with more than 180,000 active workers in 2021, Slush Pool more recently enabled mining for Zcash (ZEC). As a Slush Pool participant, users access advanced features like node monitoring, API integration, and customizable payouts. Led by BTC mining company Braiins, Slush Pool continues to develop the latest features for improving security and efficiency.

Best open-source cryptocurrency mining apps

BFGMiner

BFGMiner is an open-source modular crypto miner software, written in C, for mining multiple cryptocurrencies, including Bitcoin. Using an existingCPU, GPU, FGPA, and ASIC processor, administrators can download and configure their mining rig for single pools, multiple pools, multiple blockchains, and single pools for a specific proxy.

Other convenient features included in the latest release (5.5.0) are low overhead and CPU usage, multiple failover mechanisms, caching of submissions during downtime, and discrete device data statistics. Users require technical skills to navigate and utilize this crypto mining software with a command-line interface (CLI).

CGMiner

Open-source ASIC crypto mining software CGMiner was also written in C and is compatible with Windows, macOS, and Linux systems. CGMiner’s latest release (4.11.0) is accessible under the GPLv3. It suits more seasoned miners and IT professionals comfortable with a CLI or an RPC or JSON interface for remote control.

CGMiner includes support for stratum and GBT pooled mining protocols, preemptive fetching, local generation of valid work, and a quick configuration menu. CGMiner offers a default failover strategy for multipool protocols and includes options for round-robin, rotate, balance, and load balance strategies.

A screenshot of CGMiner’s command-line interface and administrator view.

EasyMiner

EasyMiner is an open-source crypto mining software optimized for the popular x86 and x86–64 architecture and compatible with the getwork (JSON-RPC) and stratum mining protocols. With round-robin SSD servers in place, EasyMiner boasts military-grade security for protecting miners’ crypto earnings.

As a lightweight program, EasyMiner is low on CPU and GPU utilization and allows miners to participate in mining sessions. Contributed work translates to shares earned and a portion of the coin earnings from the server-level block rewards. Other features include displaying data to administrators like total shares mined, hash rate, earnings, and more.

MultiMiner

Compatible with Windows, macOS, and Linux machines, MultiMiner is an open-source application enabling cryptocurrency mining through GPUs, FPGAs, and ASICs. The mining engine used is the popular BFGMiner, yet the GUI is modern and user-friendly. With quick-start and automated mining features, MultiMiner is ideal for beginner and novice miners unfamiliar with the underlying technical processes at play. Features like load balancing, mining the most profitable cryptocurrency, and configuring policies for mining are available to administrator discretion.

A screenshot of MultiMiner showing the administrator view for configuring pools.

Is mining crypto worth it?

Profiting from crypto mining is a delicate balance of weighing costs against rewards.

Block rewards for miners can be significant, especially when the value of the underlying crypto is on the increase. However, hardware costs range from tens to hundreds of thousands of dollars, and the cost of electricity can be very significant.

While a decade ago DIY miners could buy a rig and start at home, today’s global crypto mining market is progressively run by companies and organizations choosing to pool mining and rewards. In October 2021, the U.S. National Bureau of Economic Research (NBER) releasedresearch that stated:

“We show that the Bitcoin mining capacity is highly concentrated and has been for the last five years. The top 10% of miners control 90%, and just 0.1% (about 50 miners) control close to 50% of mining capacity.”

With more mining operations joining the race, and the hash power of those operations increasing, it has become harder to profit from mining. After all, for each new block, every miner competes and expends energy – but there can only be one winner.

Bitcoin: an example in crypto mining profitability

In 2009, the first widely successful cryptocurrency, Bitcoin, awarded its first Bitcoin miner with 50 BTC, valued at $6,000. At the time, the computing resources and energy required to mine a single BTC were significantly less, allowing interested miners to pocket most of the reward.

As the Bitcoin protocol maintains a half-life of roughly four years, block rewards get cut in half, with the third and most recent reduction in May 2020 going from 12.5 BTC to 6.25 BTC. Though each block reward will continue to decrease, the rising value of BTC means dedicated miners can still be profitable. Pooling mining capabilities and earnings remain the dominant method for interested miners.

For reference, the value of 6.25 BTC as of November 2021 is approximately $360,000.

Also more:Numio Enables High-Speed Cryptocurrency Transactions | IT Business Edge

Is there an alternative to crypto mining?

Most crypto coins use mining, or the proof-of-work protocol, as the consensus mechanism to generate the underlying distributed blockchain. The alternative method increasingly employed is the proof-of-stake (PoS) protocol. While mining is a resource-exhaustive process, staking instead requires holding cryptocurrency for an extended period to earn block rewards. Several coins consider the move from PoW to PoS to achieve more environmentally sustainable practices.

This article was originally written byForrest Stroud and updated by Kaiti Norton in April 2021.

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