Cryptocurrency mining, or cryptomining, is a process in which transactions for various forms of cryptocurrency are verified and added to the blockchain digital ledger. Also known as cryptocoin mining, altcoin mining, or Bitcoin mining (for the most popular form of cryptocurrency, Bitcoin), cryptocurrency mining has increased both as a topic of interest and an activity as cryptocurrency usage itself has grown exponentially in the last decade..
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How does cryptocurrency mining work?
During the cryptocurrency mining process, volunteer coders called cryptominers compete with each other to solve complicated mathematical problems using high-performance computers. Each problem uses cryptographic hash functions that are associated with a block containing a cryptocurrency transaction’s data.
The first miner to crack each code is rewarded by being able to authorize the transaction, and in return for the service provided, cryptominers earn small amounts of cryptocurrency of their own. Once the cryptominer successfully completes the mathematical problem and verifies the transaction information, they add the data to the public blockchain ledger.
Is crypto mining profitable?
In the early days of cryptocurrency, mining was an extremely profitable activity. With Bitcoin specifically, the first bitcoin ever mined in 2009 came with a reward of 50 bitcoins (BTC), which was worth about 6,000 USD at the time. The computing resources and energy required to mine a single bitcoin were also significantly less than they are today, so miners could pocket most of the reward as pure profit.
The Bitcoin protocol dictates that the reward for bitcoin mining has a halflife of about four years, so the current reward for mining a single bitcoin is 6.25 BTC. Although the reward for bitcoin mining has decreased over time, the value of each bitcoin has increased significantly. In fact, the value of a bitcoin reward is approximately 333,023.75 USD as of April 2021.
In contrast, the cost of mining bitcoin has increased dramatically. Hardware costs alone range from hundreds to tens of thousands of dollars, but the electricity costs are even more substantial. The total cost of bitcoin mining energy consumption can vary depending on the miner’s location and the type of hardware they use. This means the profitability of mining bitcoin and other cryptocurrencies can also vary, but usually the revenue of cryptocurrency mining outweighs the costs.
How to get started as a cryptocurrency miner
In addition to high-performance computers, bitcoin miners should create a bitcoin wallet and join a mining pool to maximize their profitability. These pools are groups of miners who combine their resources and hashing power to mine more bitcoins. All of the profit generated from bitcoin mining is then distributed evenly to all members of the pool. Mining pools are valuable because they allow individuals to work together and compete more effectively against large mining enterprises that have more resources than any one individual.
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