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Cryptocurrency mining, or crypto mining, is the process of creating new crypto by participating in the verification of new transactions on a proof-of-work blockchain, such as Bitcoin. Mining is achieved using machines with enormous computational power.
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.
This article looks at cryptocurrency mining, explaining in detail how it works, and the different options you have.
Blockchains are decentralized ledgers. They process transactions and keep track of value on the network autonomously, without any central entity. The mining nodes within the network supply computational power, enabling the blockchain to process transactions and function securely.
In return for ensuring the security of the blockchain, miners receive a mining reward, paid in the blockchain’s native coin. For example, miners on the Bitcoin network receive their rewards in BTC.
Blockchains are completely decentralized, and new transactions are verified by nodes within the network. But with no central authority, what’s to stop those nodes manipulating the ledger for their own benefit?
To ensure there is no incentive to lie about new blocks of transactions (which would compromise the security and value of the whole network), the blockchain has a defined protocol. These rules are known as a consensus mechanism. In the case of crypto mining, the mechanism is called proof-of-work (PoW).
Proof-of-work requires miners to solve an incredibly complicated mathematical equation before anyone else for the right to add a new block to the ledger. This also means claiming the mining reward. The equation itself has no real value. Rather, its purpose is to impose a “cost” on the miner nodes significant enough to deter them from trying to cheat the system.
For example, if you were trying to add a fake transaction to the ledger, you’d first need to solve the equation. The computational power required to even attempt this would so huge, it leaves no incentive for bad actors to try and cheat the system. It is simply too expensive.
Thus, the proof-of-work mechanism has multiple purposes:
Cryptocurrency mining is when nodes compete for the right to add a new block of transactions to the ledger, in exchange for a block reward. Once confirmed, the block with associated cryptographic hash functions containing transaction data becomes visible to the blockchain’sP2P network. The blockchain is immutable, and once a new block of transactions is added, there is no way of changing that data.
Competing pools of nodes use their computational power (hash-power) to solve a complex mathematical problem and prove the block’s integrity. After successfully establishing the block’s validity, the mining party cements the blockchain addition and receives the mining reward for allocating the pool.
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.
Here are your two main options if you want to start mining crypto yourself:
You can own and operate a mining rig yourself, and mine crypto solo. In this set up, you take home all of the mining rewards. However, you must also buy the mining equipment yourself, and provide the enormous 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 is when individuals purchase hash rate (or mining power) from a much larger mining operation, and share in the rewards of the whole pool. This approach doesn’t require an upfront investment, and provides miners with the flexibility to invest what they can afford.
However, the benefits are also smaller, since the mining service will take a cut of your block rewards.
In either case, new miners need some form of cryptocurrency mining software to participate.
Also read:How NVIDIA Got Creative with Crypto-Miners | eWEEK
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.
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 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
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.
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, andAndroid devices. With automatic switching to mining the most profitable coin and hardwarebenchmark analysis, miners can easily manage mining activity.
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.
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 improvingsecurity andefficiency.
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).
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 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.
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.
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.
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
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.
Sam Ingalls is an award-winning writer and researcher covering enterprise technology, cybersecurity, data centers, and IT trends, for eSecurity Planet, TechRepublic, ServerWatch, Webopedia, and Channel Insider.