Is Crypto Mining For You?

What is crypto mining?

Crypto mining is the process by which new crypto coins are mined. Unlike gold miners who hit on rock with a pickaxe, crypto miners solve complex computational math problems. In order to understand cryptomining, let us quickly clarify the concept of blockchain. 

When one person sends coins to or receives coins from another person, this transaction gets recorded in the personal ledger of every user on the system. Transactions are grouped into blocks, and blocks form a blockchain. 

The purpose of crypto mining is to verify the transactions on every block and to prevent double spending. Crypto miners compete to solve complex hashing puzzles. The one who solves it fastest is the winner, and the winner’s personal ledger is declared as the official record of the blockchain. Additionally, the winner is also rewarded with cryptocurrency, thus pumping new coins into circulation. This reward is basically an incentive to get people to audit blockchain transactions.

How cryptocurrency mining works

Crypto mining appeals to people who are tech savvy because it is the only way of getting cryptocurrency without having to put down money for it. At the same time, it takes a lot of energy and resources, without the certainty of rewards.

In order to get rewarded, you must meet two conditions.  First, you need to verify 1 MB worth of transactions. Second, you need to solve a numeric problem, or at least come up with the closest answer.

This second part involves a process called proof of work. In this process, the miner has to guess and  come up with a hash, or a long string of numbers, that is less than or equal to the target hash. The tough part is that there are trillions of possibilities to guess from. In simple language, suppose you and your friend have been asked to guess a number and you have no idea what it is. You just randomly start guessing. If you guess more than the target, you lose, but if you guess less than or equal to the target, you win.

This process becomes much more complicated with hashes. You need to have a high hash rate, i.e. speed of performing. Hash rate is measured in megahashes, gigahashes and terahashes per second. There are platforms where miners can calculate their hash rate.

Although crypto mining is supposed to be a competition, it is more like a lucky draw. While a lot of miners may be able to generate acceptable proof of work, who gets there first is upto chance. Sometimes miners pool together to increase chances of winning

How to start cryptocurrency mining

Earlier, it was possible to mine using a personal computer, but over the years, the number of miners in the competition has increased and hence the difficulty level of the puzzles has increased. For example, when Bitcoin was launched in 2009, its difficulty level was 1. 

As of today (2021), it is 23.1 trillion. Handling such a difficulty level requires specialised hardware and software. Here’s a list of equipment you will need for crypto mining:

1.    Mining rig

There are three kinds of rigs- CPU, GPU and ASIC. 

• CPU rig is basically using the processing power of a regular computer for mining. On the plus side, you don’t need to buy anything. As long as you already own a computer, regardless of whether you win or not, you don’t lose any money on investments. However, as mentioned earlier, a regular computer may not be enough for surviving the competition. Also, the computer may overheat or break down from the load. If you are using one, you may consider buying special devices for cooling down.

• GPUs or Graphic Processing Units are specialised processors connected to the motherboard. The main difference between CPU and GPU is that the CPU can do a wide range of tasks, while the GPU can do several tasks at the same time. If you are using GPUs, you will also need a motherboard to plug them and a case to store them.

• The chances of succeeding are much higher when you have specialised hardware for mining like ASIC. A lot of miners buy Application Specific Integrated Service (ASIC) circuits. They solve with a speed of 14 terahashes per second. While they are more efficient than CPUs and GPUs, they are also costlier.

2.     Mining software

Most mining softwares is free to install and use. You might want to make sure that the one you are buying is compatible with the cryptocurrency you want to mine. For example, CGMiner is used to mine bitcoin, while ETHMiner is used to mine ether.

3.    Wallet

You need a crypto wallet to store the coins or tokens that you win. If you know the basics of cryptocurrency, you must be aware that crypto wallets don’t store coins like regular wallets do. Rather, they maintain a record of your transactions and allow you to access and monitor them from the wallet.

Is crypto mining still profitable?

Profitability of cryptomining depends on what cryptocurrency you are mining, the cost of electricity you use, how much money you invest in the hardware, the efficiency of your hardware and software and tax laws regarding crypto mining in your area. You can also use the services of online mining calculators to get a rough estimate of the performance of your hardware and software. 

At the end of the day, crypto mining is a gamble. If you are not sure whether you have the skills and patience to mine, you can always consider buying cryptocurrency through online exchanges or from people who already own cryptocurrency.