Cryptocurrency is as hot a buzzword as anything in tech today. Everyone and their mother are looking to hop on the bandwagon and buy some bitcoin. But what is cryptocurrency mining? Cryptocurrency mining is the act of creating new cryptocurrency and adding it to the blockchain, may be a better option for those willing to dedicate the resources.
The bitcoin boom of 2017 has opened a lot of eyes to cryptocurrencies’ potential value. Millions of computers were used to mine bitcoin and other cryptocurrency in 2017. According to Bitcoin.com, there were roughly 12,000 Bitcoin transactions per hour and $4.9 billion in 24-hour trade volume each day.
In terms of mining, users generated $12.8 million in mining rewards each day, creating an rapidly expanding, 166 GB-blockchain. And that’s only Bitcoin; those statistics don’t even include other cryptocurrencies.
Some of you might be mining crypto and not even know it. Drive-by cryptomining and cryptojacking are terms for browser-based applications that use a website visitor’s computing power to mine cryptocurrency. It’s in a legal gray area, but it goes to show the variety of techniques used to mine cryptocurrency.
What is cryptocurrency mining?
Mining cryptocurrency is probably less glamorous (and a much slower a process) than you might think. To start, you need to understand the concept of a blockchain. In essence, the blockchain creates a globally distributed record of encrypted transactions.
Transaction requests are broadcast to peer networks and validated using algorithms. Once transactions are approved, they are committed as part of a new “block” on the blockchain. Blocks are typically generated through large pools of users and distributed based on the computing power they dedicated.
Today, one block has the reward equivalent of roughly 12.5 Bitcoin. Those become less valuable as the chain gets longer. Eventually, new blocks will have no capital value, resulting in a finite number of usable coins.
On a more technical level, cryptocurrency mining technology utilizes the processing power of a computer’s graphics processing unit (GPU) to facilitate the process. The only way to add a block to the chain is by identifying a cryptographic hash, or function, that aligns with the newest block.
The hash comes in the form of a 64-digit hexadecimal number within an alphanumeric string. So miners aren’t performing any super-complex mathematical equations. Miners are basically running equations to rapidly guess this sequence.
The only feasible way to arrive at a hash matching the correct criteria is to simply calculate as many hashes as possible, and wait until you get a match. When the right hash is found, a new block is formed and the miner that found it is awarded with units of cryptocurrency.
Why mine cryptocurrency?
The most obvious reason to mine cryptocurrency is to make money. But mining cryptocurrency can actually cost money for users, especially with upfront investments. That’s not to deter investment, but some people assume cryptocurrency mining is a guaranteed win.
Some helpful tools, such as budgeting calculators, are available online to explain whether the investment will actually pay off. These calculators will take into account factors such as computing power, energy consumption and fees.
If you’ve got the hardware, or at least the money to buy it, you’re ready to start making cryptocurrency. The value of this depends on both the relative value of your coins and how much you value digital currency.
If you’re predicting another boom or you think you’ve identified the next Bitcoin, cryptocurrency is going to be very valuable. If you’re an old-school financier, it’s not going to hold the same weight. There’s no guaranteed profit, so your perception of cryptocurrency and its future are important factors.
On a philosophical level, you can choose to be a part of the communities keeping cryptocurrency alive. If people stopped mining cryptocurrency, not only would its value fall, but no new coins would be created.
Or you could be one of the cutting-edge cryptominers using the process for innovative purposes. French startup Qarnot has developed a computing heater that uses the energy from mining to heat your home. A Tesla owner used the energy created by his Roadster to power mining rigs. While most people are concerned with the profits, there’s also a largely unexplored pool of technology for eager entrepreneurs to jump into.
How to mine cryptocurrency
The cryptocurrency mining process is a bit more complicated than setting up your standard software application. So before you begin, there’s a few steps you should take.
The first thing to do when planning to mine cryptocurrency is decide which coin you want to mine. Due to its age and popularity, Bitcoin mining is not practical for individuals or small companies. So prospective users should consider common altcoins such as Litecoin or Feathercoin.
Setting goals, timelines and expectations should also be done before actually mining cryptocurrency. You’ll need to make sure your computing equipment runs efficiently and meets required standards for the coins you choose to mine. Each program designed for mining will include recommended hardware specs on its website, so be sure to read up prior to investment.
Cryptocurrency mining software
There are a few common types of cryptocurrency mining software. The most commonly used programs are tools to help connect mining rigs to blockchain networks.
A program such as CGMiner or BTCMiner will support traditional mining hardware (which we’ll get into). These tools come with features to monitor hardware performance to optimize efficiency and prevent things like hardware overheating.
Some will support multiple devices, others will not. Many are cross-platform and open-source, which gives the user more freedom to customize the application and utilize existing systems. Others are only compatible with specific graphics processors or mining rigs.
Cloud mining is a newer trend that allows people to use their own computers to mine cryptocurrency without purchasing expensive equipment. However, these tools produce significantly lower profits and pose unknown risks for fraud since you have less control over the entire process. A few examples are Hashflare, Genesis Mining and Eobot.
The last and least trustworthy type of mining comes in the form of cryptojacking, sometimes called drive-by mining. These programs, such as Coinhive and Adless, distribute mining practices across users visiting a website. Many people in the crypto community consider this a form of malware, but some antivirus tools like Malwarebytes will prevent the practice.
Cryptocurrency mining hardware
Cryptocurrency processing is facilitated by three main types of hardware: a computer’s CPU/GPU (Graphical Processing Units), an FPGA (Field Programmable Gate Array) and ASICs (Application Specific Integrated Circuits). The type of cryptocurrency you decide to mine will impact the type of hardware you will need to use, as different hardware supports different cryptocurrencies.
GPUs are used to mine coins such as Ethereum, Monero, Zcash and more. ASICs are used for mining Bitcoin and Litecoin. The last kind, FPGA, require less developer skill to implement and cost significantly less than ASICs.
GPU hardware is really only developed by two companies, AMD and NVIDIA. They’re one of the less expensive forms of mining hardware and can be installed into a motherboard relatively easily.
GPUs are more customizable than ASIC tools, but do have some downsides. They’re not as powerful and less efficient as ASICs and use more electricity. Plus they’re a bit bulky and can only be used for certain coins.
ASICs are much more efficient than GPUs, consuming significantly less power. They’re also much smaller and less expensive to run. While they cost less money on the energy side, they’re much more expensive and can cost thousands of dollars. You can’t customize them, so they can become obsolete quickly and without warning.
FPGA are good for hobbyists and inexperienced miners, but they are better-suited to handle lower volume and less complex designs. They’re a more efficient way to mine as well, compared to GPU and ASIC.
Individual mining tools vary in power, energy consumption and efficiency. We also don’t list hardware tools on G2 Crowd, so be sure to do your own research and check out reviews and sources such as TechRadar or CoinMiningRigs.com.
In hindsight, jumping on the Bitcoin bandwagon a decade ago would make you almost inconceivably wealthy today. So few people predicted its success, but some people became rich.
Mining cryptocurrency can be an expensive and time-consuming process. It’s a fair amount of risk for an uncertain reward. It’s no sure thing, but it’s definitely an interesting hobby — albeit an expensive one.
If you’re planning on getting involved, do your research. And if you’re already mining cryptocurrency, the community should hear about your experience. Mining can be confusing and risky, so expert opinions from real-life users is extremely valuable.
Looking for Cryptocurrency Mining software? Check out the best cryptocurrency mining software according to G2 Crowd’s real-user reviews.