Cryptocurrency mining seems like a complicated process, however, to fully understand how cryptocurrencies work, we must know how mining works as it is the process through which cryptocurrencies are produced.
How does Crypto mining work?
Although it’s not a mandate to understand the mining process and the technology behind it , unless you want to be a miner yourself, don’t you want to understand the inception of the digital currency which is creating havoc in the world or which might be determining your return on investment.
Of course, yes, you might want to know. Let’s make it simple and short to make it worth reading.
Mining cryptocurrencies involve miners who use sophisticated algorithm which releases blocks of coins, free for circulation. One thing we must know is each cryptocurrency uses different algorithm. The more it’s been mined from a single cryptocurrency, the more difficult it is to release new blocks., and hence get new coins. The uniqueness of crypto mining is that cryptos that can be mined are limited, once that’s been exhausted, we’ll be left with none.
For example, out of 21 million bitcoins that can be mined, 17 million has been mined, where only 4 million is left. The same theory works for all other cryptocurrencies.
Mining coins for profit generation is difficult as it requires special equipment which is not advisable on your computer as it’s not compatible and incapable of mining cryptocurrencies.
To mine, you can do so by doing these three things:
# The first is to provide a bookkeeping service to the coin network essentially.
# By providing computer accounting services, you’ll get paid a small reward, that too in fractions of coins- “verifying transactions.”
# Focus on lowering down the electricity and hardware costs.
Prerequisites of Mining Cryptocurrencies
Let’s take the easier accessed currencies, like Litecoins, Dogecoins, and Feathercoins.
#1 Crypto Wallet
This password-protected container stores all your earnings, also keeping a ledger of your transactions.
#2 A mining software package
It can help you carry out the mining process, typically made of cgminer and stratum.
#3 Online Cryptocurrency Exchange Membership
Comprised of the community of miners, It helps to exchange the virtual ones with the conventional ones- which can increase profitability and income stability.
#4 Fast and Reliable Internet Connection
No crypto mining can be successful with poor internet connection. Plus, it has to be reliable.
#5 A hardware set-up location
There should be a cool environment to place the hardware where it doesn’t get overheated as the mining process generates more substantial heat.
#6 A custom-built computer
You won’t be able to use your personal computer for mining purposes. There should be a dedicated PC for this purpose. Laptops mobile phones are not advisable to use, as they simply do not have enough power to generate any sort of income.
#7 An ATI graphics processing unit, or an ASIC chip
The cost will be in between $90 and $3000. The GPU or ASIC will be the workhorse of providing the accounting services and mining work.
Lastly, let’s point out the pros and cons of mining cryptocurrencies:
Pros:
#1 Can be a part of your hobby
If your goal is not to generate profit and just mine as a part of your hobby, then you can go ahead and mine, just keep in mind the overpowering electricity cost.
#2 Gaining Popularity
A decade back, who knew there will be an invasion of a new digitized currency known as cryptocurrency. From a couple of years it has been widely known and popularized by its uniqueness and its fantastic blockchain technology. As days are passing by, the more crypto tokens coming into the picture which not only makes the competition better, but will help those in the mining industry.
#3 It is simple and easy process
If you have the means to have the equipment needed for the mining process, nothing can stop you, just that the connectivity has to be trustworthy.The actual process of mining is relatively a simple process. Once you have got the software needed, it can run by itself.
Cons:
#1 It is profit generating and makes one greedy:
If you are thinking of a second income, mining will not work. As previously stated, if you are looking to make truck loads of money, it is more beneficial for you to buy and sell cryptocurrency instead of mine it.
#2 Needs huge amount of investment to start and run it
This has been stressed heavily throughout the article. Mining can be a part of your hobby, but it does come with a cost, and you have to be dedicated to the hobby to purchase everything that is required to mine successfully.
Earlier only specialized and dedicated miners were responsible for mining. But, as cryptocurrency gained popularity, more and more people started getting involved in mining of cryptos. Consequently, several people and enterprises have started investing in warehouses and hardware.
As enterprises jumped into the fray, unable to compete, bitcoin miners have begun to join open pools, combining resources to compete effectively.
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This blog was originally published in Coinswitch Blog Page.