What Is Crypto Mining?
Digital currencies, while decentralized and unregulated, are still considered currencies by many. To maintain their integrity, they need to have a system to check the legitimacy of each transaction. This is where mining comes into the picture as the method to verify transactions in the blockchain.
How Crypto Mining Works
Digital currencies use a decentralized ledger where transactions are recorded. This ledger is called the blockchain and is where new transactions are appended.
To add a block of new transactions to the blockchain, a process called mining is needed. Miners must solve a complex equation that the system has generated before the new block is added to the ledger. As a reward for the task, miners are awarded a certain amount of digital coins. This reward system is the basis of the proof-of-work concept.
The complex equations that the system generates require a 64-digit hexadecimal solution that miners race to solve first. A more capable mining rig with a higher hash rate often solves the problem first, so bigger farms with better equipment have a higher chance of minting the coin ahead of others.
Not everyone is capable of handling the compute-heavy task of mining cryptocurrencies. The activity requires dedicated mining rigs made of high-end computer components to maximize processing power. This led to the creation of mining farms that consume huge amounts of electricity to run. Since operating a mining rig is resource-intensive and very expensive, only those who have money to invest in equipment can venture into the business.
Mining does the work of both introducing newly minted coins into the existing pool and verifying existing transactions to keep the reliability of the decentralized blockchain. If there was no mining of the ledger, people could illicitly spend, transfer, and use the same coins an infinite number of times, scamming the whole system and its users.
The difficulty of solving hash equations increases over time. Along with the rising competition between miners, the scarcity of digital tokens contributes to their higher valuation.
Ways To Mine Cryptocurrencies
In the early days of cryptocurrencies, CPU mining was possible. However, as more people got into the crypto craze, CPUs became too slow to handle complex computations that it can take months to find a solution in exchange for a small profit.
Mining rigs now require specialized graphics processing units (GPUs) capable of managing huge hash computations. Additionally, the rigs have to be constantly connected to a reliable internet connection. These factors make up the operating cost of mining rigs incredibly high and available only to those with large investment capitals.
Another way to mine is by using an application-specific integrated circuit (ASIC) miner that’s specifically designed for crypto mining. They’re even more expensive than GPUs though and become obsolete faster.
Cloud mining is the more popular option for many people because of the increasingly huge operating cost of running a mining rig. Cloud mining enables individuals to leverage the resources of dedicated mining facilities. This is the easiest way to mine cryptocurrencies without the need to manage equipment.
Issues With Crypto Mining
Crypto mining has its issues though, with the biggest one being its huge power consumption. It’s even believed that the worldwide energy consumption of crypto mining exceeds that of some countries. Not all cryptocurrencies utilize the proof-of-work mining system though. To switch to a more environment-friendly mining process, many cryptocurrencies are using the proof-of-stake concept instead which has been said to be more energy-efficient.