What Is Crypto Mining? A Beginner's Guide to Cryptocurrency Mining

Crypto Mining is the act of verifying cryptocurrency transactions and creating new blocks on the blockchain. The people who engage in Crypto Mining are thus rightly called Crypto Miners, who donate or rather invest the computing power of their devices to receive a monetary reward for each mined block, as well as income from on-net commissions. For example, the block reward for bitcoin mining in 2021 is 6.25 BTC.

Crypto Mining: A Key Concept in Cryptocurrency

On any cryptocurrency blockchain, when two network participants have exchanged a transaction, it must be confirmed. Acknowledgement is an inclusion in the block, post which funds are deemed to have transferred through the transaction. At this stage, a verification must occur to exclude the possibility of confirming a fake transaction.

The blocks that make up the chain (blockchain) have a number of parameters. One of them is a hash (a certain number) that needs to be figured out to generate a block. Specific computation models for hash differ across different cryptocurrencies, but they all have similar features: finding a hash takes a very long time, and checking the finished result is very quick.

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Thus, Crypto mining guarantees the reliability, integrity and normal functioning of the crypto network (namely, confirmation of the authenticity of transactions, protection from hacking attacks and fake blocks, ensuring decentralization).

Crypto Mining: How does it work?

During crypto mining, new blocks are created according to the following algorithm:

• Users look for a hash by performing computational operations on their devices.
• When the hash is found, a new block is opened with a cryptographic signature.
• The signature contains all the hashes of the preceding blocks.
• The first miner to guess the hash gets a reward.

In relatively new cryptocurrencies, it is easier to search for a hash, but in early pioneer blockchains such as bitcoin and other top coins, the complexity renders even a lifetime not enough finding it alone. So, often crypto miners pool their resources to create blocks faster and the reward is shared amongst all in fairness.

How complex does Crypto Mining get?

First factor to consider here is that the supply of most cryptocurrencies is limited. For example, there cannot be more than 21 million bitcoins (it is estimated they will all be mined by 2140).

Second, to consider is the Mining (Time) Difficulty. For example, Bitcoin creators have set the minimum time between finding and adding a block as 10 minutes, and this time period cannotnot be reduced, no matter how many people are connected to the network even with supercomputers. This acts as a protection against uncontrolled coin creation.

Difficulty is automatically adjusted every 2016 mined blocks (approximately every 2 weeks). If the miners are crypto mining too quickly, then the complexity increases, and vice versa.

The reasons why these complexities of crypto mining exist:

• To Control Supply - Eliminates the possibility of creating all blocks too early.
• Increasing the value of cryptocurrency - The more difficult it is to mine any coins, the more they would be valued in the market.

Network Hash rate and Crypto Mining Algorithms

Hash rate is an indicator of how much computing power miners allocate to the blockchain network for its continuous operation. The network consumes a lot of energy, since it must constantly compute over the existing blocks to form the next block.

The Mining Algorithm converts any digital data into a permanent string of letters and numbers of a fixed size depending on which hash function is used. The algorithm has two main properties: it is a one-way function and produces unique results. Accordingly, it is characterized by linear execution – making it impossible to restore the entire blockchain from a ready-made hash. For example, the Bitcoin network uses the SHA-256 algorithm. For successful block generation, the "miner" must choose the block header so that it is equal to or less than the target value. The target value is a 256-bit number. The lower the target, the more difficult it will be to generate the block.

Halving Rewards for Crypto Mining

When a block is generated, its miners are always rewarded. For example, in case of Bitcoin mining, these are:

2009–2012 - 50 coins.

2013–2016 - 25 coins.

2016–2020 - 12.5 coins

2021-2021~ - 6.25 coins

The reward will continue to halve for every 210,000 blocks created. This phenomenon is called halving, or halving bitcoin, and working in addition to complexities above, increases the value of a cryptocurrency.

Types of Crypto Mining

Processor Based Crypto Mining (CPU)

Long gone are those days when it was possible to perform bitcoin mining on a conventional PC processor. There was no need to buy any additional equipment at all. But now the complexity of the network does not allow using the CPU for crypto mining.

However, newer cryptocurrencies, while still having low complexity, are available for crypto mining on the conventional processor. But will these currencies be promising enough in the future for you to spend time and electricity on crypto mining it now? That’s something you’ll have to judge and gamble on by looking at the technology backing, quality of PoW and the team behind it.

GPU Mining on Video Cards

All popular cryptocurrencies, except for Bitcoin, can be mined using GPU Mining “farms” - a combination of several powerful video cards (on an average from 4 to 12) tied together. Video cards are capable of quickly processing information, since they were originally created for demanding video game graphic engines or high-definition video.

Still, the conventional onboard video graphic cards inside laptop/desktop won’t work, but only full-fledged discrete video adapters are required.

Hard Disk Crypto Mining (HDD)

This type of crypto mining is carried out in accordance with the PoC (Proof of Capacity) algorithm. The method became prevalent at a time when the market simply could not cope with the demand for high power processing devices for crypto mining. Then this new algorithm, which with good efficiency, does not require exorbitant capacities quite commonly used for crypto mining.

ASIC Mining

ASICs are specialized equipment packing high power computer circuits tuned to crypto mining for only one algorithm (sometimes several related ones). This is the only high tech available currently for efficient bitcoin mining. Due to the high cost of this equipment and a long payback period, individual miners can’t afford it, but large corporations can. This creates a risk of centralization as corporations might take control of the network this way.

Browser Based Crypto Mining

Crypto mining can also be carried out using an open browser on the computer, but only while the tab with the corresponding crypto mining site is open. The percentage of resource use depends on a specific project and can be equal to either 10% or all free resources. This may slow down the computer significantly.

Cloud Based Crypto Mining

In Cloud Based Crypto Mining Services, the user pays for a certain amount of capacity by purchasing a contract. They need not do anything else. Mining is carried out on the equipment of the cloud platform, and the user who paid for the contract receives income as per the purchased capacity or subscription.

Mobile Based Crypto Mining

To use your phone for crypto mining, you’ll need to download a special app for your iPhone or Android. However, this kind of crypto mining is the least effective – as the phone or tablet is expected to get very hot, which can lead to damage. Also, the profit earned may not be clearly worth it.

Hidden Crypto Mining

Hidden crypto mining is essentially illegal crypto mining of coins on the computer of a user who does not even know about it. It is carried out by secretly installing a botnet program on their PC. The hidden crypto mining can be detected by the increased load - the video card or processor is usually loaded at 100%, even if no application is running. However, there are more evasive malware varieties that take only a fraction of the resources, making them harder to detect. These programs may not be just stealing computing resources for just mining, but may also be stealing confidential information and access to crypto wallets.

A Typical Crypto Mining Setup at Home

Crypto Mining Equipment

• CPU. Was relevant from 2009 to June 2010.
• Video cards. In use Since 2010.
• FGPA – In use since 2011. These are powerful, but at the same time, compact devices that have already disappeared into oblivion due to the fact that the development of chips did not pay off, and manufacturers abandoned them.
• ASIC Mining. In use since 2012.

Crypto Mining at home starts with choosing a cryptocurrency. If you pick the most popular cryptocurrencies (Bitcoin) then be ready to pay exorbitant amounts for ASIC mining, and then expect a hefty electricity bill every month.

If you take it a notch below bitcoin mining, to a less complex but still promising cryptocurrency for crypto mining, then a mining farm, with several hi performance video cards, a motherboard, a processor, and a hard drive should suffice. But you’d still need high-power cooling for this setup.

Now for the least complex cryptocurrencies, you can do crypto mining at no extra cost. Just download the crypto mining program for it and start mining it using the processor in your laptop/desktop.

In each case, do set up a cryptocurrency wallet beforehand, where the earned funds will be stored.

Crypto Mining Pools

A mining pool is a server that can pipeline and distribute large-scale computing tasks related to hash computation in crypto mining across all devices (or crypto miners connected to the server).

Mining pools make it possible to reduce the time required to generate a block by a factor of thousand through combined capacities of the participating equipment’s computing power. Thus, even a miner who does not have significant capacity available can count on a certain share of the reward.

The higher the total hash rate of the pool, the higher its "luck" - the chance of creating a new block. Therefore, large pools work much more efficiently than small ones.

Crypto Mining Software

Once you have the crypto mining equipment setup and registered a wallet, next it's time to pick a software for mining. Several of these are available with the ability to mine on one or more hashing algorithms. Also, in most instances nearly 1-2% of your crypto mining earnings go to software developers.

Best Crypto to Mine

While this really depends on what you can afford in terms of power bills and specialized equipment, and also the rewards posted by the crypto currency you are targeting for crypto mining. Still, the best choices at least in terms of popularity and rewards remain Bitcoin mining and Ethereum mining. Among the newest crypto coins, xmr mining (Monero) is also very lucrative. The principles of complexities and requirement for equipment thereof arising from it remains the same for these 3 or any other crypto currency.

Bitcoin Mining

Bitcoin mining difficulty has increased significantly over the last two years as a result of added hash power on the network. In 2017 ASICs brought bumper profits to both crypto miners and manufacturers but now it’s kind of steadied and not growing. Primarily the cost of ASICs and Power is holding back new miners from entering into Bitcoin mining. Still, earning 6.25 BTC per block added, and BTC crossing $50k multiple times in value is a good pursuit.

Ethereum Mining

The process for Ethereum Mining is nearly identical to Bitcoin mining, wherein miners use computing resources to receive a reward for each block added to the blockchain. However, there is also a difference.

Bitcoin Mining is now possible only on ASICs, massive, expensive and energy-intensive equipment, the use of which is justified only in regions with cheap electricity. As for Ethereum Mining through Ethash (Ethereum hashing algorithm), is designed to work optimally on Nvidia, AMD GPUs.Graphics processors are more convenient for their flexibility and the ability to switch to other algorithms at times when they can provide more significant profit.

Regardless, both ASICs and GPUs are competing in Ethereum Mining against each other and needless to say, one needs to really pitch a lot of graphic cards to match speed offered by ASICs, hence a bit of unfairness exists owing to faster technology in rewards to be earned.

Monero (XMR) Mining

XMR mining can be done on both GPUs and processors. It uses the CryptoNight hashing algorithm, which is an integral part of the CryptoNote protocol, and resists ASICs. Detailed instructions can be found on the official website getmonero.org

Equipment Choices:

• Any modern processor.
• Video adapters from AMD or NVidia.
• Cloud mining (purchase of computing power for rent).