People are more convinced than ever that cryptocurrencies are here to stay. This is visible in the growing number of buyers purchasing cryptos, merchants accepting them as a regular payment method, investors trading the assets online, and computer engineers making sure the industry is advancing in the right direction.
In order for the crypto industry to keep running full steam, digital coins have to be issued and remain in circulation. The cryptocurrency mining is done by people who want to earn a profit while supporting the crypto network and keeping it secure at the same time. If a lot of people verify a bitcoin transaction, for example, it will ensure that the network remains impenetrable.
In our guide, we’re going to explain what crypto mining actually is and what factors you need to consider before getting involved in this business. We’ll talk about the differences in mining the three most popular coins: Bitcoin, Ethereum, and Litecoin. You’ll read about the available mining hardware today, together with some advice on how to choose the one that suits you best.
Crypto mining farm
What Is Cryptocurrency Mining?
“So important are the processes of mining—assembling a block of transactions, spending some resources, solving the problem, reaching consensus, maintaining a copy of the full ledger—that some have called the bitcoin blockchain a public utility like the Internet, a utility that requires public support.” (Don & Alex Tapscott. 2016. Blockchain Revolution: How the Technology Behind Bitcoin Is Changing Money, Business, and the World)
In a way, cryptocurrencies are not that different from gold since they both require mining. Depending on which digital coin you’re interested in, there will be different mining rules but regardless of the asset, the mining job is always done online, on the blockchain peer-to-peer network.
The blockchain is basically a decentralized digital ledger which means there’s no assigned third-party authority to monitor and filter the incoming transactions. As a result, there’s no way for us to know whether the newly mined coins are genuine or not. Cryptocurrency mining addresses both of these network issues.
The whole mining process consists of two parts – generating authentic cryptocurrencies to circulate on the network, and verifying the incoming transactions that would then be stored on the blockchain. The people who do this job are called “miners”, and they work using special mining hardware.
The Mining Process
Upon joining the network, miners get a hashed electronic address. This is their “label” on the digital ledger and it allows the system to keep track of how much work they have done on the network. Their mining includes a cryptographic process in which a complex mathematical problem has to be solved with a hash function.
Once a miner comes up with a solution, they broadcast it to the whole network for the other miners to check and verify it (this is a much easier task once they have the code). When a large number of miners accept the solution, the transaction is approved and enters the new forming block of data. These blocks are simply ledger files that permanently record the transactions.
The miners compete for the right solution because they get rewarded for this power and time-consuming process that not only keeps the whole network running but it also makes it more secure. There’s no way for a change in block data to go unnoticed on their radar! As a reward, miners earn cryptocurrencies and a small transaction fee.
Why Is Mining Becoming More Difficult?
As time goes by, and more and more people are taking up crypto mining, it will get increasingly difficult and time-consuming to mine digital coins and add new blocks on the blockchain. This is how the network protects itself from higher mining rates than those preferred because we can’t have unreasonable amounts of digital coins in circulation.
On the one hand, this is necessary for the network security but on the other, it makes miners’ lives a living hell. To mine the most popular coins they need extra time and enormous computing power but their work pays off well. If they opt for lesser-known coins, they’ll probably earn less, unless the coin in question becomes mainstream in the long run.
What to Look out for
You can’t just make up your mind one day that you’re interested in mining cryptos and start doing it right away using your personal computer. That’s not how it works. This task is getting increasingly difficult and you need special mining hardware to do the job.
Before we go into the different types of mining hardware, you need to know what to pay attention to and how to evaluate the hardware performance. The following list contains the factors that should influence your choice the most:
Hash rate is the primary mining factor and refers to the amount of processing power the miner needs in order to solve the algorithmic puzzle on the blockchain network and mine the new block. The hash rate measures how many times per second the miner attempts to perform a hash to solve the equation.
Over the last decade, the Bitcoin network has evolved to compute quintillions of hashes per second! Quinta what? Well, first we have kH/s (one thousand or ‘kilo’ hashes per second), MH/s (one million or ‘mega’ hashes per second), GH/s (one billion or ‘giga’ hashes per second), TH/s (one trillion or ‘tera’ hashes per second), PH/s (one quadrillion or ‘peta’ hashes per second), and finally EH/s (one quintillion or ‘quinta’ hashes per second).
In the hash rate statistics above, taken from Blockchain, you can notice how Bitcoin’s hash rate skyrocketed in 2017 after an overwhelming surge of new network users. Preceded by a sudden nosedive towards the end of 2018, the hash rate went back on an upward track until it hit its all-time high of 102 EH/s on September 19th, 2019. This was…