Are you a total newbie in the world of cryptocurrencies? Or are you in the industry and know your game for quite a while already? Regardless, you must have heard of "cryptocurrency mining" at some point. Further, you must have been curious to learn about it more in-depth.
Cryptocurrency mining sounds so interesting, even for someone like me. Thus, I did some research and compiled the basic things you need to know to get started.
For starters, let's understand what Cryptocurrency is and how it works.
What is Cryptocurrency?
A cryptocurrency is a digital or virtual currency that is meant to be a medium of exchange.
In it, individual coin ownership records get stored in a ledger.
Such a ledger exists in the form of a computerized database, which is what we call cryptography.
The term crypto in cryptocurrencies refers to cryptography. It is a method of encrypting and decrypting to secure communication in the presence of third parties having ill intent.
Further, it usually requires the following:
- A computational algorithm (like SHA256, for instance)
- A public key (something that the user shares with everyone)
- A private key (which acts as a digital signature of the user)
With cryptography, cryptocurrencies can secure transaction records. Moreover, it can control the creation of additional coins.
Lastly, it can verify the transfer of coin ownership from one account to another.
How can you use and benefit from cryptocurrencies?
After the past years where cryptocurrencies start to gain popularity, it now offers more features for users. With cryptocurrencies, you can do the following:
Buy goods
Of course, trying to find a merchant that accepts such is difficult and extremely rare in the past. However, that's not the case now.
Many merchants already accept cryptocurrencies as a form of payment. Thus, you can buy goods with it.
Invest
Many people believe that cryptocurrencies are one of the promising investment opportunities. Of course, they have a reason for thinking so.
Bitcoin is the most renowned up to date, which gets followed by Ethereum. With one coin amounting to hundreds of dollars, no one would ever think it's not worth investing.
Accept as payment for businesses.
Do you own a business and are currently looking for potential customers? If so, then cryptocurrencies may be the answer for you.
This currency has an interest that is so high, and it's still steadily increasing. For this reason, accepting such a payment is a good tactic you can do.
Of course, you need to research it thoroughly before venturing. Still, it's quite promising to put some effort into studying.
Mine
Last but not least, you can do some mining, which is the thing you're most curious about to know.
In every cryptocurrency network, miners play the most critical role. Further, like trading, mining is also a form of investment.
Essentially, miners are the ones providing a bookkeeping service for their respective communities.
What they do is contribute their computing power to solve complicated cryptographic puzzles.
Such work is essential in confirming a transaction. Simultaneously, miners would record it in a distributed public ledger, which we know as the Blockchain.
Let's get into it more!
What is cryptocurrency mining?
Cryptocurrency mining is a process of adding transaction records to the public ledgers. These ledgers are what we call the Blockchain.
These blockchains exist to confirm transactions and so every user can access it. Moreover, it prevents attempts to spend the money already paid.
The purpose of mining is to serve the community by confirming transactions. Every time a block gets completed, the miner receives a reward.
Thus, it's mainly the reason why you should mine cryptocurrencies.
Why should you mine cryptocurrencies?
If you are new to cryptocurrency mining, you must have heard or read how you can gain many perks with mining.
In fact, I'll bet you even get interested in searching about it and read this article because of such.
Cryptocurrency mining can be quite rewarding, especially if you know what you're doing.
In general, one of the most renowned currencies is bitcoin, and every coin (BTC) is worth hundreds of dollars.
Thus, you can only imagine how promising it is to learn how you can mine and get rewards for it.
Cryptocurrency mining offers quite an easy way to gain profits way back then. As time passed, a lot of competition came, and it's been quite challenging and challenging ever since.
Nevertheless, mining remains profitable. Thus, depending on how far you want to learn, it can lead you to quite impressive results.
The key to mining now may be more complicated, competitive, and challenging. However, it lies in understanding what makes it profitable.
Five key things that make mining profitable
Many factors come into play in determining whether a currency is worth mining.
For your convenience, I've made a rundown of five common factors you should consider before venturing:
Cryptocurrency Price
The coin's price is one of the primary components that determine mining profitability.
Basically, the higher the value of the coin, the higher the profits and rewards you can expect.
Thus, you can easily cover mining expenses such as hardware and electricity.
Reward Halvings
Now and then, PoW cryptocurrencies halve its block reward. They do so to moderate inflation as well as boost their valuations.
While such may translate into a higher value, it also makes miners’ lives a bit more complicated.
Block Generation
Block generation refers to the creation of new blocks on the blockchain. In simple terms, the more generated blocks, the higher your chances have in getting a block reward.
Mining Difficulty
Mining difficulty is due to a drastic increase in miners as time pass. The rising competition makes it challenging to mine profitable coins.
Thus, it would be best to step aside from the ones filled with large miners in choosing the currency. Instead, go and focus on niche opportunities.
Mining Hardware
The last thing to consider is the hardware you are to use. Essentially, your equipment plays a crucial role when looking at mining options.
For this reason, it's essential to know what kind of equipment you are planning to use. Further, you need to make sure that such equipment is capable of handling the work.
How to start mining: different types of mining
You can start mining cryptocurrency in several ways. For each method, the process of mining gets a little bit different.
Here are the common ways to mine cryptocurrencies. You can decide on what type of mining you prefer and focus on learning more about it.
GPU Mining
This type of mining works through solving complex math problems. With such, you can verify transactions using computer components.
Those who take part can either create digital coins or get paid for their processing power.
CPU Mining
CPU mining works by adding transaction records to the public ledger of cryptocurrency. It does so by performing calculations through a Central Processing Unit (CPU).
CPU is a part of the computer, proving power for executing operations from the software installed.
Cloud Mining
Cloud Mining works by leasing or purchasing mining equipment from a third-party cloud provider. The said provider handles the maintenance of the equipment.
Mobile Mining
Lastly, mobile mining works as a device gets issued with a hash rate, which is the speed of mining. The speed comes as appropriate only to the available CPU power.
As a reward, your online wallet is likely to get credited with coins based on the hash rate.
Final Thoughts
As a beginner, all these pieces of information can be quite overwhelming. Nevertheless, the process of how it works can be relatively straightforward.
In cryptocurrency mining, you serve the community by helping in processing transactions. Further, you also help in keeping it secure and safe.
With such services, you get rewarded. So, depending on how you understand certain factors, it can be quite impressive.
At this point, you should have a clear idea of what is cryptocurrency mining. Further, you also have an idea about the factors you should consider and the types of mining you can do.
Now, you may want to check out the best cryptocurrencies you can consider mining! Read about it here: Cryptocurrency in 2020: Your easy guide to the best cryptocurrencies to mine.
Published: 10/29/2020