What is “Mining” in Relation to Cryptocurrencies

Basics

The Bitcoin business has long since arrived at most banks and in the mainstream and is no longer only practiced by geeks and nerds. Therefore, there is a lot of competition in the Bitcoin mining environment and not everyone who uses Bitcoin for a payment process has actually produced it themselves. In general, one can say that given the current status of most cryptocurrencies, it only makes sense to start mining as a small private user if you want to do it for fun and profit is not the top priority. In the meantime, if you want to mine bitcoins based on a certain hash rate, you can do it cheaper if you sign a so-called mining contract than buying all the hardware yourself.

What is technically done?
All bitcoin miners make the computing power of their computers or special miners available to the network. The entire network now uses this computing power to solve a cryptographic task. This cryptographic task is also referred to as “Proof-of-Work”. With this “proof-of-work”, the creators of cryptocurrencies wanted to ensure that a significant effort is required to generate a valid block. Due to this effort, it is almost impossible to manipulate the block chain (block chain) afterwards. So if more computing power is available in the network, the cryptographic task should be easier to solve and the cryptocurrency should be able to be “produced” faster and faster. To avoid this effect, the difficulty of the task is dynamically adjusted. The task is always so “difficult” that a new block is generated every 10 minutes on average, no matter how high the computing power is. The difficulty is adjusted to the computing power every two weeks.

What hardware is required?

It’s easy to get the impression that all you need to get started and up and running is a PC. That’s basically true, but that would be highly unprofitable. With the computing power of a simple CPU in a PC, it was only possible to work halfway profitably at the very beginning. Very quickly, however, mining was only really profitable with graphics processors. But even with these, it soon became very difficult to work profitably, since the computing power that had to be fed in was constantly increasing. So more and more graphics cards were needed and of course they consumed more and more power. As the share of electricity increased more and more together with the hardware costs, so-called FPGAs (Field Programmable Gate Arrays) were soon used. Although FPGAs are expensive to buy, they offer a very high computing power for their price and at the same time very low power consumption. Due to the ever-increasing difficulty of the task to be solved, ASICs will soon be used. To put it simply, these are graphics chips that are connected to a power supply. These ASICs were specifically designed to mine cryptocurrencies.

What software is required?

There are now three different ways to generate a cryptocurrency. Of course you can do it alone. In most cases, however, this should no longer be profitable. The second option is to join a mining pool. The third option would be cloud mining. With cloud mining, you rent hardware on the Internet and let others do the work for you.

The mining pool

There are quite a few mining pools these days. By providing computing power to a pool, each member generates some profit when computing a block. The profit each produces is divided by the number of members and then paid out. A big advantage of a mining pool is that you can count on regular payouts. Since the profit is always divided by the number of members, the payout is usually a little smaller but regular.

Cloud mining

Cloud mining is actually the easiest and most convenient way to mine a cryptocurrency yourself. Here, almost everything is taken care of by an external company. The only thing the user has to do is set up a wallet or use an existing one. Complete the rental contract for the cloud miner and you can start mining bitcoin.