Introduction to Cryptocurrency Mining
More than a century ago when gold was first discovered in the Klondike region of Canada, it caused what later came to be known as the ‘Gold Rush’. Tens of thousands of people migrated in hopes of mining some gold and becoming rich. Many of them did, in fact; but with time as the number of miners increased, mining became increasingly difficult.
Another event from a little over a decade ago holds a great parallel to the ‘Klondike Gold Rush’ – the introduction of bitcoin as the world’s first cryptocurrency, and the bitcoin miners who profited significantly by being early adopters.
Like its real-world counterpart, mining for cryptocurrency has indeed become increasingly more complex with the growing popularity of the medium. Yet, there’s one crucial difference! Unlike real-world mining, mines for cryptocurrency never run dry. Cryptocurrency mining or mining of altcoins can still be lucrative to those interested in it, and we are here to tell you how you too can be a part of this world.
Basics of Cryptocurrency Mining
Before you can dive into the world of crypto mining, however, it may be useful for you to understand some basic concepts about cryptocurrencies and how cryptocurrency trading works.
Miners form a crucial cog in the process of cryptocurrency transactions. When you conduct financial transactions using internet banking or credit card, it is the bank or a central financial institution that is the intermediary. They are the ones responsible for ensuring that the money you spend is accounted for, and you do not spend the same money twice. In the case of blockchain technology, there are no such intermediaries. All financial transactions in cryptocurrency are peer-to-peer which ensures their security and anonymity. While the identities of the buyers and sellers remain anonymous, each transaction itself gets added to the blockchain and made public to the entire network. Here, the miners act as auditors of the transaction and are responsible for verifying and ascertaining its authenticity. As an incentive for monitoring and supporting the blockchain, cryptocurrency miners are rewarded with cryptocurrencies.
Mining Cryptocurrency: Step-by-step Process
Step 1: Transaction in cryptocurrency
The process begins as soon as a financial transaction involving cryptocurrency is initiated. Each buyer has two keys: a private key and a public key. Once they receive the transaction address of the seller, they must enter them both to verify their details.
Step 2: Verifying the transaction
All cryptocurrency transactions are recorded in blocks and linked together chronologically in a digital ledger, called the blockchain. Since all transactions are recorded chronologically, modifying one would require modifying the entire chain. Miners can access the blockchain in real-time on their systems in order to verify the authenticity of any given transaction.
Step 3: Generating the hash
To store and ‘seal’ a transaction, a unique encryption is required using a ‘hash’ function. Hashes are strings of letters and numbers that can be used to map data and as the unique password of each transaction. To generate this hash, miners get to work by trying to figure out the correct hash from the possible trillions of solutions.
Step 4: Proof of Work
The solution to this cryptographic problem is called the ‘proof of work’. After the successful hash is generated, the block of the transaction is added to the Blockchain which is then updated immediately to account for the last successful transaction.
Step 5: Reward
The first miner who solves this cryptographic problem by generating the correct hash, and submitting the ‘proof of work’, gets rewarded with crypto tokens. The number of units they receive vary as per the currency.
How you can be a cryptocurrency miner!
As you can well realize, the process of mining cryptocurrency requires considerable computation power in order to solve cryptographic problems. Remember the gold mining parallel? For the early bitcoin miners, even their personal computers and laptops were enough to mine a high volume of cryptocurrency. But as the blockchain has grown more and more complex, CPU mining or mining using computer processors has become increasingly difficult and slow. You could still try to mine cryptocurrency from your home computer, but it might end up costing you more in electricity bills than what you will end up earning from it.
The more popular option is GPU mining, or mining using rigs with high power graphics cards. Being much more efficient and economical than CPU mining, GPU rigs are usually the preferred option for most mining enthusiasts. Buying or constructing your own GPU rig, however, can require a significant investment. Considering the value most of the popular cryptocurrencies are trading at, however, it can also be very lucrative.
For those unwilling to spend a high amount for investing in a GPU rig, but still eager to dip their toe in the crypto mining pool, cloud mining is a viable alternative. Cloud mining essentially refers to hiring a GPU rig from an external company. Many corporations have cloud mining farms where hundreds of GPU rigs are set up together. An individual can hire a rig from these companies for a certain amount by paying a fee. In return, they earn any and all bitcoins or other altcoins that the rig mines.
One of the most powerful methods of mining cryptocurrency, however, is ASIC mining. ASICs or Application-Specific Integrated Circuits are devices that were invented specifically to mine cryptocurrency and are capable of generating considerably higher amounts of crypto compared to GPUs and CPUs.
Mining cryptocurrency requires a substantial dedication of time and effort. If you wish to get into the world of cryptocurrency mining, the method you choose should depend upon the initial investment you are prepared to make, as well as the time you are willing to give to it.
Also read: Cryptocurrency trading in India.
Trading on CoinDCX
Of course, mining is not the only option if you wish to own and transact in bitcoins or another cryptocurrency. For anyone who wants to buy or trade-in cryptocurrency, CoinDCX is the best cryptocurrency platform to start with! CoinDCX is India’s largest cryptocurrency platform and one of the most versatile and user-friendly digital currency exchanges in the world. The platform offers unparalleled security to its tens of thousands of users and records millions of dollars worth of crypto trade every day. Visit www.coindcx.com today and embark upon your journey into the world of cryptocurrency trading!
CoinDCX is always looking for ways to make trading in crypto easier for you, keeping security as the top priority. Taking another step towards the same, the crypto exchange platform has launched CoinDCX Go: The Simplest Bitcoin Trading app. Happy trading!