Cryptocurrency mining is a profitable opportunity for those willing to do the research and invest in right hardware. Miners get profitable returns for mining cryptocurrencies.
Cryptocurrencies are digital currencies that are exchanged and recorded on blockchains. It does not require central intermediaries (i.e. banks) for transactions.
Blockchain is a decentralized technology spread across many computers that record transactions.
Blockchain needs miners for crypto mining each miner validates transactions and generates hashes, which are then added to the block. The role of miners is like record keepers.
Block must contain proof-of-work for each block in the chain to be validated. It is created by generating specific hash value. These are cryptographic identifiers called secure hash algorithms(SHAs). For example, Bitcoin uses SHA-256 for verifying transactions.
Crypto mining relies entirely on trial and error. Miners find the value of hash and aimed at solving the algorithm before anyone else. Once the block is created and verified miners are rewarded with a specific amount of cryptocurrency which they are supporting.
What Miners need
When miners start out mining first they choose the cryptocurrency they want to mine and select the best resources to support it. Mining process requires various resources
Hardware- As crypto mining becomes more competitive it requires hardware. During initial days of mining CPU was used by miners for crypto mining. But due to the constant increase of difficulty in mining, usage of CPUs became irrelevant. As CPUs didn’t meet the growing demands miners then moved to use graphics processors(GPUs) and field-programmable gate arrays(FPGAs).
Now miners have shifted to application-specific integrated circuits(ASICs) due to their efficiency and speed they are more profitable than GPUs and FPGAs. However, ASICs are only built for single purpose. Those designed to solve SHA-256 can be used to mine Bitcoin, not that crypto which is based on any other algorithm.
Power- The hardware used for mining consumes a vast amount of power. The power density required for hardware can be extremely high, especially when you factor in the additional power cost of keeping the hardware cool.
Network- A reliable and stable network connection is vital. It ensures consistent access to the cryptocurrency network and it is also important for those who are combing their resources into mining pool, to ensure the miner is rewarded for the processing power they are adding.
A reliable and stable network connection means miner can successfully mine the cryptocurrency and has the best possible chance to be the first to solve the block.
Security- Network security is foremost as miners are making a significant investment in their mining hardware. With a secure network, miners can keep their hardware safe.
Which Cryptocurrencies can be mined?
Most cryptocurrencies that use a proof-of-work mechanism can be mined. Examples Bitcoin, Litecoin and many more.
Proof-of-work is a process of adding new blocks to a blockchain.
However many cryptocurrencies do not support mining which uses proof-of-stake they rely on a more energy-efficient process known as staking. Example Ethereum.
Earlier Ethereum is working on the proof-of-work mechanism which includes multiple miners to validate the transactions.
There has been development in Ethereum and now it is working on proof-of-stake mechanism where the validators are supposed to stake a few Ether (token of Ethereum) in exchange they get a chance to validate new transactions and earn rewards but if they give the wrong output they may lose their stake as a penalty. This is the next version of Ethereum known as Ethereum 2.0.
Crypto mining is the process where miner validates the transaction and generates hashes, which are then added to the block. It helps in securing the blockchain. However, it consumes more computational power and energy and such things pushed Ethereum to switch from proof-of-work to proof-of-stake mechanism.