At its core crypto mining is using computers (hardware) to solve cryptographic equations (algorithms) and record that data to a blockchain. Taking this a bit deeper, when these miners verify the hashes of unconfirmed blocks through the computation of these equations they receive a reward for every hash that is verified (mining reward). This entire process is crypto mining. The process of crypto mining is computationally intensive and every algorithm requires specific computing hardware. In the case of Bitcoin, originally Bitcoin was able to be mined with CPUs, then as the algorithm became more difficult to solve GPUs were required to mine it, and now ASIC miners are the only profitable mining hardware for Bitcoin. There is no one piece of mining hardware that lets you mine all algorithms. The average lifespan of a properly maintained GPU and ASIC miner is 3 to 5 years. To be the most profitable miner, one needs to ensure that they begin their build with the most up to date mining hardware, and be willing to upgrade their mine as the new technology comes out.
Types of cryptocurrency mining
- ASIC mining: Mining using an application-specific integrated circuit (ASIC). This type of device is made to mine only a specific cryptocurrency. These are ready to mine right out of the box pieces of hardware. Due to this it also typically provides the highest hash rate per wattage, meaning it offers more mining power more efficiently.
- GPU mining: Mining using one or more advanced graphics processing units (GPUs), commonly known as graphics cards. These also provide considerable mining power but are used specifically for GPU minable alt coins. GPU mining has assembly required, as they need to be assembled in an open air rig or enclosure for larger projects. See our custom enclosure here.
- CPU mining: Mining using a computer’s central processing unit (CPU). Although this is the most accessible way to mine crypto, CPUs don’t have nearly as much mining power as ASICs and GPUs. For that reason, profits from CPU mining are minimal.
- Mining pools: Groups of miners who work together to mine crypto and share block rewards. Miners pay a small percentage of those block rewards as a pool fee.
- Solo mining: Mining on your own. It’s much harder to earn block rewards this way, so mining pools are often the better choice.
- Cloud mining: Paying a company to mine crypto on your behalf with its own mining devices. Cloud mining requires a contract, and the terms almost always favor the company and not the miner.
Proof of Work
Cryptocurrency mining is the way that proof-of-work cryptocurrencies validate transactions and mint new coins. It was the first method used that enabled cryptocurrencies to be decentralized. They function without a central governing body confirming their transactions, but instead use the network of mining hardware to validate every transaction.
Under the proof-of-work model, which was introduced with Bitcoin, miners check transactions using computing devices that solve complex mathematical equations. By providing the correct answer, the miner has shown proof of doing work. Each piece of hardware is putting in work towards a numberline. That is working within a pool to solve the block. Whenever a block is completed, the pool will relay this information to all other pools and then the block is then minted to the chain. From there the pool will receive a payout, and all miners that collectively assisted in calculation will receive a payout.
Proof of work is non-deterministic. We don’t know what pool will win. The hashrate will have a network difficulty, this prevents the calculations from throttling too fast. After blocks are minted, the average time between mints are then calculated and then is altered by the difficulty. A new block is minted onto the blockchain approximately every 10 minutes If the block is completed faster than the 10 minutes per block, the difficulty scales accordingly, while if the block is completed slower, the difficulty is then decreased. This ensures the inflation rate of currency into the network is a flat line. When the block is confirmed, it’s added to the cryptocurrency’s blockchain, a distributed digital ledger of all its transactions.