What is Cryptocurrency Mining?

Crypto mining is the verification of transactions in the blockchain and adding them to a digital ledger. New coins are generated, as a reward to the miner who created a new transaction. Anyone can connect his computer to the network and participate. Bitcoin was mined for the first time in 2009. Crypto mining has been around since that time.

Proof-of-work 

Each participant of the blockchain has to prove his validity to the system, that’s why a proof-of-work (PoW) consensus protocol has been put into place. Participants have to solve complex mathematical equations called cryptographic hashes to create new blocks. Hash is a digital signature of each block in the blockchain. It serves as a key to protecting data inside the block from any changes. 

Miners must solve the hash value each time a cryptocurrency transaction occurs. The first miner to crack the code adds a block to the registry and receives some currency as a commission. So one after another a continuous chain of blocks is formed. Each new hash references the previous block in the network, therefore it is easy to verify which blocks are valid. 

The idea of PoW is that miner has to apply sufficient calculating power to the system, and not everyone can afford that. The complexity of equations is increasing as miners use more calculating power to do PoW. The scarcity of cryptocurrency grows as a result of higher competition among miners.

Cryptocurrency mining methods

CPU mining

In the early days, most miners considered CPU mining. They directly used the Central Processing Unit of their home computers to solve hashes. But CPUs are not that fast with complex calculations. Their main objective is to deal with many tasks simultaneously. This fact brings low efficiency and even lower Return on Investments (ROI).

GPU mining

Naturally, the next method appeared - GPU mining. The Graphics Processing Units were originally designed to work with 3D graphics. They can’t do a variety of different tasks but have enormous computing power - just what miners need. Tapping into GPUs accelerated mining and increased profits sufficiently.

This method also allows using a single motherboard and cooling system for a set of GPUs, further increasing ROI.

ASIC mining

ASICs (Application-Specific Integrated Circuit) are specifically designed computers that can do only one thing - mine cryptocurrencies. They produce even more cryptocurrency than GPUs. However, they are expensive and not flexible. As mining difficulty increases, ASICs can quickly become obsolete.

Mining pools

Today the mining difficulty is very high. The computing power of a single device is not enough to form a block and get a reward. That’s why miners connect their efforts with so-called pools.

The pool is a special server that combines the computing power of a large number of miners into one unit. This group is working together to solve hashes and split the reward in case of success.

Is Crypto Mining Legal?

Bitcoin and cryptocurrencies are welcomed in most countries. However, the rules regarding cryptocurrency vary from country to country. Some governments ban cryptocurrency due to its decentralized nature. They see crypto as a threat to the national banking system, as no one can control the blockchain.

On the positive side, large countries such as the United States and Canada are generally crypto-friendly while trying to enforce anti-money laundering laws and prevent fraud.

Conclusion: the steadiness of crypto mining

Mining is one of the most reliable strategies for making money on cryptocurrencies. On the other hand, it requires a lot of resources and technical knowledge, so it is most profitable on a large scale.