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What is cryptocurrency mining?

The process of cryptocurrency mining is one of the fundamental issues for anyone who wants to learn about the specifics of cryptocurrencies. To meet this in this article, we outline,…

Date: 2024-03-29 Author: Łukasz Michałek
What is cryptocurrency mining?

The process of cryptocurrency mining is one of the fundamental issues for anyone who wants to learn about the specifics of cryptocurrencies. To meet this in this article, we outline, among other things, what cryptocurrency mining is, what equipment is needed, what cryptocurrencies are suitable for digging, what Proof-of-Work is, what halving is, and provide some universal tips for those who are considering embarking on the adventure of so-called mining.

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What is cryptocurrency mining?

What is cryptocurrency digging? Cryptocurrency digging is the process of mining new units of digital currencies, such as Bitcoin, Ethereum, or Litecoin. This process is crucial to the functioning of the blockchain network on which most cryptocurrencies are based.

In a blockchain network running on a Proof-of-Work consensus algorithm, each transaction is confirmed by miners who must solve a complex mathematical problem to add the transaction to a block of data. To solve the task, it is necessary to use computing power (as a rule, GPU computing power). For lending the necessary computing power, miners receive a certain number of units of mined cryptocurrency.

In practice, the process of digging cryptocurrencies requires the use of powerful hardware and well-configured software. Miners generally use high-performance PCs with high-end graphics cards or special devices, called diggers, which are designed specifically for mining cryptocurrencies (diggers of this type usually consist of multiple graphics cards).

Cryptocurrency digging is becoming an increasingly difficult activity. First, the competition between miners is getting stronger every year. Secondly, the difficulty of mining some cryptocurrencies increases with time which is due to the so-called halving (for example, in the case of BTC, halving makes the rewards for digging halved every 4 years or so). A significant impact on the increasing difficulty, is the fact that more and more advanced technologies and solutions are emerging to save energy and increase the efficiency of digging. As a result, small players simply have to give way to those with more resources.

Cryptocurrency digging is associated with a way to make money. However, it is worth bearing in mind that it is a process that validates transactions and thus keeps the network secure. Such a mechanism makes it possible to create a decentralized and secure peer-to-peer network that is not controlled by any central entity.

What is Proof-of-Work?

Proof-of-Work (PoW) is a consensus algorithm that allows transactions to be validated using computing power. The algorithm is designed to prevent double-spending and forgery problems on the blockchain network.

Cryptocurrency digging what is it based on? The PoW-based cryptocurrency digging process involves miners solving a complex mathematical problem, and in return they receive a reward in the form of cryptocurrency. Each block in the network must have its solution confirmed by other nodes in the network. In this way, transactions are confirmed and recorded on the blockchain.

One of the main problems with the PoW algorithm is that it is highly energy-intensive. It requires a large amount of electricity, and this comes with a carbon footprint and environmental impact. As a result, digging cryptocurrencies using PoW faces a lot of criticism. In response to these problems, other consensus algorithms such as Proof-of-Stake (PoS), which use less energy and computing resources, have emerged. However, the PoW algorithm is still widely used in many cryptocurrencies and is considered a reliable and secure way to confirm transactions on the blockchain.

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What is halving? How has the value of the reward for digging BTC changed over time?

Halving, called is the process by which the reward for mining a block of cryptocurrency is halved. This occurs every 4 years or so, or when a certain number of blocks is reached.

In the case of Bitcoin, the reward for mining a block was initially 50 BTC, but was reduced to 25 BTC in the first halving in 2012. Another halving occurred in 2016 and reduced the block reward to 12.5 BTC. The third halving took place in May 2020, reducing the block reward to 6.25 BTC.

Halving is aimed at controlling the supply of cryptocurrency. By halving the reward per block, new units of cryptocurrency are mined at a slower rate, leading to a reduction in the supply of the market.

Theoretically, limiting supply through halving can increase the value of a cryptocurrency, as reduced supply promotes price increases. In the past, halving has often been associated with an increase in the value of bitcoin. After the first halving in 2012, the value of Bitcoin began to rise from around $12 to more than $1,000 over the next two years. After the second halving in 2016, the value of Bitcoin rose from about $600 to more than $20,000 over the next two years. After the third halving in 2020, the value of Bitcoin rose from about $8,000 to more than $60,000 over the next few months. However, it is important to keep in mind that the impact of halving on Bitcoin’s value is not a clear-cut issue. In fact, a number of different factors can affect the value of a cryptocurrency at any given time.

Cryptocurrency digger what is it? How do cryptocurrency diggers work?

What is a cryptocurrency digger? By the simplest definition, a cryptocurrency digger is a software or device used to mine cryptocurrencies. It can be a digger in the form of an ASIC chip, a digger created from GPU graphics cards, a regular PC or even a mobile device (such as a smartphone). The choice depends on the cryptocurrency we want to mine and our needs and budget. Nevertheless, there is no denying that the most popular solutions are based on ASICs and copiers built from GPU cards.

  • ASIC (Application-Specific Integrated Circuit) – is a specialized device designed specifically for digging cryptocurrencies. It works by performing a single, specific task (such as solving cryptocurrency scripting algorithms), making it much more efficient than a GPU or CPU. The ASIC is ideal for digging cryptocurrencies that use the SHA-256 algorithm, such as Bitcoin.
  • GPU (Graphics Processing Unit) – this is a graphics processor that can be used to mine cryptocurrencies. When it comes to digging cryptocurrencies, the GPU is usually more efficient than the CPU. Examples of cryptocurrencies that are mined using the GPU include ZCash and Ravencoin.
  • CPU (Central Processing Unit) – this device is commonly referred to as a processor. It is the basic component responsible for the computing power of the computer. However, in the context of cryptocurrency digging it performs less well than GPUs. Digging cryptocurrencies with a CPU is usually uneconomical, but it is possible for cryptocurrencies that are designed specifically to use the CPU, such as Monero.
  • Interestingly, digging is also possible on average PCs or mobile devices. Sometimes you need to install some software to do so, and sometimes digging is possible even through a browser. It is worth noting, however, that this fact, can be treated rather as a curiosity, since the profits from such digging are very minimal. An example of digging through the browser is, for example, Cryptotab Browser (a modified version of Google Chrome, which allows you to mine cryptocurrencies in the background). On the other hand, examples of mobile digging applications include DroidMiner.

It is worth noting that an ASIC cryptocurrency miner is usually the most efficient cryptocurrency digging tool, but also the most expensive. GPU is a more accessible and flexible solution, but digging with GPU is very energy-intensive and in practice it is increasingly difficult to earn satisfactory earnings this way. CPU-based digging, on the other hand, is the least popular solution among the above.

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What are large cryptocurrency mines? What are pools?

Digging with single machines is often inefficient, which is why many people pool their computing power into so-called mining pools. In other words, a pool is formed by a group of miners who pool their computing power to mine cryptocurrencies. Each miner contributes to the mining of a cryptocurrency in proportion to the computing power it provides. Profits from mining are then shared proportionally among the pool participants.

Belonging to a pool provides several benefits. First of all, it increases the chances of mining a block and getting a reward. In addition, joining with other miners allows for a more stable and predictable income from cryptocurrency digging. However, it is worth remembering that each pool charges a certain commission for its services, usually around 1-2%. In addition, belonging to a pool requires trust in the administrator, as miners transfer their mining shares to a central management, which in effect controls the cryptocurrency mining process.

What cryptocurrencies are suitable for mining?

How to mine cryptocurrencies? Not all cryptocurrencies are suitable for digging, as they differ in their consensus algorithms and difficulty of mining. Here are some examples of cryptocurrencies that are popular among miners:

  • Bitcoin (BTC) – is the largest and most popular cryptocurrency in the world. It uses the Proof-of-Work consensus algorithm, which requires a lot of computing power. Bitcoin is difficult to mine, however, because competition is very high and the rewards to miners for mining blocks decrease every four years. Bitcoin mining requires a lot of financing, as it uses expensive integrated circuits called ASIC (Application Specific Integrated Circuit) miners. As a result, BTC, despite its undoubted popularity, is rather shunned by novice miners.
  • Litecoin (LTC) – is a cryptocurrency that was created as an alternative to Bitcoin. It too uses the Proof-of-Work algorithm. However, Litecoin uses the Scrypt algorithm, which is less complex than the SHA-256 algorithm used by Bitcoin, so Litecoin requires less computing power to mine. Nevertheless, the use of ASICs is also highly recommended in this case.
  • Monero (XMR) – is a cryptocurrency that uses the Proof-of-Work consensus algorithm and is based on CryptoNote technology. Monero aims to provide privacy and anonymity for users. It is worth noting that in November 2019, Monero switched to the new Random X algorithm, which clearly favors the use of computer central processing units (CPUs) instead of graphics cards (GPUs). In practice, XMR digging is usually done using a concept referred to as a pool. This is a solution that allows the creation of an infrastructure that connects multiple miners. In this way, each of them can increase the chance of making a positive validation. In other words, in this way, digging is more profitable than if it were done alone.
  • ZCash (ZEC) – is a highly anonymous cryptocurrency using a protocol called ZeroCash. The purpose of this protocol is to ensure anonymity during transactions. Mining Zcash is usually done using a GPU graphics card. This makes it possible to mine ZCash using a PC. In practice, however, special cryptocurrency diggers, which are composed of several or a dozen or even dozens of GPUs, work best for this purpose.
  • Dash (DASH) – is an example of another cryptocurrency based on Proof-of-Work. Both GPU-composed diggers and ASICs are used to dig Dash. However, ASICs are usually more efficient.
  • Ravencoin (RVN) – this is a cryptocurrency that was sometimes much loved by novice miners. This is due to the fact that it can be mined using the GPU. After the transition of Ethereum to Proof-of-Stake, it is Ravencoin that seems to be a notable alternative.

It is worth remembering that the cryptocurrency market is highly volatile, and the profitability of cryptocurrency mining can vary depending on market conditions. Before digging, the profitability of cryptocurrency mining should be carefully researched and evaluated depending on prices, difficulty of mining, energy costs, equipment availability and other factors.

You should also consider the development prospects of the cryptocurrency in question, because if the project has a lot of potential, this could affect the value of the cryptocurrency in the future.

With the above aspects in mind, it is impossible to determine unequivocally which of the above-mentioned cryptocurrencies is most profitable from the miner’s perspective, since the parameters affecting the profitability of mining change over time. Therefore, when looking for the right cryptocurrency to mine, it is most convenient to use calculators that are available on the Internet. Of course, it is important to use calculators that are updated and present current data taking into account the current price of the cryptocurrency and the current hashrate. Using such calculators allows you to calculate the hashrate and estimated earnings. Importantly, many calculators allow you to compare the efficiency of different models of graphics cards or selected ASIC copiers. Examples of calculators include or

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How to start the adventure of digging cryptocurrencies?

Here are some universal tips for getting started on your cryptocurrency digging adventure.

  • Choose the cryptocurrency you want to mine. It’s important to carefully research what methods are used to mine a particular cryptocurrency and what its future prospects are. Until recently, it was popular to mine Ethereum but after the move to Proof of Stake, miners were forced to look for alternatives. Examples of cryptocurrencies were mentioned in an earlier part of this article. These include Monero, ZCash, Dash or Ravencoin, for example.

  • Choose the right cryptocurrency digging equipment. This decision depends on the cryptocurrency you choose and your needs and budget. You can choose on ASIC, GPU or CPU copiers.
    – Popular graphics cards for cryptocurrency digging are, for example, AMD Radeon RX 5700 XT, Nvidia GeForce GTX 1080 Ti, AMD Radeon VII, Nvidia GeForce RTX 3060 Ti, Nvidia GTX 1660 Super.
    – A popular ASIC cryptocurrency digger is Bitmain Antminer (various models of diggers with different computing power are available from this series).

  • Set up a wallet to store cryptocurrencies before you start digging. You can use cold or hot wallets. Some people choose to set up a special wallet for digging. On the other hand, for speculation purposes, you can use another wallet so as to separate the two.

  • Install the appropriate software and conffigure the hardware for digging. Be careful with the settings to get maximum performance with minimum power consumption. If you want to try to go through to the task yourself then you can use the tutorials and tutorials that are available on the Internet (for example, on the YouTube platform) and on forums and industry portals for cryptocurrency enthusiasts. It’s worth knowing that you don’t have to do the setup yourself, as you can easily find specialists who offer help with hardware and software configuration. A popular software for digging cryptocurrencies is HiveOS.

  • Once the hardware and software are configured, you can start digging cryptocurrency. It is important to regularly monitor the performance of your hardware and check the earnings from digging. It is worth remembering that sometimes it is possible to optimize the digger a bit so that it achieves better performance.

The increasing difficulty of digging cryptocurrencies

The difficulty of digging is regulated automatically by the protocol of a given cryptocurrency, depending on the level of competition in the market and the computing power that is involved in digging at a given time. In other words, when there are a large number of miners digging a particular cryptocurrency, the difficulty of digging increases. On the other hand, when there is a small number of miners, the difficulty decreases. The increasing difficulty of digging cryptocurrencies can affect the profitability of the mining process. As the difficulty of digging increases, the costs associated with electricity and equipment increase, leading to lower profits for miners. That’s why many miners are trying to adapt their digging strategies to changing market conditions. One solution is to change the cryptocurrency one is digging to one with lower digging difficulty. Other miners increase the computing power of their equipment to keep the mining process profitable. Some choose to join a mining field to increase their chances of mining a block and earning a reward.

In addition to the above-described aspect, it is also important to keep in mind that the cryptocurrency exchange rate is constantly changing. In addition, some cryptocurrencies (such as BTC) are going through halving. The rising cost for electricity is also not insignificant.

Thus, it is very difficult to estimate the possible profits from investing in cryptocurrency digging equipment. As a result, cryptocurrency digging is becoming a more difficult way to earn money every year, with mostly big players making money and less and less small amateurs.

A few words of summary

To summarize, what information was included in the article? The article discusses the theoretical basics (what is cryptocurrency digging, what is the Proof-of-Work algorithm and what is halving). Besides, practical aspects (such as examples of cryptocurrencies suitable for digging, models of graphics cards, and sample digging software was also mentioned). The article also addresses the issue of large-scale mine farms and pools, which allow mining cryptocurrencies in groups. The increasing difficulty of cryptocurrency digging and the need to adapt tools and methods to changing conditions were also pointed out.

Finally, it is worth emphasizing that in addition to the fact that digging cryptocurrencies is an unexceptional form of earning money, the process is also one of the fundamental aspects of the cryptocurrency ecosystem that enables secure validation of transactions.

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Łukasz Michałek
Łukasz Michałek
Founder of the rapidly developing cryptocurrency channel "Biblia Kryptowalut" on YouTube. He also co-creates the Arena Trading group with Marek. Łukasz is fascinated and passionate about blockchain technology and cryptocurrencies, which constitute the central element of his activity in the cryptocurrency industry.
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