What is mining

Recently, the term «mining» has been increasingly used in connection with the growing popularity and spread of various cryptocurrencies, primarily bitcoin. The term in relation to cryptocurrencies refers to a process involving the use of computer resources to process transactions of a payment system by creating new blocks, ensuring their security and generating new records in a common database.

What is mining

Mining is the mining of cryptocurrency, most often bitcoins, which is explained by their most serious demand and popularity in the market at the present time. In fact, the owner of the computer, using its resources for the operation of the virtual payment system, collects and processes information about the current operations with cryptocurrency. This activity is necessary in order for transactions to be carried out, to ensure a high degree of their security, as well as to ensure the smooth functioning of the entire peer-to-peer decentralized system. The larger the number of miners and, accordingly, the computer resources involved in the process, the more reliable and stable the system is.

Principle of operation

The owner of a computer resource for processing information receives a reward in the form of a commission assigned by the owner of virtual money, or a reward in the form of a part of the cryptocurrency issued in the process of mining. One of the main principles of operation of payment systems, providing for the use of bitcoins and some other virtual money, is based on this. First of all, those transactions are processed and carried out in which there is the highest commission. Therefore, transactions with zero commission can take a very long time.

Why does Bitcoin need miners?

In fact, the widespread belief that the need for mining and miners will disappear after the release of the last bitcoin is far from the truth. No less important functions of mining are information processing, transactions and ensuring the security of the payment system. Obviously, this kind of work will always be required.

Bitcoin mining

The most popular cryptocurrency today is Bitcoin, created by Satoshi Nakamoto in 2008-2009. Therefore, most often a decision is made to mine this particular type of virtual money. But you need to understand that the flip side of popularity is the huge amount of resources involved in processing information. Therefore, today, extremely large computing power is required in order to really make money on mining bitcoins.

Mining schemes

The simplest mining scheme involves installing special software on a computer, after which its resources are connected to the payment system.

State mining programs

Currently, interest in various cryptocurrencies has begun to appear in some countries at the state level. In most developed countries, this sector of the economy is left to entrepreneurs at the mercy. Also in the DPRK, cryptocurrency mining is one of the important measures to support the national currency.

Recently, the heads of domestic government bodies have developed a serious interest in virtual money, primarily bitcoin, and the process of their mining. Some high-ranking officials have repeatedly understood the issue of developing government mining programs. But it’s too early to talk about the real implementation of these plans.

Mining pools

An important principle of the most popular virtual payment system is the random distribution of the issued bitcoins. Special online services, called «mining pools», were created to make this process more predictable and even. Individual users make available computing power available to these pools. Ultimately, the bitcoins received as an emission reward are distributed among the members of the pool based on its rules. The features of the software allow users to work in the pool much more efficiently than on their own, which has led to the widespread adoption of this type of mining.

Cloud pools

Today, serious computing power is required in order to effectively mine. Obviously, the acquisition of such powerful computers requires considerable financial resources, the availability of which is unlikely for an individual person. As a result, a new type of pool has appeared, called the cloud pool. It provides for the purchase or lease of computing power from specialized companies that have the appropriate equipment.

In this case, all transactions are carried out over the Internet, and the interaction scheme is as follows. A specialized company receives funds in the form of profit from the client, which it needs for further development and the acquisition of new, more powerful computers, and the user has at his disposal the result of mining on the most modern and advanced equipment.

Hidden mining

Hidden mining refers to the use of someone else’s computing power to generate cryptocurrencies, primarily bitcoin. For example, it can be an employee launching appropriate services on a working computer belonging to the company, or using special programs that are introduced in the form of viruses to third-party computers.

Recently, there have been very frequent reports that elements of programs that allow mining by using the resources of visitors’ computers have also been found on some popular websites. Obviously, this kind of activity can hardly be called legal. However, it’s very difficult to deal with this given the complexity of the issue.

What is a mining farm?

A mining farm is a number of computers or servers combined into one system. At the same time, different equipment is used at different times and for different cryptocurrencies. In particular, a few years ago, video cards were used to «mine» bitcoin, then they were replaced by specially designed processors (ASICs). Nevertheless, mining of some cryptocurrencies, for example, the second most popular Ethereum cryptocurrency, is still most efficient when using productive video cards.

Mining equipment

Simple mining schemes, which were effective several years ago, provided for the following equipment: 2-3 video cards, a motherboard, a processor, RAM and permanent memory, and a power supply. Naturally, the corresponding software, which is freely available, had to be installed to connect to the system. An important resource that is consumed in large quantities in the mining process is electricity.

Mining software

Currently, many different programs have been developed that can be used to mine cryptocurrencies. The choice of a specific product is primarily determined by the capabilities of the user’s computer. Obviously, the efficiency of different programs will not be the same for different configurations and computing power.

The easiest mining option is to use a cloud pool. In this case, the capacities of a specialized company are rented or purchased together with the software installed on them. But the cost of renting or purchasing resources is quite high in most cases.

Mining other cryptocurrencies

The popularity of Bitcoin that it has gained in recent years doesn’t mean that this cryptocurrency will maintain its leading position forever. Many experts predict the emergence of new virtual money or the popularity of any existing cryptocurrency. An additional argument in favor of this is the fact that any virtual payment system is based on trust on the part of users. Obviously, this is an extremely subjective factor that currently favors bitcoin, but it may well turn against it.

Ether mining

In recent years, the Ethereum rate (in Russia it’s called Ethereum or Ether) has been growing at a very fast pace, yielding to Bitcoin, but at the same time being the second most popular cryptocurrency. Special programs are used for ether mining. This process is now much more efficient than «mining» bitcoins, since a noticeably smaller number of users participate in it. The use of equipment in the form of high-performance video cards is the most effective.

Ripple mining

Ripple (XRP) is very different from most cryptocurrencies, including Bitcoin. Currently, this virtual currency is popular, competing on equal terms with Ethereum. The main feature of Ripple is the impossibility of mining. This is due to the fact that developers immediately issued 100 billion XRP units, leaving about 2/3 to themselves, and distributing 1/3 among users. As a result, additional emission of cryptocurrency is not provided, and mining is also not required for the system to function.

Litecoin

The Litecoin cryptocurrency (LTC) was created in 2011 and is derived from Bitcoin. Currently, its development is carried out completely independently and has several fundamental differences from the most popular type of virtual money. These include:

• Greater mining efficiency using powerful processors;
• The need for a large amount of free memory;
• Widespread use of pools, including cloud pools.

LTC is much less popular and in demand than Bitcoin. Therefore, mining of this cryptocurrency is currently available and quite effective even for individual miners. But it’s much more profitable for the user to become a member of the pool, which significantly increases the profitability of mining.

NEM

NEM cryptocurrency, dubbed XEM, was created on the basis of blockchain technology. NEM is very popular in the Asian market, primarily in Japan. A feature of this type of virtual money was the release of the entire amount of cryptocurrency at once. But XEM mining is quite possible. It’s necessary to generate new blocks required for transactions, the formation of appropriate records in databases and to ensure the security of ongoing operations. At the same time, XEM mining is considered one of the most democratic processes, since it doesn’t require large computing power.

Dash

The capitalization of the Dash cryptocurrency, created in 2014, has now exceeded the amount of $ 2 billion. But its popularity today can’t be compared with Bitcoin, however, the virtual currency is showing stable growth. Almost any computer equipment can be used for mining, however, the most effective is the use of ASIC technology and various cloud services.

Iota

The IOTA cryptocurrency, which appeared on the market at the end of 2015, quickly became widespread. This is due to the peculiarities of this payment system, the main of which are the absence of a commission in the implementation of transactions and the speed of their execution. The principle of operation of this cryptocurrency doesn’t provide for the possibility of special mining, since in fact the user of the system becomes a miner when making any transaction, because confirmation of the two previous transactions is required for this.

ZCASH

The developers of the ZCash cryptocurrency declare it as the first anonymous virtual currency. This payment system provides a standard mining opportunity, for which you need the availability of appropriate equipment, first of all, a powerful video card, appropriate software and connection to the pool. This is when mining will be most effective.

Monero

Mining a relatively new cryptocurrency called Monero can now be very profitable, even for single users. The fact is that the payment system service doesn’t allow the use of specialized ASIC processors. As a result, you can mine Monero with a regular, but powerful enough computer.

Stratis

The Stratis cryptocurrency (abbreviated as STRAT) appeared in 2016 and is one of the last such developments that managed to loudly declare itself in the financial market. The creators took into account the experience of using previously issued virtual money, which allowed the new cryptocurrency to become one of the ten largest cryptocurrencies in terms of capitalization almost immediately after its appearance. But soon the excitement subsided, and today Stratis is ranked 16th on this indicator, which is an undoubted success, given the short time on the market.

Cryptocurrency mining is carried out in traditional ways. For the process to be efficient, you will either need to purchase productive computer equipment or participate in cloud pools. Investing in Stratis can be very profitable even in the short term, given the opinion of experts.

Which cryptocurrency is better for mining?

It’s difficult to find an answer to the question «What e-currency is the most profitable to mine?» The fact is that the cryptocurrency market has been formed only in recent years. It’s constantly changing, and new types of virtual money appear regularly. All this makes accurate forecasting of the future development of the market situation extremely unlikely.

Nevertheless, every year it becomes more and more difficult for single miners to make a profit by mining the most popular cryptocurrencies, for example, bitcoins or ether. Therefore, it’s recommended to pay attention to equally popular types of virtual currency.

Mining prospects

Making profit from mining becomes more problematic with the growing popularity of virtual money. This is explained not only by an increase in the number of participants, but also by the arrival of significant financial resources in this market segment. As a result, it becomes unprofitable to mine individually.

Another potential danger is the fact that some of the cryptocurrencies that have emerged recently don’t provide for the possibility of mining. For example, these are virtual money such as Ripple or IOTA, which have shown stable growth in recent years.

How much can I earn?

It’s almost impossible to give an unambiguous answer to the question of the potential earnings from mining. This is due to the fact that it’s determined taking into account many difficultly predictable factors, including the current rate of a particular cryptocurrency and the dynamics of its change, the amount of investment in mining, the number of participants in the «mining» process, etc.

At the same time, you need to understand the following: the growth of the total capitalization of the virtual money market leads to the fact that the average payback period of investments is constantly increasing. For example, not long ago, investments in bitcoin mining returned within 2-3 months, bringing further profit, and the entry threshold was quite low. Today, a serious amount of funds is required, amounting to at least several thousand dollars, in order to start efficiently mining the most popular cryptocurrency. At the same time, the payback period is 9-12 months, and in some cases even more.

Is mining possible without investment?

Nowadays, it’s difficult to talk about serious mining without investment. Many cloud mining companies are trying to increase the number of customers through a variety of advertising campaigns. For example, users are offered the opportunity to «mine» cryptocurrency for free for a certain period.

There are also so-called cryptocurrency faucets, which are advertising websites that offer a small fraction of bitcoin as a reward. This way of earning cryptocurrency is hardly a full-fledged mining, but nevertheless, the number of such resources is increasing every year, which shows their demand in the market.

Investment risks

The cryptocurrency market is one of the most volatile markets. Even bitcoin, the value of which has grown very strongly, has tended to fall in price. There is no guarantee that the growth of the exchange rate will resume after another collapse, which may occur at any time.

Potential problems and «pitfalls»

The main potential problems with any cryptocurrency are two factors. First, the unclear legal status, which differs from country to country. This is a major obstacle to further growth in today’s global financial market.

Secondly, the main condition for the popularity of cryptocurrency is trust in it. This criterion can hardly be called stable and objective. Therefore, any problems that arise can easily bring down even the most popular cryptocurrency.

Energy inefficiency

The arrival of large players with serious financial resources on the cryptocurrency mining market has sharply reduced the efficiency of «mining» most types of virtual money. Therefore, often the profit obtained in the process doesn’t pay off the invested funds, including the cost of electricity, which make up the bulk of the costs, in addition to the purchase of equipment.

Inequality between early and late miners

The mining reward is decreasing every year. This is due to a very rapid increase in the total computing power of the participants in the process, resulting in a noticeable increase in the amount of consumed resources, which also applies to consumed electricity and hardware power. It’s logical that early mining was much more efficient and profitable than late mining, and this trend continues today.