The description of mining process

What is cryptocurrency mining

Mining (from the mining – development of subsoil) is the process of processing transactions in the system of digital currencies, in which records of current crypto transactions (blocks) are added to information about past transactions (blockchain). This happens when the miner closes the block. To do this, he uses powerful equipment to carry out special calculations for solving mathematical problems. In case of a successful solution, the block is closed, and the miner receives a reward in cryptocurrency. Thanks to mining, the entire operation of the network is ensured: confirmation of transactions, protection against the introduction of false information and duplication of transactions, protection against attacks, ensuring the decentralization of the network.

How cryptocurrency mining works

To understand how cryptocurrencies are mined, you first need to understand what a mining algorithm is. As you know, each digital currency is created using a specific encryption algorithm. It is it that the mining equipment decrypts, ensuring the processing of transactions on the network and bringing the miner a reward.

How to get cryptocurrency

Anyone who wants to make money on mining can either do it on their own on their own equipment, or join a mining pool.

What is a mining pool?

This is when multiple miners combine their hardware capacities to increase the likelihood of finding a block.

How to mine cryptocurrency?

This will require powerful hardware, including:

• Video cards (GPU) – the more there are and the more powerful they are, the more efficient mining will be. For Bitcoin and Litecoin mining, video cards are not suitable – for this you need special ASIC miners. The performance of mining equipment is referred to as hash rate.
• A powerful computer with as many graphics card slots as possible. You can install special operating systems for mining cryptocurrencies (for example, ethOS) or professional 64-bit Windows 10 on it. Remember that farms are loud enough and require a powerful cooling system and power supplies.
• Internet connection via cable or Wi-Fi with good ping.
• You also need to register a wallet where the mined coins will be stored.

Special equipment

It should be noted that some types of mining do not require special equipment. It:

• Browser mining – coins are mined through the execution of a special JavaScript script. Most of these scripts are fraudulent.
• Hidden mining is the mining of cryptocurrency at the expense of the power of other people’s computers. It is carried out by infecting them with malware. Read the article for expert advice on how to deal with mining malware.
• Mining on phones and laptops is an inefficient way to mine coins even on the most powerful models. Allows you to better understand what cryptocurrency mining is.
• Cloud mining is the mining of cryptocurrency remotely, when a user pays a company to rent its mining equipment.

Legal aspects of cryptocurrency mining

Before mining cryptocurrency, you need to study the relevant regulations in your jurisdiction. In some countries, mining is completely prohibited (Egypt, India), like cryptocurrencies in general. More advanced rule-of-law states have been in a hurry for a long time and have created a regulatory framework for the crypto industry, or even tax / tariff incentives that any mining farm in the country can receive.

However, in most states, including Ukraine, the legal status of cryptocurrencies is still not defined. In this case, a novice miner should weigh what are the prospects for mining certain digital coins and how quickly the investment will pay off. But it is also worth remembering about the legal risks, because governments are actively working to create regulation of the crypto market.

Best trends for miner

Among the recent trends in the development of mining, experts point out the following:

1. Large mining farms are moving in search of cheap electricity. If in 2016-2017 the majority of farms were based in China, then by the end of 2017 the cost of doing such a business in the country had greatly increased with an increase in electricity tariffs and taxation. So since 2018, many mining companies have partially or completely moved. The main directions for them were Eastern Europe, Canada and Iceland.
2. Miners are looking for favorable jurisdictions. Some countries have completely banned their citizens from mining (India, Egypt). A number of others are raising taxes or doubling electricity tariffs for mining farms to push them out of the country. Because of this, miners have to look not only for jurisdictions with cheap energy, but also relatively supportive countries in terms of regulation.