Mining is essential for Proof-of-Work (PoW) cryptocurrencies since these blockchain networks rely on miners to execute transactions and maintain network security. Miners are given puzzles to solve, and the first to come up with the correct solution receive coins that have just been mined. The new block is then verified by additional miners before being added to the chain. 

Currently, mining pools are used by most of the miners on the biggest networks, including Bitcoin, Ethereum, and Litecoin. Some other cryptocurrencies, nevertheless, still permit independent mining. 

This article will explore what crypto mining entails. It will also discuss the different methods of cryptocurrency mining and their limitations. 

What is Cryptocurrency Mining?

Crypto mining authenticates ongoing transactions and creates new currencies for circulation. It employs cryptography to prevent double-spending and counterfeiting.

To understand what mining is, it is necessary to first understand how blockchain works. Assume a shopper is shopping at a mall using a cryptocurrency (like bitcoin). All the shopper has to do is add the items to their shopping cart and select bitcoin as the payment method when checking out. 

Behind the scenes, the transaction was added to the next block after entering a verification queue with other entries that needed to be verified. This most recent block will continue to accept entries until it is full. 

A miner is rewarded for creating a block and validating transactions on a blockchain. They solve complex math problems using their resources (equipment, electricity, etc.) to upload transactions on the blockchain. These complex math problems are about locating a hash (a 64-digit hexadecimal number). The reward is given in the form of cryptocurrency. 

However, not all miners are compensated. Only the first person to generate the correct hash receives the reward. As a result, the method is unpredictable and only occasionally successful. Furthermore, it may be a time waster if the miner lacks access to powerful computational or processing power. 

Methods of Cryptocurrency Mining

There are different methods of crypto mining. These include:

Cloud Mining

Cloud mining is the most popular way to mine cryptocurrency without lifting a finger. It is a process in which the miner pays someone (usually a large corporation) a fee to “rent” their mining equipment (a rig) and the actual mining operation. All profits generated by the mining rig (after deducting electricity and maintenance costs) are transferred to the miner’s cryptocurrency wallet over the rental period, which is set in stone. 

Companies that provide these cloud mining services typically have large mining farms with tens or hundreds of rigs stacked on top of each other and working collaboratively. They also have a lot of cryptocurrency mining experience. 

The main reason cloud mining has grown in popularity is that it allows those who do not have enough money to purchase mining rigs or are not interested in owning one to participate in cryptocurrency mining. 

Cloud mining is classified into two types: free and paid. 

Understandably, many people looking to mine cryptocurrencies prefer “free” methods, but they’re not without drawbacks (such as very slow mining speeds, extra conditions, etc.).  

The following is the procedure for paid cloud mining: 

The miner searches online for a cloud mining host. The miner then examines the plans presented by the host. There are usually four or five plans to choose from, ranging from the most affordable to the most expensive. Some hosts even allow miners to create and customize their own cloud mining plans. 

Once they’ve decided what they want, the miner only needs to complete the transaction (pay the host) and register their cryptocurrency wallet code. Different programs have different financial costs and durations. 

The typical plans range in price from $500 to $5,000, with terms ranging from two years to a lifetime. Typically, the miner is expected to break even between six and twelve months. However, no one can be certain because cryptocurrency prices are volatile and often fluctuate significantly.

CPU Mining

CPU mining is a type of cryptocurrency mining that involves the use of processors. This used to be a viable option back in the day, but today, fewer individuals use this method to mine crypto daily.

This is due to a number of factors. 

First and foremost, CPU mining is extremely slow. The miner could work for months without earning a penny. Also, CPU mining is not profitable because the miner generates little income compared to the electricity and cooling costs they incur. The problem can be mitigated if the miner can find a location with adequate cooling and low electricity costs, but this is relatively rare. 

So, why does anyone use CPU mining?

This is because it is something anyone with a desktop computer can do. 

The CPU method requires only a computer and a few programs to mine. 

It is technically possible to do it on a laptop, but it is not recommended as the computer will most likely overheat within a few hours.

GPU Mining

This is the most widely used method of cryptocurrency mining. Cloud miners provide their services using GPU rigs. These experts have hundreds or thousands of rigs, so one would think they know what they’re doing. 

GPU mining is popular because it is efficient and inexpensive. Even though building a rig can be expensive, the GPU mining setup is excellent in terms of how quickly it can solve hashes and the overall workforce. 

GPU rigs mine cryptocurrencies using graphics cards. A graphics card system is made up of a processor, motherboard, cooling system, rig frame, and several (2-8) graphics cards.

ASIC Mining

Application-Specific Integrated Circuits (ASICs) are unique machines designed to perform crypto mining. 

ASICs are popular because they yield large amounts of cryptocurrency compared to their competitors’ GPU and CPU. However, they spark a massive debate in the crypto mining community. 

The cryptocurrency community went into a frenzy when the ASIC company revealed its new device version. There have been calls for a complete ban on these devices. 

Because ASICs are powerful, other miners using CPU or GPU rigs find it difficult to compete in terms of profits and hash rates. 

The economies of some cryptocurrencies have also been impacted due to ASICs. Imagine the chaos that might ensue if a single miner with an ASIC farm received the majority of the profits. 

Why are Crypto Miners Important?

Miners are critical components of any Proof-of-Work (PoW) blockchain network. Beyond simply verifying transactions, they play an important role in ensuring the network is always secure and operational. 

When confirming transactions, miners ensure that no block is added to the blockchain more than once. They essentially deal with the issue of double spending. Blockchains make it much easier to avoid this problem. 

Before being broadcast to nodes, each batch of transactions is timestamped by the technology that powers cryptocurrencies. Each block also includes a hash that indicates the previous block’s date. This makes it difficult for nodes to send the same transaction more than once. 

Miners review and verify transactions before they are officially added to the ever-expanding blockchain. Miners also protect the network by dedicating their computing resources to the blockchain. 

It is important to note that the security of a network is also affected by the number of users (miners) present. The network’s hashrate increases as the number of miners increases. A higher network hashrate indicates that there are enough active decision-makers on the network to handle any security risks.

Cryptocurrencies That Can be Mined

The top cryptocurrencies that can be mined include:

• Ethereum: A reward of 2 ETH per block
• Monero: A reward of 2.15 XMR per block
• ZCash: A reward of 2.5 ZEC per block
• Ethereum Classic: A reward of 3.2 ETC per block
• RavenCoin: A reward of 5,000 RVN per block
• Grin: A reward of 60 GRIN per block

Miners who are willing to spend a lot of money on expensive ASIC equipment can mine Bitcoin. 

Limitations of Crypto Mining

All Proof-of-Work networks use miners to process transactions and protect the network. But different networks approach this crucial element differently, and they all have limitations, so keep that in mind before choosing to mine any cryptocurrency.

The first limitation relates to the number of cryptocurrencies available and how they are put into circulation through mining.

Because some cryptocurrencies have a hard cap supply, a fixed number of cryptocurrencies will always exist. For example, Bitcoin has a fixed supply of 21 million BTC, which is copied by many Bitcoin forks. The Litecoin fixed supply is set at 84 million, while the Ethereum Classic fixed supply is set at 210,700,000 ETC. 

Mining difficulty is increased by halving block rewards and capping coin supply because some miners can use more advanced mining equipment to obtain the highest returns. 

This demonstrates that the number of coins is still limited, even though mining equipment is improving and the number of network users is increasing. 

In Conclusion,

• It’s interesting to note that anyone with access to electricity, a reliable internet connection, and computing hardware can start working as a cryptocurrency miner. Miners can earn up to 12.5 BTC from mining bitcoin.
• However, there is considerable controversy surrounding cryptocurrencies, particularly their price volatility. Before investing in mining, it is, therefore, advisable to learn everything there is to know about the current state of cryptocurrencies.

If you would like to read more articles like this, visit DeFi Planet and follow us on Twitter, LinkedIn, Facebook, and Instagram.

“Take control of your crypto portfolio with MARKETS PRO, DeFi Planet’s suite of analytics tools.”