/ Beginner's Guide on Bitcoin & Cryptocurrency Mining

March 25, 2018

bitcoin and cryptocurrency mining

Mining crypto is an arms race - first come, first served.

Today, everyone’s heard of Bitcoin. Over the past years, cryptocurrencies have been growing quietly, and now that blockchain technology has hit the mainstream, more people each day are looking to get into the crypto game. What is crypto-mining and how does it work?

Before understanding mining, it is crucial that you have a clear understanding of what is, and what powers a blockchain.

In few words - Blockchain is a decentralized public ledger for all the crypto transactions. It is a new technology rewiring the Internet and adding trust to the equation.


In layman terms, Blockchain is the ultimate non-stop computer powering cryptocurrencies. 


For additional information, you can read our introduction to cryptocurrency guide or this article on what is blockchain.

The production of cryptocurrencies isn’t anything like printing fiat money. There is no central authority (banks) issuing new money, and when I said that it’s adding trust to the equation, this is what I meant. 

At its core, a blockchain injects confidence into the network, cutting off intermediaries from serving that function and creatively disrupting how they operate.

Bitcoin, Litecoin, or any other altcoin is created through a process known as crypto mining. Miners get cryptocurrency as a reward for building blocks of validated transactions and including them on the blockchain. 

All the verified transactions, by the miners, are assembled into ‘blocks.’ It checks that the same coin hasn’t been expended twice before the deal has cleared and that the input and output expenses tally. 

Afterward, the next transaction block in line is connected to it - and this is how cryptocurrencies are created and how new crypto-coins are made. 


/ NODE, BLOCK, AND HASH



A node is a powerful computer that runs the crypto software and helps to keep the cryptocurrency running by participating in the process. 

Anyone can run a node just by downloading the software for free and opening a particular port.

Nodes spread cryptocurrency, for example, Bitcoin transactions, around the network. One node will send information to a few known nodes, who will then relay the information to nodes that they know. This way it circles through the whole network pretty quickly.


Some nodes are mining nodes - called ‘miners.’ 


Miners group outstanding transactions into the blocks and add them to the blockchain, by solving a complex mathematical puzzle (also called ‘Proof-of-Work') that is part of the cryptocurrency program, and including the answer in the block. 

For appending the block, they get rewarded with a portion of that cryptocurrency.

To successfully create a block, it must contain a cryptographic hash. The only way to succeed is to just calculate as many as possible and wait until finding a right hash. 

When the right hash is detected, a new block is formed, and the miner is awarded some new Bitcoin or other crypto he mined.

The hash function makes it impossible to predict the output. There is no way of knowing which number will work because two consecutive integers will give various results. 

Think of it as one of those ‘guess the X’ competitions, where you have to guess the size, weight or price of the product, and the first one with correct guess wins.

You get unlimited guesses, and whoever can make correct guesses at the fastest rate has a higher chance of winning.

There are a lot of mining nodes competing for that reward, and it’s a question of luck and computing power. 

The costs of being a node are considerable, and that’s because not only the powerful hardware needed but also large amounts of electricity that running these processors asks for. 

Besides, the number of cryptocurrency awarded for solving the puzzle decreases over time. In Bitcoin’s example, reward halves every four years, with next reduce expected in 2020.

Since Bitcoin was introduced in 2009, everything has changed. 

Mining the world’s first cryptocurrency needed a little more than a home PC - not necessarily even a fast one. If you’ve started mining back then, you could have earned millions of dollars by now. 

Today, Bitcoin mining industry is almost exclusive to the big players and not even close profitable as it was until 2014, but there are still many other cryptocurrencies that you can mine, making much more money. 


/ WHAT DO YOU NEED?



First of all, you will need a free private database called a wallet. This is a private and public key protected storage keeping your crypto and network-wide transaction records safe.

After creating a wallet, register to an online cryptocurrency exchange, such as Binance, where you can trade fiat for crypto, or the other way around.

To get started mining, you’ll need a free mining software package (typically made of cgminer and stratum), and membership in an online mining pool, which is a community for miners combining their computing power to increase profitability and stability.

It is crucial you have a full-time, stable internet connection at a faster speed, as you cannot go offline. It is also recommended your hardware setup location is in a cool, air-conditioned space. 


Mining generates substantial heat, and cooling your hardware is critical for success.


A computer designed specifically for crypto mining, as you’re not able to use the PC while the miner is running, and a strong configuration is a key to how much income you’ll generate.

Laptops or other weaker consoles are not recommended as they are less effective in making the profit. 

The most important hardware part is an ATI GPU, which is a specialized graphics processing device called a mining ASIC chip. 

The cost is anywhere from $90 to $3000 if you manage to find it. The crypto-mining craze has left the tech stores sold out, or selling at a much higher margin. The GPU or ASIC is the engine to providing accounting services and mining work.


To successfully mine most new cryptocurrencies, your initial hardware cost will be a minimum of $1100, and you will be getting a higher electricity bill.


Congratulations if you made it to the end. There is still so much to explain and learn about cryptocurrency mining, but now you’ll have an idea about what’s going on behind the scenes, and how well-though the concept is. 

First time in history, we have a system that offers digital transfers in a decentralized, trust-free and tamper-proof manner.

No comments

Post a Comment

| theBlockBay © 2018 |