What is crypto mining?
Mining in crypto is a proof of work system which rewards crypto for successful solving of encrypted hashes. You use your computer’s resources to decrypt a hash partially, and you’re rewarded for solving the block. This method is how new Bitcoins enter circulation.
What else does mining do?
The mining process is also fundamental to keep track of who owns what crypto. The blockchain contains all previous transactions since the inception of Bitcoin. When your computer is solving the hash, it also processes all transactions made before creating the block, then it verifies them as legitimate or not with the rest of the blockchain. You can think of the blockchain as a very long ledger. The blockchain has records of every single wallet and how much Bitcoin they have, also contains data of every single transaction.
The power of your device, also known as hash rate, is the number that dictates your likelihood of solving the block. Let’s just take the Nvidia RTX 2070 graphics card, and this card has about 36.63 Mega Hashes per second. This is the speed of how fast the card can solve the hash puzzle. The bigger the number, the better when it comes to mining.
Side note: Pools
As previously stated, yes, only ONE entity gets paid for the solution. There only being one block solver means that if you did not provide the solution, your effort has been all for nothing. Pools are a network of computers that group up together to mine, and the effort is evenly split for the amount of power or hashes your computer was able to provide towards the process. For example, if your device was responsible for 10% of the hashes that helped in the block solution, your reward will be 10% from the block solution reward.
The pool is seen as one device with a significant hash rate. So smaller devices that make up the pool can compete versus the mighty machines that would’ve otherwise dominated the entire mining process. You will have significantly higher chances of getting a reward by mining with a pool, and the process will waste less time and energy without compensation. So if you’re planning to mine anything, your best move would be to consider joining a pool.
The mining, you solve complex SHA-256 hash puzzles by using computer hardware. If your device provides the solution first, you will receive the full reward. A good indicator of your chances of being the first to solve is your hash rate, indicating how fast your device decrypts the hash puzzle. To increase the chances of receiving a reward while mining with a lower hash rate, you can join a pool to combine the hash rates with others and split the block rewards.
How do I mine?
Previously to mine crypto, you needed your average computer. You could use your computer’s processor and graphics card to mine. Thanks to mining becoming more and more competitive, you need a drastically more specialized machine to mine. ASICs (Application Specific Integrated Circuit) are devices that are specially designed for mining. They are overly specialized devices that do not do anything else but mine, often specific blockchains only.
You can still mine with regular computers, but you have to find the correct crypto to mine. For example, if you try to mine Bitcoin with your gaming computer, you will waste a lot of power and not be rewarded even when part of a pool. Because ASICs are hundreds of times more efficient at mining those cryptos that your computer stands no chance at even competing with them.
If you have a relatively new graphics card, you will be able to pull a few dollars from it every single day just by mining Ethereum. If you’re interested in learning more about it, you can use this tool to figure out how much you will earn. Also, you can visit here to learn more about how to set up your computer to mine.
What else should I know?
The difficulty is an automatically adjusting system that changes the threshold that you have to decrypt to balance how much crypto is mined regularly. If today we were still mining Bitcoin at the same difficulty as it would’ve been when it came out, then there would’ve no longer been Bitcoin for years because it would’ve all been gone. When you mine, you partially decrypt a hash, so when the difficulty is increased, you are required to solve more of the hash.
This system sometimes makes it so that it is not as efficient to mine certain coins sometimes you can mine others for better profit. Previously we’ve talked about pools; some pools automatically switch to mining other coins whenever it’s more profitable to mine different coins, usually based on the coins USD or Bitcoin value.
Bitcoin hashes are SHA-256 which is one of the standards for encryption. Whenever you’re mining, you’re decrypting the hash generated by that encryption system. You never fully decrypt it though, difficulty adjustment is how many characters of the hash you have to correct before the block is considered solved. If you wish to know more about SHA-256 you can do further reading here.
Halfing is a system that will make all future blocks reward fewer rewards. Bitcoin has now gone through multiple waves where the prizes were halved. Back in 2009, when you mined Bitcoin, the correct block solver would be rewarded with 50 Bitcoin. In 2021 it halved to 25 BTC, 2016 12.5 BTC, today when you successfully mine a Bitcoin, you will receive 6.25 BTC. In the future, the rewards for the solved block will be once again halved to 3.125 BTC per block.
If mining does not sound interesting to you, maybe staking is more up your alley. We have an article where we talk about staking. You do not need hardware to generate crypto. If investing is more what you’re looking for, we talk about that here.