Mining is a key process in cryptocurrency, where powerful computers solve complex problems to validate transactions on the blockchain. It's essential for creating and securing digital currencies like Bitcoin. As interest in mining and its implications for technology and economy grows, it’s intriguing to see its influence extend into various sectors, including online entertainment. One notable example is StayCasino with their Stay casino sign up bonus, the platform merges the innovation of digital currency with the excitement of online gaming. This connection highlights the evolving landscape of digital finance and entertainment, illustrating how advancements in one area, like mining, can have a ripple effect across others.
What is mining in simple terms
The word mining comes from the English meaning, which can be translated as "mining". The connection with the modern term is direct - because the miners just "mine" cryptocurrency, mainly for sale and profit. Mining is done with the help of mathematical calculations, for which powerful computers and specialised devices are used.
We will try to tell you what mining is and how it works in simple words. It is worth starting with the concept of "blockchain". This term refers to a chain of blocks or a huge database located on several devices at once. If we are talking about popular cryptocurrencies, then on thousands or even millions of computers. Cryptocurrency is stored in chains of blocks of such a distributed database, which can be accessed only with a unique key (hash). Uniqueness avoids duplication of coins and fraud. Each block is the result of calculations performed on the computers of the network participants. When transactions get to the miners' devices, the calculation of the key begins. The selected hash is confirmed by other participants in accordance with the security algorithm used. And only after confirmation, the miners receive the reward, which is transferred to the cryptocurrency wallet.
Despite the lack of control of the mining process by the authorities or financial organisations, the level of reliability of the system is very high. A participant in the network can transfer the key to another owner, giving access to a certain amount of cryptocurrency. But if you interact with the blocks without the right hash, the transaction will not be confirmed and the theft attempt will be unsuccessful. And it will not be possible to hack the chain of blocks because of the decentralised distribution of data.
Ways to protect the process
Understanding how mining works, it is worth getting acquainted with how the process is protected. More precisely, what evidence is used to confirm transactions and create new blocks. The two most popular algorithms are Proof-of-Work and Proof-of-Stake. There are other methods, but they are used in specific projects for which they are designed.
The Proof-of-Work algorithm translates to "proof-of-work". It is what is used in the mining of most popular cryptocurrencies, including bitcoin and etherium. In order to prove an action, a certain amount of work must be done. And the greater the hashing power (or hash rate), the more significant the reward.
The application of the algorithm led to the creation of specialised hardware - ASIC's. But PoW has a serious disadvantage - the more resources, the faster the currency is mined, which makes mining more difficult. Electricity consumption increases - more than 100 terawatt hours will be spent on mining bitcoins alone.
Another algorithm - Proof-of-Stake or "proof-of-ownership" - has become an alternative to PoW. When using it, the chances of mining a new cryptocurrency will be higher for the participant who has more such coins. The algorithm is not yet as popular as Proof-of-Work - mainly because it can reduce the level of decentralisation of the network. But there is a serious plus - PoS can reduce the energy intensity of the network.
It is possible that some popular cryptocurrencies, including Ethereum, will switch to this algorithm in the future. It is assumed that the transition will not only reduce power consumption several times, but also eliminate the shortage of gaming graphics cards.
Mining algorithms
To understand what mining is, it will also help to get acquainted with popular cryptographic algorithms, on the basis of which the mining equipment works. Their list includes:
- SHA-256. In the process of mining, a 256-bit signature is generated. It takes about 7 minutes to process, and at least 1 Gh/s (gigahash per second) is required for mining. The algorithm is used for coins such as bitcoin, Bytecoin, Terracoin and 21Coin.
- Hashing, first used for etherium. Of particular importance for mining is video memory. The algorithm is also used in Ethereum Classic, KodakCoin and Ubiq.
- A proof-of-work algorithm that increases speed and reduces hardware power compared to SHA-256. Used in Dogecoin, Gulden and Litecoin networks.
- Suitable for mining even on ordinary PCs. Allows you to mine cryptocurrencies Zcash, Bitcoin Gold and Komodo.
- Algorithm, thanks to which you can mine on an ordinary computer with not the most productive discrete graphics card. Suitable for mining Bytecoin and Monero.
- Algorithm developed by the creators of the Dash cryptocurrency. It is distinguished by lower power consumption of equipment and high level of security.
Most modern algorithms receive protection from ASIC-mining. This increases the level of decentralisation of the network, reducing the likelihood that most of the computing power will be concentrated in the hands of industrial miners. The Dash cryptocurrency also has such protection.
How cryptocurrency is mined
Before you start mining, it is worth getting acquainted with what it means to mine. Now 2 main methods are used: classic and cloud.
- The first method assumes that before mining solo or in a pool you will have to buy equipment: for example, a PC with a modern graphics card with a GDDR5 volume of at least 4 GB. Or build a farm of several graphics cards.
- Another option is to buy an Asic, which is based on integrated circuits specially designed for mining.
Mining with the help of CPUs is not profitable, but it is possible to mine the cryptocurrency ChiaCoin with the help of solid-state drives.
Mining is also possible in the absence of equipment and serious investments. The method is called "cloud" and involves renting computing power in data centres. The advantages of the method are a minimum "entry threshold", no noise from the work of equipment and no need to allocate space for the placement of equipment.
The disadvantages are the need to pay a commission to the cryptocurrency exchange and the inability to control the process, which increases the risk of becoming a victim of fraud.
Profitability of mining
Among the main questions that arise among beginners and potential miners is how to earn money from mining and in what timeframe the invested funds are paid back. The level of profitability of the cryptocurrency mining process depends on a number of factors:
- the complexity of the process - the more complex it is, the more powerful (and more expensive) should be the equipment bought, assembled or rented;
- the value of cryptocurrency in terms of fiat currencies (for example, the price of bitcoin in 2021 reached $60 thousand, ether - $4 thousand);
- the price of equipment, which increases with the increase in the rate of cryptocurrency.
The use of powerful video cards for mining has led to an increase in the cost of these components. The price of some models has increased by 1.5-2 times and even more.
However, the average payback period still remained at the level of 1 year. Depending on the coin and the price of equipment, this figure can be a little lower, even 6-8 months. Sometimes it is much higher, and mining on weak video cards pays off the cost of the equipment in 1.5 or even 2-3 years.
Summarising
Summing up, it is worth noting that mining is a rather promising way to get passive income. But for this you will need to invest certain funds - when using your own equipment, the amount starts from a few thousand dollars.
The best way to start mining from scratch is to rent equipment, but cloud mining is less reliable and profitable. It is also worth considering that the complexity of the process is constantly increasing - but there are new promising cryptocurrencies. And it is not necessary to mine only the popular ethereum or bitcoin.