Tag: cryptocurrency mining

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Crypto

Overview of Cryptocurrency Mining and the Proof of Work (PoW)

Cryptocurrency mining is the process of solving a mathematical problem (for example a sum) using computer equipment. When a computer (or a group of computers) adequately solves the problem posed by the network it is rewarded with an incentive, in the case of cryptographic money the incentive is a series of cryptocurrency units that are […]

Cryptocurrency mining is the process of solving a mathematical problem (for example a sum) using computer equipment. When a computer (or a group of computers) adequately solves the problem posed by the network it is rewarded with an incentive, in the case of cryptographic money the incentive is a series of cryptocurrency units that are […]

Cryptocurrency mining is the process of solving a mathematical problem (for example a sum) using computer equipment. When a computer (or a group of computers) adequately solves the problem posed by the network it is rewarded with an incentive, in the case of cryptographic money the incentive is a series of cryptocurrency units that are being mined. Basically, what these computers do is launch a series of possible solutions, until the proposed solution matches the hash value of the block.

Mining cryptocurrencies, the simplest explanation:

Let’s say for example that the hash puzzle states that whoever first discovers the number from 0 to 10 gets the prize. The miners will be throwing numbers until the number matches the riddle. During the process, you will wonder if the number is correct or not. Whoever gets to the right number first wins the prize or whatever, gets the reward from the block.

“The algorithms that determine the difficulty of the problem and other variables today are taken as consensus systems since the agreement of the rules by all participants is needed.”

Currently, the consensus system used by Bitcoin, Ethereum, and many other cryptocurrencies is Proof-of-Work (PoW), although there are a large number of currencies, such as Lisk or Stratis that are purely Proof-of-Stake (PoS). The PoS is based on storing coins and the work is easier, which allows not to waste work as in the PoW and is more energy-efficient.

Different types of computer equipment can be used to mine Proof-of-Work:

Bitcoin requires ASIC, which are specialized equipment with many processors, which provide them with great power for mining.

Ethereum with mined RIG, which are systems based on many graphics cards. Bytecoin is mined with a processor only.

There are other options, such as ‘mining’ cryptocurrencies by browser, as is the case of Bitrad.io, sharing content and being voted for this content, as is the case of Steemit, or sharing a part of the capacity of our hard drive, as is the case of Storj. In the same way, mining allows us to control how many coins are in circulation.

“When a block is certified, the miner receives a reward and therefore new coins are introduced into the market. This means that more and more coins exist, up to a maximum limit, thus offering control of the network.”

The Proof of Work protocol, or Proof of Work, is the most well-known and oldest consensus protocol that consists of the parties of a network successfully performing computationally expensive work to access the resources of that network.

The Work Test protocol helps us to avoid certain unwanted behaviors in a network. Its name comes from the English Proof of Work (PoW). This protocol works under the concept of requiring work from the client, which is then verified by the network. Normally the requested work consists of performing complex computation operations.

These operations are then verified by the network. Once they are approved, the client is given access to use the network’s resources. This is intended to prevent malicious customers from consuming all resources in an uncontrolled manner. A situation that may end up denying the service provided to the rest of the network’s customers.

A very simple example to understand is the famous captcha that you put when you want to make a registration on a website. The website puts this challenge that the visitor has to solve. If you solve it you will have access to the service. This prevents an attacker from creating millions of records and collapsing the website. However, the challenge in computer-to-computer communication cannot be as complex. It must be solvable, albeit with relative complexity.

The main characteristic of this strategy is its asymmetry. The work of the client is moderately difficult to perform, but the verification by the network is simple. This means that the work test takes a long time to produce and is computationally expensive. But verifying it is simple, as testing designs patterns that facilitate verification.

This characteristic was, precisely what drew the attention of Satoshi Nakamoto when designing the Bitcoin. That is why he implemented the HashCash system (a PoW system) in his recognized cryptocurrency.

PoW algorithms – A bit of history…

In 1992, the penetration of the Internet was already quite important. With its arrival, the use of emails began to spread. But this positive situation brought with it new problems. Email systems suffered from recurring spam attacks. These attacks generally disabled servers and left many people without services. Then a solution had to be found for this problem.

In 1993, academics Cynthia Dwork and Moni Naor recognized the problem and tried to solve it. From there the trial “Pricing by processing or combating spam” originated. In which they presented ways to prevent spammers from sending mass messages. The idea presented was to include a computational cost to be able to use email services. 

To do this, Dwork and Naor designed a series of tests that required computational cost work. Among them; the calculation of some square roots or the intensive use of hash functions. Once this work was done, the user had to add the information to the email to be verified. If it was correct the mail was sent, otherwise, the mail was rejected. This simple system deterred spammers from continuing their attacks. But it still took some time before the system could be fully implemented.

 

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Cryptocurrencies

What is The Difference Between ASICs vs GPU Mining?

After Bitcoin entered the scene 11 years ago, the word mining took a new meaning altogether. Cryptocurrency mining is the mechanism through which new coins are introduced into circulation, and transactions are processed. The appeal of crypto mining is that miners are rewarded with crypto tokens, or transaction fees, depending on the network. While some miners do it for the thrill, others see it as a valid and even full-time investment.

Crypto mining_Forex Academy

After Bitcoin entered the scene 11 years ago, the word mining took a new meaning altogether. Cryptocurrency mining is the mechanism through which new coins are introduced into circulation, and transactions are processed. The appeal of crypto mining is that miners are rewarded with crypto tokens, or transaction fees, depending on the network. While some miners do it for the thrill, others see it as a valid and even full-time investment.

After Bitcoin entered the scene 11 years ago, the word mining took a new meaning altogether. Cryptocurrency mining is the mechanism through which new coins are introduced into circulation, and transactions are processed. The appeal of crypto mining is that miners are rewarded with crypto tokens, or transaction fees, depending on the network. While some miners do it for the thrill, others see it as a valid and even full-time investment.

What is Crypto Mining?

Crypto mining_Forex Academy

Crypto mining is the process through which specialized computers are used to discover new blocks on a crypto network by ‘guessing’ a random string of numbers until you find the right combination. (A block is a file of transactions plus the metadata of those transactions) This process is known as ‘proof-of-work.’ By discovering new blocks, miners get the right to verify the transactions and add them onto the blockchain. This process is crucial because it removes the possibility of double-spending coins.

Mining becomes harder as a cryptocurrency network becomes more popular, and the miners in a network increase.

In the early days of Bitcoin mining, anyone could mine Bitcoin as long as they had a computing component with sufficient processing power. But as more users trooped to the network, mining difficulty increased, and the average computer no longer cut it. This started a race into the manufacturing of more powerful and efficient hardware.

Graphic processing units (GPUs) were among the first machines that went into crypto mining. These virtually wiped out CPUs. While you can still mine using a CPU, it will largely be of no use since the cost of electricity that you will consume will far outweigh any meager profits you might (yes, might – since discovering new blocks is a game of chance) realize.

Over time, developers came up with mining equipment known as application-specific integrated circuits (ASICs). However, some cryptocurrencies are ‘ASIC-resistant’ (more on that later) and can only be mined with GPUs.

Let’s start with ASIC mining.

What is ASIC Mining? 

ASIC Miner_Forex Academy

Before we plunge full form into ASIC mining, let’s get a snapshot of what it’s about:

ASICs are algorithm-specific, meaning they are designed to mine just one type of coin. E.g., a Bitcoin ASIC cannot be used to mine Siacoin and vice versa.

  • They are highly efficient albeit very costly.
  • They consume less power.
  • They are easy to set up and start mining right away.
  • Their profitability declines fast as mining difficulty increases.
  • In the case of a hard fork, they are rendered obsolete to mine the new coin.

Now, let’s get into the intricacies of ASIC mining, starting with the definition. An integrated circuit is basically a microchip. An IC is one of the biggest technological advances today. Pretty much every electronic equipment uses one, from televisions to phones to GPS trackers to computers to ID cards.

The term application-specific implies that the microchip has been designed for a specific purpose. In this case, that means the IC has been designed to run an algorithm for mining a particular cryptocurrency. Seeing as the ASIC has been designed specifically for that particular coin, that means it’s highly customized, and hence efficient, for that end. Hence, any miner that possesses it has an edge in the business.

The thing with ASICs is that they can be risky. First, the cryptocurrency market is pretty unpredictable, with fortunes quite easily changing overnight. Cryptocurrencies are known to gain or lose up to 10% in just one day. Now let’s say a coin drops in value and stays there forever. Or a cryptocurrency developer decides to change the hashing algorithm. These events would render the ASIC machine useless.

Second, as with any technology, newer ways of doing things get discovered all the time.

Thirdly, as more miners join a network, the mining difficulty increases, and so does profitability.

ASICs and Centralization

Since ASIC miners are known to dominate the game for every cryptocurrency they touch, when the ASIC for a particular coin is made, it becomes almost the only viable way to mine it. Even if profitability drops, they remain the most profitable way to mine the crypto until a new and more powerful ASIC is developed. This results in centralization since it edges out the miners with less powerful mining equipment. This presents a problem since cryptocurrencies are supposed to promote decentralization and democratization in finance.

Cryptocurrency enthusiasts are, understandably, concerned with this state of affairs, and have taken steps to search for alternatives. One of the initiatives has been developing new hash algorithms that render cryptos ASIC-resistant. Another has been hard-forking, like in the case of Monero, in a bid to block ASICs. This doesn’t mean ASIC companies will not try and make equipment that’s compatible with the new algorithm. But that means they would need to change equipment every other time, which is not just expensive but also pointless.

GPU Mining 

Mining GPU_Forex Academy

Before we delve into the intricacies of GPU mining, let’s get a rough idea:

  • Can mine any cryptocurrency
  • Can be expensive
  • Setup may require special consideration for cooling, motherboards sizes, etc
  • More cryptocurrency developers are making ASIC-resistant coins
  • GPU mining proceeds are more stable
  • Can be utilized for non-crypto-mining tasks and, they have a higher resale value

While ASICs are still the most dominant crypto-mining equipment, the anti-ASIC sentiment is now becoming rife in parts of the crypto community. Cryptocurrencies, e.g Ethereum, are now using memory-hard functions or the X16R algorithm – which uses 16 different algorithms at random, making it hard to settle on one algorithm at any time. These initiatives make it possible for alternative mining methods, and GPUs fill in the gap.

However, there are a few downsides to GPU mining as well. First, they can be expensive and require a lot of cooling maintenance. Users also need to make sure that a GPU machine has enough RAM memory and a reliable motherboard. The electricity used is also high. Also, their scope is pretty limited since they can’t really compete with ASICs for some of the coins, such as Bitcoin.

As we’ve noted before, GPU mining is more flexible than ASICs since it can be used for any cryptocurrency. This flexibility can come in really handy, especially with the volatile cryptocurrency market when the fortunes for any cryptocurrency are pretty unpredictable. Also, since they are used for graphics processing, they can be channeled for multiple other uses were crypto mining to stop being viable.

Final Words

In terms of profitability, ASICs unquestionably take the lead over GPUs. Since ASICs are optimized for particular crypto, it means they are the only option that can conceivably mine that crypto with the most efficiency possible. Also, for cryptocurrencies that can be mined with ASICs, the machines completely dominate the space, rendering GPU mining profitability nearly impossible.

However, in terms of the decentralization philosophy of cryptocurrencies, ASICs don’t fit the bill. It’s very likely that ASICs might become obsolete in the coming years. Also, it’s not cheap to invest in ASICs, with a considerable investment but uncertain profitability, thanks to the volatile nature of crypto prices.

This, plus the fact that the crypto community continues to shift towards ASIC-resistant coins, makes the future of ASICs is uncertain. GPU mining, although not nearly as effective as ASICs, makes crypto mining attainable for everyone. It’s likely that GPUs are the future of the industry.

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Cryptocurrencies

Bitcoin Mining Pools: Here Is All You Need To Know About Bitcoin Mining Pools

Any new Bitcoin user will tell you they’ve heard words like “miners,” “mining pools,” and “ASICs” being thrown around. But it’s not immediately clear what these terms mean, or whatever role they play in the Bitcoin ecosystem.

Bitcoin mining pools | Forex Academy
Photo by Dmitry Demidko on Unsplash

Any new Bitcoin user will tell you they’ve heard words like “miners,” “mining pools,” and “ASICs” being thrown around. But it’s not immediately clear what these terms mean, or whatever role they play in the Bitcoin ecosystem.

Any new Bitcoin user will tell you they’ve heard words like “miners,” “mining pools,” and “ASICs” being thrown around. But it’s not immediately clear what these terms mean, or whatever role they play in the Bitcoin ecosystem.

On the other hand, we have aspiring Bitcoin miners who are usually torn between going solo and joining a mining pool and are yet unacquainted with the latter option.

In this guide, we delve into the intricacies of Bitcoin mining pools and answer some of the most burning questions surrounding the topic.

What is Bitcoin Mining? 

Bitcoin mining is the process of adding new blocks and transactions on the Bitcoin public blockchain. It involves miners guessing or playing with a random string of numbers and alphabets (known as a hash) until they arrive at the correct hash for the next block. A ‘block’ is a file that consists of transactions that have to be verified before being added to the blockchain.

Bitcoin miners utilize mining equipment known as “application-specific integrated circuits” (ASICs) that are designed to make a massive number of guesses per second. In the early days of Bitcoin, anyone could mine bitcoins on their PC from the comfort of their home. However, as the network became uber-popular and more miners joined the network, the mining difficulty (how hard it is to find new blocks) increased, rendering the average computer unsuitable for mining bitcoins.

What’s a Mining Pool?

What is Bitcoin Mining pool

A mining pool is a group of miners who come together and combine their computational power in a bid to find new blocks faster. With the combined hashing power, the odds of finding new blocks are multiplied. If a pool succeeds in finding a block, the block reward is shared among the pool participants according to how much processing power each contributed. The more processing power a miner contributed, the more block rewards they will receive.

What is Block Rewards? 

In Bitcoin mining, a block reward is what the bitcoins miners receive for discovering new blocks. This reward is halved after mining 210,000th block, which is roughly every four years.

In the beginning, mining a block got a miner rewarded with 50 BTC. That figure was halved into 25 BTC in 2012. It was then halved again in 2016 to 12.5 blocks. It was again halved a few days ago to 6.25. This was Satoshi Nakamoto’s idea of avoiding inflation.

Mining Pool Methods 

Bitcoin mining pools do not have a standard operating procedure. Each pool has a different approach to the sharing of block rewards, and so on. Still, many of the most popular pools have certain protocols in common. Let’s get a look at the most common below:

  • Proportional mining pools: In these pools, miners earn shares up until the pool finds a block, after which each miner receives block rewards in proportion to how much shares each has found.
  • Pay-per-share pools: These pools operate a lot like the proportional mining pools, only this time, a miner is guaranteed of a payout regardless of when the pool collectively finds a block. Miners are paid with the existing balance in the pool, and they can cash out at any time.
  • Pay On Target: In these pools, a miner is paid based on the difficulty of work that they plough back to the pool, rather than the difficulty served by the pool itself.
  • Capped Pay Per Share: This is a reward system through which miners receive as much as possible from discovering blocks while also ensuring the pool never goes bankrupt.
  • Bitcoin Pooled Mining: This system entails giving more weight to recent shares than to older shares. Each new round starts when a new block is discovered, and not before. This reduces the chance of miners switching pools during a round so as to maximize profits – which is considered cheating.

Why Mine Bitcoin in a Pool? 

As we’ve noted before, Bitcoin mining is a game of chance. Thus, it pretty much depends on luck. Hence, even if a miner controls a significant amount of computational power, it doesn’t mean they’ll find blocks proportional to that power. Instead, today they might find three blocks, tomorrow none, the next day one, and on and on.

Mining in a pool allows miners to combine their hash power, so they represent one large mining machine. With the combined hashing power, it’s easier to find the right hash sooner. This way, miners can get a more regular and consistent pay instead of a sporadic and less certain one.

What are the Disadvantages of a Mining Pool?

Mining pools represent a more sustainable income for miners since it multiplies the odds of them finding new blocks. At the same time, it has a downside for both miners and what cryptocurrency stands for.

When a miner participates in a pool, they relinquish some of their power and autonomy. They’ve got to adhere to the terms and conditions of the pool, even if unfavorable.

They also have to share block rewards, meaning they earn significantly less than if they received the entire block reward by themselves.

Another drawback of mining pools is that some mining pools have an enormous amount of combined hash power to the extent of dominating much of the Bitcoin mining process. In a way, this centralizes the Bitcoin mining protocol, which betrays one important tenet of cryptocurrency: decentralization.

How to Choose a Bitcoin Mining Pool

Before you sign up for a Bitcoin mining pool, do a background check, and see whether it works for you. These are some of the factors you need to look out for:

1. Infrastructure Compatibility

Every pool has its own requirements that miners must meet before being incorporated into the pool. Before getting started with any pool, check the following:

  • Whether your mining equipment is compatible with the pool requirements
  • Whether your mining software is supported by the pool
  • Whether your internet connection meets the minimum bandwidth required by the network

2. Task Assignment Mechanism

Any decent pool should have an algorithm that enables it to distribute tasks evenly to all participants without discriminating against the ones with less powerful devices.

3. Transparency

How transparent is the pool operator? For instance, is the hash rate declared by the pool the actual hash rate? Are the payouts being manipulated in some way? Some pools have a real-time dashboard that displays activity, eliminating any cause for doubt. You want to join such a pool.

4. Payment Threshold and Frequency

This has to do with the type of mining hardware you have. High-end mining devices mean more computational power and hence more and frequent earnings for you. Hence, if you have low-end devices, best to avoid pools that make payments based on the output threshold.

5. Pool Stability and Security

Before joining a pool, check out its commitment towards security. Does it offer a secure connection? Is it vulnerable to the all-common denial of service attacks? Is it sufficiently robust against potential attacks?

6. Pool Fee Structure

The pool fee is the amount you pay for utilizing a mining pool’s services. Some pools charge no fee at all while others charge a nominal fee. Others incorporate the fee in the payout. Others offer free entry, after which they’ll start charging after a given period. Finally, some pools will require you to run the software on your own device instead of on their servers – which is usually expensive for the miner.

What are some of the Best Mining Pools?

After Bitcoin exploded, the currency’s mining industry is proliferated by all manner of mining pools. Some have made a name for themselves for having a winning combo of certain features. Let’s take a look at a number of them:

  • F2Pool

Launched in 2013, Chinese-based F2Pool uses a stratum mining protocol – a Bitcoin mining protocol that facilitates improved mining and efficiency. F2Pool also supports Litecoin, Ethereum, and Zcash mining and features three languages (Traditional Chinese, Simplified Chinese, and English) to accommodate a more diverse background of miners.

  • com

Launched in 2015, BTC.com is a mining pool owned by Bitmain, which is a dominant player in the ASICs manufacturing industry. BTC.com also runs on a stratum mining protocol and supports its own wallet known as the BTC.com wallet. The site supports English and Chinese.

  • AntPool

Also owned by Bitmain, Antpool is one of the most dominant mining pools in the Bitcoin mining space. Alongside Bitcoin, the pool also supports Bitcoin Cash, Litecoin, Ethereum, Dash, Siacoin, ZCash, and Ethereum classic. Antpool supports tens of languages, including English, Amharic, Zulu, Welsh, Urdu, Thai, Bosnian, Arabic, and Turkish.

  • ViaBTC

Launched in 2016, ViaBTC is relatively new in the industry but has managed to claw its way to the top. The pool uses a stratum mining protocol and also supports merged mining. ViaBTC supports the mining of other cryptocurrencies such as Bitcoin Cash, Litecoin, Ethereum Classic, Dash, ZCash, and Monero.

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Cryptocurrencies

The ultimate guide to cryptocurrency mining

So, can you still make enough money out of crypto mining in 2019? This simple guide tells you everything you need to know about cryptocurrency mining. And acts as the

So, can you still make enough money out of crypto mining in 2019? This simple guide tells you everything you need to know about cryptocurrency mining. And acts as the

So, can you still make enough money out of crypto mining in 2019? This simple guide tells you everything you need to know about cryptocurrency mining. And acts as the perfect launchpad to a successful crypto mining career.

The concept of cryptocurrency mining is often baffling to people outside cryptoverse and even to some inside it. Cryptocurrency mining, a.k.a crypto mining, is the process by which transactions between cryptocurrency users are verified and added on to the long list in the public blockchain ledger. The same process also introduces new coins into the circulating supply of a particular cryptocurrency.

Cryptomining is achieved via the use of specialized computers. Technically, anyone with a computer and internet can mine cryptocurrency. The only problem in actual success with crypto mining depends on several factors, such as which crypto you’re mining, how powerful your computer is, and the cost of electricity where you live. (More on that later). Depending on all these factors, crypto mining may be more expensive – both financially and time-wise – than anything you’re gaining from it.

Who Are Cryptocurrency Miners? 

Cryptominers are sometimes called the backbone of many cryptocurrency networks. And they’re worthy of this title because they are the ones responsible for issuing new crypto coins, validating transactions, and ensuring the security of blockchain networks.   

Bitcoin miners use specialized computers known as application-specific integrated circuits (ASICs), which are designed for the sole purpose of mining cryptocurrency. ASIC miners are usually designed to mine a specific cryptocurrency. This means a Bitcoin ASIC miner can only mine bitcoin. A Litecoin ASIC miner can only mine Litecoin, and so on. 

As cryptocurrency has increased in value, so have more cryptominers jumped into the bandwagon. As such, crypto mining has become so competitive that it’s no longer profitable to mine alone. Today, most cryptocurrency mining is done by “mining pools” in warehouses that have low-cost electric power. 

Mining pools are made of a group of miners who agree to share block rewards in proportion to the amount of work that each contributed to finding a new block (a block is essentially a collection of unconfirmed transactions plus a set of data about those transactions) 

What Is Hash Rate? 

Hash power, or hash rate, is the measure of the processing power of a mining computer. The higher the hash rate, the faster the next block on the blockchain network is found. The creator of the first cryptocurrency – Satoshi Nakamoto – intended for Bitcoin to be mined via computer CPUs. However, innovative programmers soon discovered they could derive more hashing power from graphic cards and wrote mining software to facilitate this. 

Graphic cards were then surpassed by Field Programmable Gate Arrays (FPGAs), which were soon phased out by ASICs, which packed inordinately more hashing and staying power. Nowadays, all serious crypto mining is done with ASICs, usually in low-cost electricity areas and in thermally-regulated areas. (Data mining centers are thermally regulated because the power ASICs consumes ends up as so much heat.)

What Is The Purpose Of Mining And How Does It Work? 

Cryptocurrency mining is actually another term to refer to a type of validation model known as proof of work (PoW). Different cryptocurrencies utilize different validation models to facilitate their release into circulation. Apart from proof of work, the other more common validation model is proof of stake, which uses a random selection of stakeholders (coin holders) as transaction validators. 

However, in PoW – which is used by cryptos such as Bitcoin, Bitcoin Cash, Litecoin, and others, miners compete with each other to solve computational puzzles to solve the next block. 

So, what is the point of mining at all? Mining is central to cryptocurrencies that rely on PoW TO keep the network functional. There are many intricacies involved with mining, but it has three most important functions which are as follows: 

It issues new coins into circulation.

Unlike fiat currency, which can be issued by the central bank at any time, mining is what facilitates the entry of new crypto coins into circulation. The issuance of new coins is set in the cryptocurrency code, so miners cannot manipulate the system or create new coins out of thin air. 

It validates transactions on the network 

When transactions are sent on the blockchain network, miners include these transactions in their blocks. A transaction is only considered secure and complete once it’s recorded on the blockchain – because that’s when it’s added on the public blockchain.

It secures the blockchain network 

Miners keep the blockchain network secure from attacks. The more miners are on the network, the more secure the network is. The only way to sabotage a blockchain network is for one miner to have more than 51% of the network’s hash power, which is near impossible with the many different miners working on the network across the globe.

How Miners Make Money and Block Rewards

Block rewards refer to the crypto coins that are awarded by a blockchain network to block miners each time they mine a block successfully. These rewards are issued by cryptocurrencies that use the proof of work consensus mechanism. Most miners channel these rewards back to the ecosystem to fuel their mining costs while keeping the rest.

Bitcoin – the first cryptocurrency and the pioneer of cryptocurrency, currently rewards miners with 12.5 BTC for each mined block. In the beginning, miners were rewarded with 50 BTC. Satoshi Nakamoto, the creator(s) of Bitcoin, embedded “halving” – or what’s colloquially referred to as “halvening” in cryptoverse, into the system so that the block reward is slashed into two after every 210,000 blocks have been mined. Bitcoin’s halvening happens after about every four years. 

Another example is Litecoin, which also halves its mining rewards. Litecoin’s halving occurs after every 840,000 blocks. As of November 2019, the block reward for the cryptocurrency is 12.5, having been halved from 25 in August.

The question that bugs many in cryptosphere is this: what happens after these cryptocurrencies’ coins, and others that rely on mining, are all mined? How will miners be rewarded? Well, besides block rewards, these crypto’s protocols have also provided transaction fees as a means of reward. The transaction fees will shoot up once the maximum supply is achieved – in response to increased demand. Thus, new coins may no longer enter into circulation, but miners will still have a payday. 

Cryptocurrency Mining Step By Step

When a transaction is made on the blockchain, e.g., a user sending bitcoin to another user’s address, the transaction must be recorded – that is, the information must be indicated on a new block

  • This block must be secured and encrypted so that it cannot be reversed or modified, and is up for grabs for all miners on the network 
  • To encrypt the block, miners must find the solution to a computational puzzle through trial and error method in a race to find the proper cryptographic hash for the block. 
  • Once a miner finds a new block, it’s verified by other computers in the network in a process known as consensus and then added on the blockchain.
  • If a miner has successfully mined, verified, and secured the block, they are awarded newly created coins.

The Downsides to Cryptomining

Though mining is the lifeblood of certain cryptocurrencies, it comes with its own share of challenges. Some of these are as below: 

Complexity: Cryptomining is not for the uninitiated. Even people with a pretty good grasp of cryptocurrencies and blockchains might find themselves befuddled in the first few days. What’s more, you’ll need to assemble a range of equipment such as a customized mining computer, an ASIC chip, cooling equipment, and so on. 

On top of that, you’ll need to read a lot, keep abreast of what’s happening in the crypto world, and be prepared to make mistakes once in a while.  

Electricity Costs – Mining can prove quite expensive, mainly because it consumes a lot of electricity. The ASIC computers and the massive servers involved usually rake up enormous power bills. Bitcoin mining is especially electricity-intensive – so much that it has raised questions from ecologists who argue that it’s becoming a threat to the environment. 

Current estimates show that the current global power consumption by Bitcoin mining is a minimum of 22 terawatt-hours per year – which is almost the same as the annual power consumption by Ireland. 

Hardware Costs – Mining farms need to spend a lot of money to purchase stronger equipment every other few months as the prior equipment becomes obsolete due to increased mining competition. The cooling systems further add up to the hardware costs. 

Vulnerability: The proof of work model is vulnerable to an individual or an entity gaining control of 51% of the network’s computing power. If this were to happen, it would essentially hold the network hostage. The more dominant mined cryptocurrencies like Bitcoin, Litecoin, Bitcoin, and Monero are safe from this nature of attacks. However, smaller cryptocurrencies that require longer block processing durations and have weaker daily volumes could fall prey easily. 

Conclusion

The concept of cryptocurrency mining is fun, as it can be confusing. This guide should lift part of the mystery surrounding the concept. It has been interesting to see the evolution of crypto mining – from being able to mine from the comfort of your home on your PC to dedicated warehouses solely for mining. The innovation of ideas that have gone into the space is also exciting, and we can only wait to see what more the enterprising mining community comes up with in the future.