Crypto mining is one of the industries that have been dominating the public discourse. It is a complicated sphere that has been consuming the attention of millions of people and attracting thousands of big institutionalized investors.
As of right now, cryptocurrency news about mining is limited primarily to Bitcoin after the Ethereum merge that removed the mining functionality from the ETH network. Note that there are differences between the two types of mining despite them fulfilling the same role.
How does mining work?
The principle is quite simple. Blockchain networks require the addition of new blocks with data. However, these blocks must be validated and accepted by the network. This is achieved by nodes, separate computers that solve complex mathematical problems, and “prove that the work was done” to add a new block. Hence, “proof of work”.
The PoW mechanism is one of the foundational components of early blockchain projects, but many started arguing that the environmental impact of mining became too much to handle and some networks decided to start switching to PoS which is a different mechanism in which validators add new blocks and have the power to do so by staking some of their ETH assets. These validators receive a small cut for their investments.
However, the PoW model is often cited as the best weapon against centralization which can happen if enough large capital holders stake their ETH assets and make decisions together making it quite easy to manipulate the state of the network. Bitcoin rewards miners with BTC for each added block.
One of the biggest issues for Bitcoin miners is the reduction of the reward over time. It is also important that the difficulty of mathematical tasks increases with more computational power available to the network. With millions of people joining the mining effort and hundreds of large “farms” opening across the globe, miners are faced with several issues:
- The increasing complexity of puzzles that must be solved to receive a reward means that you need more power to be competitive and get a chance of earning a reward.
- The diminishing return on investment due to halvening happens every four years. The next will occur in 2024 and the reward will be reduced to 3.125BTC.
- The price of hardware is quite high meaning that entering the industry without a large sum to spare is close to impossible.
Mining using your rig
Many have heard about GPU mining which is quite powerful for networks that run algorithms capable of utilizing the power of contemporary graphic cards. With the disappearance of ETH from the playing field, GPU miners were left with limited options like Ravencoin which are way less profitable and often can be bought cheaper than mined.
CPU mining is what stands behind the BTC mining community. Bitcoin can be mined, somewhat efficiently, even using hardware like Play Station 3 and 4. Nevertheless, a specialized mining rig will outperform any machine not optimized for mining.
You will need special software that will allow for faster mining. To avoid wasting computational power on running the OS, you can also install a special operating system that will increase the output of any machine.
Multiple machines controlled by a single apparatus are called a “farm” and can have thousands of rigs connected into a single node.
Joining a mining pool
Some companies allow users to chip in and receive steady returns on their investments. Joining a mining pool means that you will receive a small cut of any rewards acquired by the network you participate in.
Some networks allow users to connect their machines to the pool and pay a small fee. Others, simply offer investors to put in their money which they use to buy more rigs and connect them to the pool. These joint operations are often quite expansive and may involve thousands of investors.
Mining Bitcoin is still very much a thing. Thousands of people in the US are running their farms and continue receiving hefty rewards. Despite the crypto winter and dwindling prices of BTC, people are still interested in cryptocurrency mining with some companies investing millions despite losing money!