What is cryptocurrency mining? Understand the concept and method of work

Cryptocurrency mining is the process in which new coins are produced from cryptocurrencies. Some projects use this method to double the cryptocurrency. Bitcoin, the number one digital currency, has chosen this method to generate cryptocurrency. For a long time, this model was the only way to create coins with cryptocurrency . In this article we will discuss the concept of cryptocurrency mining and then we will discuss the types of mining methods and cryptocurrencies that are produced in this way. 

?What is digital currency mining


Bitcoin  , as the first digital currency, used   this method to create new coins. To explain mining, we also use the example  of bitcoin   , but with a slight difference in details, all coins that are mined are produced in the same way.

The Bitcoin network uses the " Block-chain" . Blockchain  is an application of DLT and decentralized information storage technology. Each  blockchain consists  of data linked together in chronological order. In the  Bitcoin blockchain   , this data includes the transactions that users make on the  Bitcoin network 

Each user adding a block to the  Bitcoin Blockchain  will  be rewarded with one Bitcoin in each block. This new block reward is the bitcoins that are generated and traded on the   bitcoin blockchain. But can all users create a block and add it to the  Bitcoin blockchain  ? Under what conditions and rules is the bloc formed? We will answer these questions below. 

?What is cryptocurrency miners?

Users who participate in the formation of blocks in the  Bitcoin  network are  called miners. Miners own very powerful computers and use them to connect to the  Bitcoin  network . Each miner keeps a copy of the bitcoin blockchain  on  his computer and updates it by creating new blocks.

Each block has a specific mathematical answer that miners are trying to solve. Competition among miners continues. The first miner to find an answer to the new block will receive the reward for that block. The block reward includes new bitcoins. In this way, a new block is formed, and in the term, new bitcoins are produced or mined.

All digital currencies that are produced by mining have the same process of creating new coins. The difference between cryptocurrencies in mining includes the  blockchain of  each network, the hardware required for mining, the mathematical questions asked, the amount of block rewards in each  blockchain  , and things like that. Due to the structure of the game with a digital currency network, all interested users can become a digital currency miner without any restrictions from the network. 

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In 2009, when  anonymous bitcoin  creator Satoshi Nakamoto created  the network, users with a home computer could become bitcoin  miners  . The size  of the blockchain  was a few megabytes, and very few computers were connected to the  Bitcoin  network . And over the years, the number of computers has increased. So today, to become a miner, you have to use special devices that have high computing power. In fact, over time, the competition to create a new block and get the reward for each block has become more intense. In the following, we will learn about cryptocurrency mining hardware. The best cryptocurrency trading platforms in Egypt 

Cryptocurrency mining hardware

With the growth and popularity of digital currencies, mining has boomed as well. Every day more and more miners are joining different cryptocurrency blockchain networks with the aim of making money by connecting their computers. Such reception was such that today, by connecting a home computer directly to a network like Bitcoin, the chance of making money in this way is very low (close to zero). Super powerful computers connected to this network do not give any chance to weak computers. 10 countries, including Arab countries, where cryptocurrency trading is prohibited

Miners use ASICs to connect to the Bitcoin network. These devices were created for the purpose of mining digital currencies. An ESIC can be thought of as a computer with many "processors" (central processing units) whose power is pooled together. These devices are produced in different models with different processing capacities. Different companies in the world compete with each other in the production of these devices. They are trying to produce devices with more processing power, lower power consumption and cheaper .

One of the important values ​​among the users of decentralized digital currencies. Many active users in this field consider that one of the attractive factors of digital currencies is their decentralized nature. In this regard, many users criticize the presence of e-sik devices in blockchain  networks . These users believe that ESIC devices will put the processing power of the network in the hands of a few, and as a result, this will lead to a kind of concentration in the  blockchain network .

Some cryptocurrencies that work with the mining method have tried to prevent these devices from connecting to the blockchain network by making changes in the mathematical algorithms. The performance of these devices was much weaker than that of a home computer in these networks, and their use in these networks was not economical for eSik owners. Today, cryptocurrency users have largely approved the existence of these devices for mining.

Of course, due to the differences in the architecture of the  blockchain  , the hardware required for each is somewhat different. For example, Bitcoin uses CPU processing power for mining, but Ethereum uses GPU power to mine Ether (ETH).

?What is a cryptocurrency mining pool

A mining pool is a group of miners in a cryptocurrency network who pool their computing resources (processor hardware) together. This will increase their chances of success in building a new block and mining digital currency. In fact, miners share with each other and share the benefits obtained. Over time, there have been various ways to divide the mined cryptocurrency into blocks, which we will briefly explain below. F2pool is a company that provides mining pool services . How to buy and sell digital currencies? Cryptocurrency trading

Profit sharing based on computing power

This method can be considered as the most famous method of profit sharing in mining pools. In this model, according to the strength of the hardware each miner provided to the pool, it takes a share of the digital currency mined. In this method, the digital currency must be mined to distribute it between the two miners.

Dividends based on shares

Miners receive an amount regardless of the digital currency mined. In this method, user payments are made by the collector and miners can benefit from a fixed profit. It should be noted that in this model, the mining pool stores the obtained digital currency for itself in order to send a stable digital currency to the miners for payment.

Profit sharing based on points

In this model, each miner is given a score based on the profit being split. This point is also allocated based on the time each miner was active in the mining pool. Mining pools devised this method to prevent the loss of miners and their migration to other pools. 

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Connecting to a mining pool has various advantages and disadvantages. The biggest advantage of these pools is the increased opportunity for miners to make profits by connecting to mining pools. The disadvantage of using such pools is the loss of freedom of action for miners. Each pool has its own rules, which miners must follow by calling them. For this reason, miners largely lose their freedom to operate.

?What is cloud mining

What is cloud mining in cryptocurrency

With the growth of digital currencies and the increasing competition in the process of cryptocurrency mining, the concept of cloud mining was born. In this type of mining, companies release a large number of miners and users can mine digital currency by purchasing a subscription. Some companies that provide cloud mining services sell or rent their mining hardware, and some other companies operate by selling or renting computing power to their users. These companies offer a variety of services. In some of them, only one digital currency is mined, and some allow the choice of different digital currencies .

Advantages of the cloud mining method

Cloud mining, like all other mining methods, has its advantages and disadvantages. One of the advantages of cloud mining is that there is no need to provide mining equipment. Also in this model, users do not need technical knowledge to set up equipment, while people who live in cities and do not have enough space for such equipment can earn from digital currency mining. Make a profit These features make many people consider cloud mining a good option to earn profits from cryptocurrencies.

Disadvantages of the cloud mining method

Many scams have been carried out in this way by people looking for profit. This problem can be considered one of the drawbacks of this method. Users should do detailed and extensive research to choose a cloud mining service and get help from experts as much as possible. Another drawback is the fluctuations in the price of digital currencies.

It is possible that as the price of the digital currency that the user is mining drops, the cloud mining subscription fee will not be returned to them. Another disadvantage of cloud mining is its centralized structure. One of the main values ​​of digital currency activists is lack of focus. Many users believe that this model helps centralize power in cryptocurrencies by centralizing hash power.

?What is a cryptocurrency mining farm

You may have heard the term bitcoin mining farm or bitcoin farm in the news. But what is a bitcoin farm or a bitcoin mining farm? As mentioned, the competition in cryptocurrency mining, especially bitcoin, is very intense. Some investors have turned to setting up bitcoin mining farms to mine bitcoin.

This term is used for mining bitcoin on an industrial scale. Investors connect a large number of ASIC devices together, providing very high processing power that can be used to mine different cryptocurrencies. Note that even many mining farms connect to mining pools for work.

?Is bitcoin mining profitable

Bitcoin mining is an expensive process. Purchasing mining hardware and accessories, providing adequate equipment space, maintenance costs and electricity costs are among the costs charged to bitcoin miners. The end product of mining is bitcoin. In fact, miners are the producers who determine the final price of the product. The presence of many variables, each with its own fluctuations, makes it difficult to calculate price, return on investment and other financial parameters .

To solve this problem, calculators have been created for Bitcoin and other minable digital currencies. And in these calculators, users can choose their desired currency. Then the number of devices, their processing power and the cost of electricity consumption are determined. These calculators calculate network difficulty, current price of mined digital currency and other important parameters in determining costs in each  blockchain  and display the financial parameters to users according to the terms.

Cryptocurrency mining calculators make it very easy for users, but just based on them, deciding on a digital currency does not seem to be the right thing. Before investing in this area of ​​digital currencies, users should think about the fundamental analysis in this area and other economic parameters. Investing in cryptocurrency mining is almost like starting an industrial business, which involves much more than just an interest in technical parameters.

?Will cryptocurrency mining ever end

The answer is different for each cryptocurrency. The Bitcoin network is designed  so that no more than 21 million Bitcoins   can be  generated  . Of course, it will take more than a hundred years to mine all bitcoins. Many digital currencies that are produced by mining, such as Litecoin or Ravencoin, are similar to  Bitcoin  . The question may arise that after the end of the production of new coins, what is the motivation for which miners continue to work? The answer is that with the formation of each block, the miner who created it will receive the transaction fees found in that block.

There is another category of digital currency and their number is unlimited. As a result, in these digital currencies, new blocks are always rewarded to miners. Notable among these types of cryptocurrencies are Ethereum (ETH), Dogecoin (DOGE), and Monero (XMR).

Cryptocurrency mining with mobile phone

Finding a way to make money from mobile phones in any way is attractive to many users. One of the methods that have been discussed among users in the past years is to extract digital currency using a mobile phone. In two respects, extracting the coin in this way does not look right. In a short period of time, many programs for this purpose have been introduced into software download platforms. Many of these programs were malware. These malicious programs pursue different goals.

Some of them are created with the sole purpose of advertising to users. But others pursue more sinister goals, such as accessing user information. Mining cryptocurrency using a mobile phone does not make sense in another way. Even if it can be done in the true sense. Mobile devices are designed for different use, and in the long run, serious damage will be done to them.

?What digital currencies are mined

Bitcoin 

It is the first decentralized digital currency. For years, many projects have used the Bitcoin core for their project and made only small changes to it. Bitcoin  uses   a Proof of Work consensus algorithm and the mining process is used to generate bitcoins. Other cryptocurrencies have also used this model to create new coins. Below, we will discuss some of these cryptocurrency projects.

Ethereum coin

The second largest cryptocurrency is also a cryptocurrency with a mining operation. Cryptocurrency Ether (ETH), the original digital currency of the Ethereum network, is awarded as a reward to Ethereum block miners. In the bitcoin network, the block reward is given in addition to the transaction fee to the block miner, but in Ethereum, the transaction fee is burned. Ethereum is the first project that decided to move from a Proof of Work algorithm to a Proof of Stake algorithm. After this migration, the mining mechanism for this digital currency will be completed .

Dogecoin

Dogecoin (DOGE) uses a mining mechanism. Dogecoin is considered to be the first memecoin of cryptocurrency. Like Ethereum, there are no special restrictions on the supply of Dogecoin. The block reward has not been the same since the inception of the Dogecoin network. In the initial blocks of the network, the reward of each block is randomly determined by the network. In this way, two consecutive blocks can have completely different rewards. Dogecoin's block reward is now a fixed number of ten thousand per block .

ZCash coin

ZCash blockchain is another digital currency that is being hit in the process of mining its tokens. And the number of ZEC cryptocurrencies, such as Bitcoin, will be twenty-one million. ZCash and Monero were the first cryptocurrency "privacy coins". Priusycoins are digital currencies that allow users to conduct secret transactions. The cryptocurrency Monero (XMR) is also mined 

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Raven Coin

After various developments in other digital currencies, major projects have used other methods to multiply coins and tokens. Raven Coin is one of the new projects that insists on using the mining method to multiply their tokens. Ravencoin uses the Bitcoin programming  core  . There will be twenty one billion Ravencoins. Ravencoin was created with the goal of creating a peer-to-peer payments platform. In RavenCoin in addition, people can mint tokens of real assets.

Conclusion

Mining digital currency is one of the most important ways to make money in this field. This method has various advantages and disadvantages that users must decide to introduce considering all cases. The high initial costs of mining, maintenance, mining hardware depreciation, cryptocurrencies that can be mined with different hardware, return on investment, and other issues are among the issues that users should pay attention to. 

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