Detailed Guide to Crypto Mining
The only way to acquire cryptocurrency for most people is by purchasing some with cash. However, there are other ways you can own cryptocurrency. One of such ways is to simply mine it. Before anything else, it is worth noting that crypto mining is not an activity for everyone.
In fact, most people are better off trading money for crypto. However, if you are part of that niche group of people looking to own some cryptocurrency without investing money, this article breaks down the fundamental things you need to know.
What is crypto mining?
Crypto mining is essentially the process by which new units of a cryptocurrency come into circulation. In a more technical sense, crypto mining refers to the complex computational work that people undertake with the hope of earning new tokens.
It is noteworthy that the crypto mining activity is important to the entire network of cryptocurrency for reasons other than minting new tokens. Take Bitcoin, for instance; Bitcoin mining not only helps bring about new bitcoins but is also the way the legitimacy of bitcoin transactions is confirmed.
How does crypto mining work?
To mine crypto, miners must solve complex mathematical equations in the form of cryptographic hashes. Every crypto coin transaction generates a unique hash. What crypto miners are doing is competing to identify the hash generated by a specific transaction. The first miner who successfully cracks this code gets to update the blockchain and gets a reward in the form of newly minted crypto tokens. This process is known as proof of work (PoW).
As more miners compete to solve the mathematical equation required to validate a transaction, the equation gets more complex. Given the level of competition that now exists among crypto miners, more advanced machines are required to solve these equations.
What do you need for crypto mining?
In the early days of Bitcoin, cryptocurrencies could be mined in homes with computers that had very simple CPU chips. However, given the increasing level of difficulty, miners now require advanced computers with special software designed to solve complicated cryptographic equations. These computers have special chips such as a specialized GPU chip or an application-specific integrated circuit (ASIC).
Miners also require constant access to electricity as their computers would most likely have to run 24 hours a day. Furthermore, miners must have a strong and stable network connection.
Should you mine crypto?
There are several things to consider before deciding to start mining crypto. For one, the cost of electricity tends to be on the high side. Similarly, in some countries in the Middle East, like Iran, crypto mining operations have been banned in the past due to their impact on electricity.
Furthermore, there is the cost of getting a computer powerful enough to handle crypto mining. These computers tend to be quite expensive. There is also the cost of cooling as these computers emit considerable heat. With these costs combined, a miner may not necessarily profit from crypto mining.
As mentioned earlier, crypto mining is not for everybody. One could go through all the hurdles required to start mining crypto and still not turn a profit. Therefore, it is important to consider factors such as cost of electricity, cost of equipment, tax, and regulation when deciding if mining is the best way to go.