Crypto mining, a cornerstone of the cryptocurrency world, is the process by which transactions are verified and added to the blockchain, and new coins are created.
As both a technological and a financial endeavor, it involves solving complex mathematical puzzles through powerful computers. This essential mechanism not only maintains the integrity and continuity of decentralized digital currencies like Bitcoin and Ethereum but also ensures a systematic and secure way of introducing new units into the crypto ecosystem.
What is crypto mining?
Mining is the process of approving the transaction details of a crypto and closing the transaction.
Bitcoin (BTC) and other crypto do not have a country or central bank that controls the issuance and circulation of the currency like the dollar.
Therefore, the system employs a mechanism whereby an unspecified number of participants in the network use their own computers to manage the currency.
This network in which there is no central administrator and individual terminals collaborate to manage data is called ” P2P (peer-to-peer).
The network participants review the details of the crypto transaction and approve it if there are no problems. Thus, a crypto transaction can only be concluded after approval by the P2P participants.
In the world of crypto assets, this “confirmation and approval of transactions by a third party” is called mining, and the people who conduct the mining are called “min ers”.
Miners mine according to their own rules, called the ” consensus algorithm,” and receive newly issued coins as a reward. The Consensus Algorithm will be explained in detail later in the section “What is the ‘Consensus Algorithm’ that determines the rules for mining”.
How Mining Works
The transaction history of crypto such as Bitcoin is all recorded in a huge ledger of transactions on the Internet called the blockchain.
Each block that makes up the blockchain stores information such as “when, who, and how much of the crypto was traded.
The name “blockchain” is derived from the structure of these blocks of information, which are connected one after another like a chain.
Incidentally, in the case of bitcoin, a block is generated in about 10 minutes. In other words, when you send money using bitcoin, it takes about 10 minutes for the transaction (remittance) to be completed.
The reward for one mining operation is over 6.25 BTC!
Miners approve crypto transactions and are paid in return for helping to generate blocks.
In most cases, the reward is “you get a set number of mined currency”. For example, in the case of bitcoin, the rules dictate that the reward for one successful mining session is 6.25 BTC (as of November 2020).
While this may sound like an easy way for anyone to make a lot of money, the reality is not so sweet.
Only one person will be rewarded.
This is because the rule is that only the “first one to successfully approve” will receive the mining reward.
Mining requires an enormous amount of computation and one must possess a high-performance computer to perform it. It also requires the machine to run for long periods of time, which also means a high electricity bill.
Mining is a system in which a large number of people compete in a calculation competition in this way, and only the first one to solve the problem is rewarded. Calculation in this case means using a function called a “hash function ” to derive a numerical value called a “nance value.
Bitcoin is difficult to mine.
The difficulty level of successful mining is called “mining difficulty (difficulty). In general, the higher the mining reward, the more competitive the currency, such as Bitcoin, the higher the mining difficulty.
When it was not yet a highly valuable currency, bitcoin mining was possible on personal computers.
However, now that the price is over $1 million, businesses with dedicated mining computer equipment dominate almost all rewards, and it is nearly impossible for individuals to earn bitcoin mining rewards.
These companies have built “mining farms” in China and other countries with low land prices and electricity costs, where they place large numbers of machines and mine 24 hours a day, making the processing power of an individual’s computer no match for them.
However, for altcoins that are not as expensive as bitcoin , competition is not as fierce, and depending on the brand, it may be possible for individuals to earn mining rewards.
Mining rewards cut in half as bitcoin reaches half-life
Mining rewards are ruled to decrease over a period of time. In the case of bitcoin, it is set to decrease by half for every 210,000 blocks generated.
The total amount of bitcoins issued is designed to be 21 million BTC, with new bitcoins issued for each block generated as a reward for mining (reward for block generation).
As of November 2020, about 18.5 million of them had been issued, with a mining reward of 6.25 BTC.
The relationship between major currencies and mining rewards is summarized in the table below.
| Currency Name | Mining Rewards (as of November 2020) |
| Bitcoin (BTC) | 6.25 BTC |
| Ethereum (ETH) | 2ETH |
| Bitcoin Cash (BCH) | 6.25 BCH |
| Monacoin (MONA) | 12.5 MONA |
What is the “consensus algorithm” that determines the rules of mining?
In a P2P network without a central administrator, all participants must monitor the system for irregularities to keep it in good order. Under these circumstances, the method of obtaining consensus among participants is called a “consensus algorithm.
To be more specific, it may be easier to think of the consensus algorithm as a kind of rule that defines the “criteria for selecting miners.
For example, in the case of the PoW (proof-of-work) algorithm used by Bitcoin and Ethereum, the rule in the network is that “the person who completes a task that requires a huge amount of calculation the fastest gets the right to generate a block.
As explained earlier in the section on mining rewards, the rule of PoW is that a large number of miners compete in a calculation competition all at once, and the person who solves the problem the fastest gets the reward.
Five consensus algorithms
There are several types of consensus algorithms. The following is a list of the major consensus algorithms and their characteristics.
| name | feature | Currency Adopted |
| Proof of Work (PoW) | Determine who approves the transaction based on the speed of the calculation | Bitcoin (BTC)Ethereum (ETH)Bitcoin Cash (BCH)Litecoin (LTC)Ethereum Classic (ETC)Monacoin (MONA) |
| PoS (Proof of Stake) | The amount and duration of currency holdings determine who approves transactions | (*)Ethereum is scheduled to migrate |
| PoI (Proof of Importance) | Scores a holder’s “importance” based on indicators such as currency holdings, trading volume, and number of transactions to determine approvers. | Nem (XEM) |
| Proof of Consensus (PoC) | Transactions are approved by a specific approver (validator) chosen by the company or organization | Ripple (XRP) |
| DPoS (Delegate Proof of Stake) | Voting weighted by currency holdings, where the approvers are determined. | Risk (LSK) |
Thus, there are several types of consensus algorithms, each with different characteristics. Moreover, depending on which algorithm is employed, it is possible to infer to some extent what the purpose of the currency is.
For example, Bitcoin and Monacoin (MONA), which are intended to operate “decentrally,” use PoW, which allows only voluntary network participants to manage transactions.
On the other hand, Ripple (XRP), which is managed and operated by a corporation called “Ripple Inc.” uses a centralized PoC (proof of consensus) algorithm, where only those they choose can approve transactions.
There are three main types of mining methods
There are several types of mining: there are ways to do it alone or with multiple people, so let’s review each one.
Individual “solo mining”
Solo mining is a method of mining by a single person with his or her own equipment.
However, mining Bitcoin and other mines with a high concentration of well-funded miners is extremely challenging.
For example, if you were to do solo mining on a computer with a high-performance GPU, you would be lucky to get a reward once every 500 years. Considering the cost of installation, operation, etc., bitcoin solo mining is not very realistic.
However, less well-known coins may not require high-performance machines because there is less competition for mining.
Team-based “pool mining”
Pool mining is a style of mining in which multiple people provide computing power to each other in a mining pool and mine as a team.
Mining rewards earned from the combined computing power of the team are distributed according to the computing power provided.
Mining success rates are higher than solo mining because of the large amount of computing power available. Rewards are distributed according to the computing power provided by team members, thus stabilizing your income.
On the other hand, even if an individual’s mining performance is high, there is the disadvantage that rewards are distributed among members, making it difficult to earn large rewards.
Crowd Mining,” which is left to the contractors
Crowd mining is a style of mining in which investors invest in an organization or company that is mining as a business and receive the rewards of mining as dividends.
There is no need to provide your own computer or power, and you can easily get started without any technical knowledge. It is easier to think of it as an investment in a mining company rather than a mining operation.
However, you must be very careful to identify the vendor. In the past, there have been incidents of “mining scams” in which people were cheated out of their money.
Can Bitcoin mining be done by individuals? Explanation of what is needed for mining.
As in the “solo mining” described earlier, bitcoin mining is possible for individuals as long as they have the right equipment.
ASICs (ASICs) are required for bitcoin mining. Mining can be handled by CPU (central processing unit), GPU (graphing unit), or FPGA machines, but they are inefficient.
The appropriate machine will depend on the hash algorithm used for the coin and other factors.
Mining can be done with any home computer or smartphone.
Mining can be done from home computers such as Windows and Mac, as well as from smartphones (smart phones). The reason is that they are equipped with CPUs.
But with computers and smartphones, it would be difficult to profit because of the inefficiency of the calculation.
CPU and GPU are not recommended.
CPUs and GPUs are not recommended for bitcoin mining. This is because the electricity bill will be much higher.
CPUs and GPUs differ slightly in their computational processing, but either way they consume a lot of electricity.
If you want to participate in bitcoin mining, we recommend ASIC. The main conditions for making a profit are “to participate in ASIC” and “to have an advantage over many rivals in terms of the electricity costs you pay.
Note that some coins are designed to be mined only with GPUs, so if you want to mine with GPUs, those coins are also recommended.
Mining requires equipment with advanced computing power
It takes thousands of kyos and trillions of hashing operations to discover the nance value needed to generate a block.
This requires specialized computing power and equipment configuration for hash function execution.
With a coin as well-known and profitable as bitcoin, there are many miners entering the market, so it is necessary to invest in equipment with even more advanced computing power.
Profits in the mining business depend on the cost of electricity.
In order to compete with other miners, it is necessary to have more computing power than its rivals and to be able to run the computers when needed. The key to this is inexpensive power.
When many machines are run in a place like a warehouse, it is necessary to keep the room temperature below a certain level by providing adequate air conditioning.
Naturally, it uses a large amount of electricity, and in countries with high electricity costs, the cost becomes too high relative to the profit. Thus, the mining business is not profitable due to losses.
Q&A on Crypto Mining
Frequently asked questions about Crypto mining are presented in a Q&A format.
Q: What is bitcoin mining?
It is the process of approving the details of a bitcoin transaction and closing the transaction.
Miners (those who approve transactions) receive newly issued bitcoins in return for mining.
Q: What are the Bitcoin mining rewards?
As of November 2020, the Bitcoin mining reward is 6.25 BTC.
Bitcoin mining rewards are set to decrease by half at a time known as the half-life. In bitcoin, the half-life occurs every 210,000 blocks generated, so the next half-life (the fourth) is expected to occur in 2024.
The reward after the next half-life will be 3.125 BTC.
Q: How do you do the mining?
There are three types of mining methods
Solo mining: Mining by a single person with his or her own equipment
Pool mining: Multiple people provide computing power and mine as a team.
Crowd mining: Investing in a mining company and receiving mining rewards in the form of dividends
Enjoy mining as much as you can!
Mining was the process of verifying the legitimacy of crypto transaction data and creating blocks containing legitimate transaction data, right?
Crypto exist supported by many miners.
While trying to join as a new miner requires an initial investment, there is also the fun of steadily growing a little-known coin in mining.
First, acquire the necessary knowledge and enjoy mining in a way that suits you. This is another way to enjoy crypto.