Cryptocurrency is by far one of the leading-edge technologies in use in the modern world. A cryptocurrency is a digital currency that is used in online transactions. One of the features of the cryptocurrency system is that it is highly secure. Cryptocurrencies utilize cryptography techniques such as public-private keys and hashing technology to ensure security in transactions. These cryptographic security techniques make it impossible to counterfeit any cryptocurrency, unlike fiat currencies, which can be faked.
It is also important to point out that most cryptocurrencies are decentralized and are based on blockchain technology. Blockchain is an immutable and distributed public ledger that records transactions carried by cryptocurrencies. You can access cryptocurrencies in several ways, including buying from exchange sites or mining the currencies on your own. From this article, you will learn about what cryptocurrency mining entails and what you require to become a miner.
Cryptocurrency mining is the process through which nodes are used to validate transactions and the validated transactions are stored on a public ledger. Every miner is rewarded with a certain amount of crypto for successfully validating a transaction.
By giving miners these rewards, cryptocurrencies can cut down transaction fees because the rewards encourage miners to contribute their computation power, required in generating new crypto. It is essential to point out that when Bitcoin was first launched the power needed to find new blocks was relatively low compared to the amount of power required currently. This power, otherwise known as hash rate, gives a measure of how much energy a cryptocurrency network consumes to generate blocks within a specific period.
Advanced machines have been created to increase the rate at which hashes required to validate transactions are generated. These machines include the GPUs, ASICs and FPGAs which run complex algorithms to solve new blocks. However, as more people have gotten invested in cryptocurrency mining, it has become more complicated to mine, and miners have to spend heavily to get high-performance ASIC machines that can solve blocks. This has made it less profitable to mine when the costs incurred are compared to the rewards received.
How to find the best ASIC miner
As a novice cryptocurrency miner, there are some things that you should look out for when selecting the best ASIC to use. They include:
- Hash Rate – You should consider the number of hashes that the hardware can make in a given time. It is important to note that an ASIC hardware that produces more hashes will cost more but will be more efficient
- Efficiency – It is crucial to buy the most efficient mining hardware on the market. The equipment should be able to convert a high amount of the power used into cryptocurrency with minimal power getting lost
- Price – Most hardware miners are quite expensive, and the cheaply available ones mine less cryptocurrency with large amounts of power. You should keep in mind the fact that highly efficient hardware will cost you more.
Apart from the use of application-specific integrated circuit (ASIC) hardware in mining, crypto miners can also utilize graphics processing units (GPUs). Miners prefer the GPUs because they can hash at higher rates in comparison with central processing units (CPUs) that were once used to mine and they are readily available compared to ASICs.
GPUs are also efficient because they can be used to mine in chains that have different algorithms. Additionally, it is also possible to sell the GPUs if mining becomes less profitable; this is because the graphics cards can be used for other purposes, like gaming.
Even though GPU miners are better than CPUs, they cannot operate on their own. You have to connect several GPUs to a computer that has enough RAM and SSD; this setup is known as a GPU mining rig. When setting up your mining rig, ensure that you also have a cooling system to cool down the excess heat produced during mining.
Using GPU mining is not profitable if you want to mine coins with a high hash rate because of the enormous amount of electricity used.
Is it wise to take part in cryptocurrency mining?
This solely depends on the type of resources that you have at your disposal. It is important to note that cryptocurrency mining can generate revenue for you, but as already stated, if you plan to use simple computer hardware, the revenue generated will be minimal. Additionally, the electric power required to run the machines and the internet connection bills significantly reduce the net income that you can get from cryptocurrency mining.
As an aspiring miner, you need to understand that the increased value of cryptocurrencies over the past few years has attracted big organizations into mining. These organizations have extensive resources to invest in mining, which makes it difficult to compete with them. However, if you still decide that you want to mine cryptocurrencies, there are two setups you can use. You can either carry out personal mining or cloud mining.
As already stated, getting the hardware required to mine is quite costly. However, with cloud mining, you can rent the sophisticated equipment that’s used in mining, and someone else will solve the blocks on your behalf.
The good thing about cloud mining is it is relatively cheaper compared to personal mining. However, its biggest con is that you have no control over the hardware, which increases the risk levels of getting scammed. You should therefore carry out thorough research before choosing a cloud mining service provider.
With personal mining, you have to invest heavily to acquire the ASIC hardware required to mine cryptocurrency. On top of that, you have to have access to a high-speed internet connection and electricity.
With the right mining software and the application-specific integrated circuit, you should be able to mine more. You can decide to buy a new or a used ASIC miner depending on the budget that you are working with.
It is advisable to join a mining pool if you want to increase your chances of making more profits. Mining pools give miners the chance to pool their mining resources together to solve more blocks. Every miner is rewarded in the same proportion to the mining power contributed. You need to choose a mining pool that’s established and well known in the crypto mining space.
Challenges faced in cryptocurrency mining
The hardware used in mining requires enormous amounts of energy to run. It is a challenge to access cheap and easily available electric power. In most countries, readily available electricity is usually expensive.
It is quite costly to purchase the latest mining hardware, which makes it difficult for new miners to join cryptocurrency mining. Additionally, the hardware produces a lot of heat, which requires additional machines to cool the systems.
Reduced block rewards
It is essential to point out that most cryptocurrencies like Litecoin and Bitcoin follow a certain mining system that halves the mining reward over a given period. For example, with Litecoin, whose halving occurred on August 5, 2019, its block reward dropped from 25 LTC to 12.5 LTC. This discourages most miners because the venture becomes less profitable, yet the costs incurred remain constant.