Shiba Inu (SHIB), Bitgert (BRISE), Centcex (CENX), BabyDoge… In 2022, it’s essentially impossible to avoid hearing about cryptocurrency. To help you better understand how crypto works, here’s a summary of the essential information about crypto mining, including its definition, related technologies, legality, and pros & cons.
What Is Crypto Mining?
Commonly regarded as the new “Gold Rush”, crypto mining is the creation and processing of cryptocurrencies. Vastly different from the traditional mining process, crypto mining uses computer processors instead of manual tools, that chip away at complex math problems.
Pros and Cons
With the massive influx of people getting involved with crypto mining in recent years, the market is becoming increasingly complex. Before choosing whether to mine cryptocurrency, you need to consider its inherent pros and cons.
Despite the ever-increasingly large number of cryptocurrencies on the market, they all share common benefits such as built-in security features, high flexibility, and a fairer and more transparent financial system. However, they don’t come without their drawbacks, which include requiring an enormous amount of time and energy to mine and the possibility of being a volatile investment.
How Crypto Mining Works?
Crypto mining is the process by which new cryptocurrency gets added into circulation. Crypto miners use sophisticated computer hardware to solve complex math problems. The miner who is the first to solve a problem receives cryptocurrency as a reward, which is stored in his or her crypto wallet. Although crypto mining can be potentially lucrative, energy consumption is inevitable.
Because there is no central bank for cryptocurrency, “blockchain” is used for regulation purposes. A blockchain is a database for storing information in groups, known as “blocks”. When filled with information, the block is closed and linked to the previously filled block, forming a blockchain. Due to its linear design, miners can only add information to the latest block and cannot edit or delete information from existing blocks.
Proof-of-Work (PoW) Method
The proof-of-work algorithm is used to confirm the transaction and track the creation of new cryptocurrencies, including Bitcoin and Ethereum. Using the underlying algorithm, miners compete against each other to create blocks containing information. When miners add a new block to the blockchain, they get crypto as a reward.
Individual Mining & Cloud Mining
Two possibilities are available for miners: mine from home or via the cloud. Depending on your chosen cryptocurrency, mining from home may require specialized hardware. For example, Bitcoin mining requires the use of high-end graphics processing units (GPU) or ASIC (application-specific integrated circuit) chips. Mining via the cloud is often easier because you can rent small-scale mining services or even an entire mining network from a cloud provider.
Because mining cryptocurrency requires a massive amount of computational power and energy, it is unlikely that miners using hardware with relatively low processing power can recover their investments when working individually. As a result, mining pools were created. A mining pool is a group of miners working together to solve complex math problems and sharing any payouts.
There’s no doubt about it, crypto mining consumes a lot of energy. In fact, according to the Cambridge Center for Alternative Finance (CCAF), the mining of Bitcoin, the most popular cryptocurrency, currently accounts for 0.55% of global electricity consumption — roughly equivalent to the annual energy draw of countries similar in size to Malaysia or Sweden.
Is Crypto Mining Legal?
The legal status of the various cryptocurrencies is closely followed by miners. The truth is, the legality of cryptocurrency varies from country to country and is a hotly debated topic across the world. While some countries allow the use and trade of virtual currencies, others have outright banned them. Please check the law where you live before getting started with crypto mining.
Does Crypto Mining Make Money and How Can You Get Started?
Crypto mining can be hugely profitable but can also quickly become a financial mistake if you don’t get certain things right. Here are some factors that you should consider:
• The cost of the electricity needed to power the mining machines.
• The availability and price of mining-capable machines.
• The prevalence of crypto-related scams, and the risks of theft and hacking.
When the value of your chosen cryptocurrency exceeds the cost to mine it, you can profit. The less you spend on your mining rig and energy resources, the more you can earn. If the market price remains the same, but more computing power is needed to solve the complex mathematical problems, the value in mining will decrease. Because cryptocurrencies are unregulated and decentralized, miners also need to be extra cautious about avoiding theft, hacking, and scammers.