Have you ever wondered why some cryptocurrencies are being mined? Or how you can earn crypto without buying it? Crypto mining is one of the oldest terms in the industry. It all started with Satoshi Nakamoto who mined the first Bitcoin on January 3rd,2009. Since then, crypto became a hot topic and lots of people started mining in order to earn cryptocurrencies. Throughout the years, mining evolved so much that El Salvador started mining Bitcoin using volcano energy. But, let’s start from the beginning to understand what crypto mining exactly is.
What Is Crypto Mining?
Crypto mining is a process where blocks are added to a blockchain and new coins are created. For accomplishing that, miners are rewarded with fees. The cryptocurrencies that are mined are the ones that use the Proof of Work consensus mechanism. PoW relies on miners solving complex mathematical tasks in order to validate a transaction. Other consensus mechanisms, such as Proof of Stake that Cardano uses, are not mined. If you are not familiar with PoW and PoS you can read my guide on Proof of Work and Proof of Stake.
There are two key outcomes of crypto mining. One is verifying transactions and adding new blocks to a blockchain. The second one is the creation of new coins. For example, Bitcoin has 21 million supply, and currently, there are 18.8 million bitcoins in circulation, according to CoinMarketCap. When new Bitcoin is mined, the number of bitcoins in circulation rises until it finally reaches the total supply of 21 million.
How To Mine Cryptocurrency?
In order to mine cryptocurrency, you must have the necessary hardware equipment. There are three types of hardware used for mining:
- CPU (Central Processing Unit)
- GPU (Graphics Processing Unit)
- ASIC (Application-Specific Integrated Circuit)
At first, cryptocurrencies were mostly mined using computer hardware. That is also possible now, but it would hardly be profitable. The reason for this is the large number of industrial crypto miners using Application-Specific Integrated Circuit (ASIC). That is the equipment mainly built for cryptocurrency mining.
Is Crypto Mining Profitable?
Many people earn money by mining cryptocurrencies and it can be a very profitable business. Given the growing popularity and value of the crypto market, this may seem like an ideal way to make money. But while it may seem simple at first, a few important things need to be considered.
First of all, mining requires a lot of electricity and we all know electricity is not free of charge. Another cost to consider is equipment. Mining equipment is expensive and needs to be maintained in order to serve its purpose. When it comes to choosing which cryptocurrency to mine, one should consider price fluctuation and hash rate. Bitcoin has a relatively low price fluctuation compared to other cryptocurrencies, but the mining difficulty (hash rate) is pretty high which makes it hardly profitable for an individual. To compete against mining factories, individuals have a better chance by joining a mining pool.
To sum up, one should be very careful with going into crypto mining. Years ago, there was less competition and it was easier for an individual to take part in it. Now, the industry developed and made it more difficult for an individual to make money so if you plan to mine cryptocurrencies, make sure to do additional research.
