Crypto Mining: 8 Things You Must Know
You may know the basics of cryptocurrency and why millions of new investors get involved on an individual and institutional level. Aside from the 24/7 marketplace and the massive gains (and occasional dips), there’s a lot more to crypto than meets the eye.
The most misunderstood aspect of crypto is how the coins and tokens are produced, created, or “mined” – a term that reminds us of systematically digging or searching for precious metals.
Today we’re talking about crypto mining, some of the key facts you might have missed, and a few misconceptions that need clearing up, as well. Let’s begin.
1. Mining = Verification
When we use the expression “mining for crypto,” we really mean using computer hardware to solve complex equations – far beyond what any human mind could achieve – and thereby earning cryptocurrency coins or tokens in the process.
This process is how new coins like Bitcoin enter circulation, which is why many are calling the phenomenon the new digital gold rush.
Mining is how the underlying technology of projects like Bitcoin – called blockchain ledgers –are developed and maintained. By crunching those equations and verifying transactions, the blockchain is made more robust and secure, and coins are deposited into your wallet as a result.
This is the “proof-of-work” process that legitimizes mining and makes cryptocurrency impossible to replicate.
While many crypto newcomers opt to buy coins on exchanges and get straight to trading (or holding), true enthusiasts know the importance of mining and recognize it as a crucial element of the ever-expanding crypto universe.
2. The 1 MB Limit
To jump into Bitcoin mining, you might think you need to verify a considerable amount of data and spend lots of money to get started. Yes, the competition to earn cryptocurrency via mining is steeper and stiffer than ever before, but the bar for entry is relatively low.
In fact, the inventor of Bitcoin – Satoshi Nakamoto – made a controversial decision when creating his masterpiece. He stated that only 1 megabyte of transaction data must be verified for a user to earn Bitcoin through the process of mining, which opened the floodgates for nearly anyone in the world to participate.
This isn’t to say that 1 MB will make you an instant Bitcoin millionaire – you’ll need a lot more time and resources than that, especially in 2021 and beyond.
However, we believe this low barrier to entry is a wise move to make Bitcoin more accessible and engaging for a broader reach of users worldwide.
3. 2140 – the Last Bitcoin
When Bitcoin was first introduced to the world, it only took a bit of tech know-how and investment in some hardware to create an effective mining machine or rig.
Now that Bitcoin prices have reached massive highs and the hype has reached the mainstream, it is becoming more challenging to earn just a single Bitcoin through the mining process.
Currently, there are roughly 18.7 million Bitcoins in circulation, and the production rate is steadily decreasing as the blockchain ledger becomes more robust and more complex.
That means that to reach that 21 million mark – the maximum number of circulating Bitcoin, it will be beyond our lifetime before the last one is mined.
Estimates say that 2140 will be the year that every Bitcoin is finally unlocked, and we can only imagine the value of a single coin by that point.
This explains why so many institutional investors are jumping into crypto and why industrial crypto mining resources are being deployed with different approaches and technologies.
4. Computing Power is Key
Now that you see why mining is essential and know some of the key facts and figures, let’s discuss what it takes to get started and earn coins of your own through mining.
As we mentioned, computing power is the most important factor in earning crypto like Bitcoin. This is because the mathematical equations are highly complex and must be performed more quickly than the millions of other participants in the pool.
To earn coins, your system must not only solve equations on a massive scale to maximize your volume output, but you also must outcompete other miners in terms of speed. Because coins are only rewarded to those who solve these equations first, time is of the essence.
A metric known as hashing power is the key term here, determining how efficient and effective your computing resources are at cracking these codes and earning coins. Hash rates vary from mega hashes per second to gigahashes and terahashes per second – immense power for sure!
5. Resources Get Costly
The days of mining Bitcoin with a graphics card in an apartment closet aren’t over – this is still how many DIY miners earn themselves small amounts of cryptocurrency each day.
However, now that big-name investors have flooded the scene, the stakes are much higher, and it takes a lot more power to yield the same amount of profitable coinage.
Think about an analogy to the California Gold Rush of the mid 19th century. The pioneers with their pickaxes made some key discoveries early on and lined their pockets, but now the big dogs are moving in with heavy machinery and taking over – there’s no turning back now.
With more resources required to turn a profit, more at-home crypto miners are reconsidering whether the juice is worth the squeeze. Crypto mining has scaled up significantly in just a few short years, and there’s still quite a ways to go.
6. Not All Methods Are Equal
From a business standpoint, crypto mining operators need to regularly perform cost/benefit analysis to determine whether their setups are worth maintaining, expanding, reconfiguring, or adjusting to mine different types of cryptocurrency at different times.
Setting up a data center from square one is, of course, a massive undertaking, requiring a huge upfront investment in hardware, networking, and ongoing maintenance. As prices rise and time runs short, more large-scale miners are moving away from this model.
Cloud computing was considered, for a time, to be a smart way of outsourcing massive amounts of computing power for mining purposes. However, the ongoing overhead required for this approach is substantial and sometimes profit-prohibitive.
Mining is constantly evolving, and stakeholders are always looking for ways to make the process a bit more efficient and profitable, just like a business venture of any kind.
7. Renewable Energy Mining is Here
We mentioned the downsides of traditional mining and cloud mining methods, so what should the next generation of crypto miners do with these options becoming more expensive and untenable?
Crypto experts say that the answer lies in renewable energy – a vast network of wind, solar, and other natural energy sources that are cleaner and more efficient than standard natural gas, coal, and other forms of fuel that typically power mining operations.
A new era of clean crypto mining is here, and it makes far more sense economically, environmentally, and ethically.
8. Minimize Risk, Maximize Profits
Just like anything in the finance and investing game, mining and holding cryptocurrency is a risky endeavor. Still, the rewards are enormous if you play your cards right, do your research, and smartly allocate resources.
Green energy is the future for us all, and renewable energy crypto mining is just another step in the right direction.
Conclusion
Crypto mining isn’t a straightforward process by any means, but hopefully, we’ve clarified some key points and given you a glimpse into the mining industry’s future.
Sources:
How to Mine Cryptocurrency | BitDegree