WHAT IS CRYPTOCURRENCY MINING?

Many people are under the impression that mining means the physical extraction of coins or material from the ground as in the traditional sense of mining, but crypto coin mining is very different. Coin mining is the available coins that exist in the design of the protocol, but they have not been found yet. Think of it like gold which exists underground but hasn’t been found, to get to the gold you must mine it and the principle is the same with cryptocoin mining – it exists but it must be found (mined) from the system. In Bitcoin for example, it’s protocol states that 21 million coins will exist and what miners do is find them, Ethereum on the other hand has a protocol that is infinite as it does not have a limited amount of coins that can be found. Various coins in the market place have different protocols in either limited or unlimited amounts that can be mined.

Since mining coins costs money by way of equipment, electricity and time why do people mine? Simply, miners try to find coins and bring them out to light and in return they are paid a reward for doing the job. The real question for miners simply comes down to the facts of how much can they mine and does the reward for mining make it profitable versus the costs? Mining requires computer power which consumes larger amounts of electricity, let alone the complicated mathematical cryptology puzzles that must be solved which are very, very hard.

Above shows a homemade mining rig which are available on to buy on the internet.

Mining has become extremely competitive, so today mining is big business and certainly for those who started to mine in the early days of Bitcoin and Ethereum would have made a fair share of money.

Mining Bitcoin today is not so easy as the up-front costs and the sheer difficulty of the mathematics make the cost vs reward ratio unfavourable. So today, Bitcoin mining tends to happen mainly for large scale operations which require both physical and monetary resources. In recent times, mining has become big business with large warehouses and spaces being used by mining companies or individuals which have factored in energy costs, by setting up facilities in countries with sustainable and cheap energy, like Iceland and Norway.

Yet, whilst mining of the more established coins like Bitcoin and Ethereum have become expensive, there are opportunities to mine the lesser known scrypt-based cryptocurrencies such as Litecoin, Dogecoin and Feathercoins for example.

So, in summary mining is just a term used to describe the process of miners who are rewarded for creating blocks of validated transactions and including them in the blockchain.