The initial process of cryptocurrency formation was named mining. This term was chosen by analogy with gold mining, which, like a crypt, is distinguished by a limited amount. On the other hand, considering the question of what cryptocurrency mining is in simple words, one should, first of all, understand the very principle of the blockchain system:
How it is implemented in practice, where new monetary units come from, and why they cannot be reproduced indefinitely.
What is Cryptocurrency Mining in Simple Words, and how to mine cryptocurrency?
Many people mistakenly believe that mining is the process of calculating the cryptocurrency itself. However, in reality, everything is somewhat more complicated, and in order to understand the principle of mining, you need to know in more detail what role the crypt plays in the blockchain.
The essence of blockchain mining
The blockchain system is based on the principle of storing information about all transactions carried out within the network of cryptocurrency users. In this case, the data is not stored on a single server, but on each user on his PC. In practice, it looks like this:
User # 1 transferred 1 BTC (or other cryptocurrencies) to user # 2, all other users will know about it automatically since this transaction is recorded in the blockchain (common database). If user # 1 wants to transfer the same 1 BTC to user # 3, users # 2,4,5,6 … and so on ad infinitum, will not agree with this transaction and it will not be carried out.
Thus, the blockchain can be easily compared to a huge ledger, in which it is only possible to add new records, but it is impossible to delete previously stored information. Confirmation of operations and recording of new data is performed automatically and in fact, you, as a member of the system, only need an Internet connection.
The data recorded in the blockchain is encrypted, which, on the one hand, ensures their security, and on the other hand, reduces the volume for more convenient storage on a PC. To maintain the existence of the system, a constant recalculation of the code is necessary, but since the number of operations performed is growing every day, the amount of data that must be encoded also increases. This requires the use of very powerful equipment and high consumption of electrical energy.
In order to interest the users of the system themselves to make such calculations, a certain number of cryptocurrency units are offered as a reward for performing a certain amount of work. This process is called mining. At the same time, it cannot be said that miners earn crypto since you can make calculations, but in the end, you will not get the desired coins.
Why cryptocurrency cannot be mined indefinitely
Currently, there are many types of cryptocurrencies ( bitcoin, altcoin, litecoin, ethereum, etc.), the main difference of which is the principles of data encoding. You can mine any of them, but the more popular the currency, the more difficult it is to get it. This is due to the artificial limitation of the number of crypt units that can be earned (mined). This is realized by introducing a certain rule for the accrual of coins:
Cryptocurrency is received only by those miners who are the first to calculate the digital code of a certain format established by a specific blockchain system (type of cryptocurrency).
In practice, it looks like this:
User # 1 and user # 2 simultaneously calculate the data block code. User # 2 has more powerful equipment and he received a code of a given format (for example, with a certain number of leading zeros) earlier than the first.
At this point, the data of the general system is considered closed in a separate block, for which the miner receives several cryptocurrency coins from the system. User # 1 gets nothing. This is the same as if two gold diggers were looking for the same bar, which can only be obtained by one of them.
As in the case of the “Gold Rush,” there are a lot of miners, but there are also a lot of coins, which means if you did not close the block today, you may be lucky tomorrow.
Mining methods and equipment for mining cryptocurrencies
Theoretically, it is possible to make calculations of the code for obtaining a crypt even with a pencil and paper, but this will take a very long time. In some cases, for example, for the popular bitcoin and ethereum coins, high performance is a prerequisite, without which it is almost impossible to receive a reward.
Therefore, in order to win, miners are constantly testing and combining various equipment, teaming up with other miners, and even resorting to illegal methods.
Mining cryptocurrency on your own equipment
The better the equipment, the more likely you are to be the first to close the block. On the other hand, the cost and power consumption of mining, especially with popular currencies, is quite high. Therefore, the profitability of mining cryptocurrency is the first question that a miner thinks about when working on his own PC.
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It is calculated based on the performance of the equipment (the volume of the calculated code) and its initial cost, the cost of paying for energy, and the current rate of the mined cryptocurrency.
In practice, four types of computing electronics are used to calculate the code:
CPU processors – for most cryptocurrencies today this method is completely ineffective, but there are some (for example, Zcash, Monero) for which the calculation of blocks on a different type of equipment is simply impossible.
GPU graphics cards are the most popular type of mining hardware.
FPGA gate matrices are the most energy-efficient way to carry out calculations, but the matrices themselves are quite expensive, and most importantly, they are difficult to buy on the domestic market.
ASIC is the most popular device, which is a ready-made block of mining equipment equipped with specialized microcircuits. Suitable for a wide range of calculation algorithms (types of cryptocurrency).
Most popular cryptocurrencies are mined using video cards and ASIC controllers since they provide the most attractive price-performance ratio. At the same time, for each crypt, individual technical parameters are selected that affect the price of equipment. For example, Ethereum requires a video card performance of at least 60 MH / s, and for Dash, at least 150 MH / s.
What is a cryptocurrency mining farm?
To significantly increase the power, speed of calculations, and, consequently, profit, mining equipment is combined into complexes that have received the name of a farm. They are assembled from video cards, gate matrices, or ASIC controllers. Since such equipment heats up intensively during operation, video cards or controllers are placed on a separate rack, equipping them with a cooling system (coolers).
The result is a bulky and complex structure that produces a lot of noise. By the way, this moment makes farms in countries with cold climates less expensive.
A classic home mining farm consists of the following elements:
The case – is made open to improve the ventilation of the system.
The motherboard – is an important part of the farm, providing the connection of the settlement equipment.
Processor – Provides the operating system that manages the farm.
Random-access memory – is necessary to ensure the operation of the OS.
Hard Drive – Designed for software installation.
Power supply unit – responsible for power supply of the farm. For reliable operation, it is recommended that the power supply has a power reserve of at least 20%.
Calculation equipment – video cards, gate matrices or ASIC controllers. They are selected depending on the type of mined cryptocurrency and the financial capabilities of the miner.
In terms of power and dimensions, the trusses can be completely different. Some can fit on a desk, but there are others that occupy huge industrial complexes of several floors
Pools for miners
Similar to the terminology of the mining industry, where huge geological areas rich in gold or other types of ore are called pools, another way to combine equipment capacities is the participation of miners in pools (pool). They can work with one cryptocurrency or provide complex mining of coins with general principles of calculation.
In the same way, as in mines, all the participants in the pool are mining, and regardless of which participant was the first to close the block, everyone gets the reward. It is divided according to the power of the equipment provided by the miner for general calculations.
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For example, miner # 1 makes calculations using an ASIC farm of six controllers with a capacity of 10 MH / s each, while miner # 2 uses only one block, but its capacity is 40MH / s. In this case, the received cryptocurrency will be divided in a ratio of 60% to miner # 1 and 40% to miner # 2.
Remuneration is distributed automatically, but there are several calculation schemes that use different pools:
PPS – the entire volume is divided into equal shares owned by the miners. For each of the shares invested in the general pool, the participant receives a fixed reward.
PROP– the server distributes the received reward in proportion to all shares of each miner, taking into account the time spent in the pool.
PPLNS – is a fixed payment for participation in the pool for each share, regardless of the results of the calculation (even if no remuneration has been received).
By the way of organization, the pools can be centralized and decentralized. In the first case, all data is brought together in a single node, which significantly reduces the security of miners, both from the standpoint of DDoS attacks by hackers and with respect to the decency of the pool organizers