To put it very simply cryptocurrency mining is using a powerful computer or specialist hardware to generate digital coins. The two biggest and most successful cryptocurrencies to date Bitcoin and Ethereum can both still be mined. However these two are both mined in different ways, bitcoin using specialist hardware called an ASIC and Ethereum can be done with top spec graphics cards using a GPU mining rig. Mining exists to both bring new coins into existence, secure the network and process new transaction onto the blockchain.
There is potential to make money from mining CryptoCurrency, I will cover all the different ways to get involved on this website.
One of the things that makes cryptocurrencies unique, is there is nobody who can simply press a button and get unlimited coins. Everybody can compete equally while mining coins, by buying the same equipment as one another. Different cryptocurrencies use different types of algorithms in order for the blocks to be released, but in general it is not something that you can do using your normal computer/laptop to do as it takes specific equipment to mine.
It is worth noting that the more coins that have been mined from a cryptocurrency, the more difficult it gets to release new blocks and thus get new coins. The algorithm’s have been made this way, to ensure that all the coins would not be mined instantly and leave room for the currency to stabilize and not be over populated from the beginning.
How Can I Mine?
- Build a GPU mining rig
- Buy a ready built GPU mining rig
- Buy an ASIC machine
- Rent Hashing power
- Take out a Cloud Mining Contract
Cryptocurrencies have a limited amount of coins that can be mined and once they have all been mined, there will be no more of them being created as it is virtually impossible. This means that when all 21 million Bitcoins have been mined, they will be the only coins in circulation forever and no further Bitcoins will be added to the system. Same goes for all other cryptocurrencies, which is why many people see them as a good alternative to the currencies we have today that is based on nothing but goodwill between countries in order to ensure the value of the currency doesn’t fluctuate.
Please be aware that profits are not guaranteed when mining as there are many variables such as price, when to sell, electricity costs, hardware costs and network difficulty increases. My own preference for getting involved with mining is building you own GPU mining rig. This is because you learn loads, it’s good fun, you don’t pay a premium for your build and the equipment is worth something should it become unprofitable.
Mining vs Buying
If you have ever visted any mining forums then you may of stumbled upon the constant argument of crypto mining vs buying/holding (in the hope it increases in value). In my opinion mining is a lower risk way to get involved with crypto currencies and there is a few reasons why.
- Firstly digital currencies can fluctuate massively in value, when buying you could literally lose 50% in an hour. Whereas the value of your rig will depreciate slowly and predictably.
- A mining rig could make a profit without a massive increase in the price of a coin and it can switch to the most profitable at any time.
- If the world of CryptoCurrency came crashing down to nothing (unlikely but not impossible) you would still have a computer and the parts have an intrinsic value. The Graphics cards for example are widely used by gamers.
Each cryptocurrency has made a decision regarding which algorithm they wish to use to mine their coins, before they are created. There are two main algorithms that are used for alot of the coins that is in existence today, which is the SHA-256 and Scrypt algorithms. They are both very difficult to mine with, becoming increasingly difficult the more coins that has been mined. We have gathered a small explanation of how the algorithms work exactly, so you can understand mining a little better:
The SHA-256 algorithm is the first algorithm that was used with a cryptocurrency, when the Bitcoin was created using it. SHA-2 which the SHA-256 is under is created by the National Security Agency (NSA) and was published in 2001. SHA stands for Secure Hash Algorithm, which makes fine sense for cryptocurrencies as you will need to solve the hash algorithms in order to release coins. The more coins that will be mined, the harder the hash algorithms will become.