How to understand mining cryptocurrency

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Issued and controlled by central government authorities, i. Owing to this, the traditional currency is the legal tender in the country governed by the issuing authority. Value is backed by the trust of its users. The more users are willing to transact with Bitcoin, the more stable it becomes.

Bitcoin transactions are validated using blockchain technology and so do not require an intermediary for validation. The concepts of decentralization, cryptography, and consensus guarantee a secure network and security of bitcoin transactions. Blockchain is a decentralized peer-to-peer network that has been hailed as highly secure and transparent, hence trustworthy. This is because records in the blockchain network are secured using timestamps and cryptographic hash functions in such a way that after being added to the ledger, it is almost impossible and impractical to alter the transactions.

At the core of blockchain security is the absence of centralized control. Once all these are set up and the system fired up, it performs the mining process autonomously. Any other human involvement comes in the event of system or network failure, power outage, or regular system maintenance. For every transaction input, a bitcoin mining software generates a unique cryptographic hash puzzle that is difficult to decode. The software then groups the number of transactions required to form a block into a Merkle tree.

A Merkle tree is a data structure of the hashes in a block and acts as a summary of all the transactions in the block. In the Merkle tree, hashes of individual transactions known as transaction IDs are paired repeatedly using the SHA algorithm until only one hash identifies the entire tree.

This hash is known as the Merkle root or root hash. The Merkle root, the identifier of a Merkle tree, is stored in the block header. The block header contains information about the block and includes the following components:. Miners must solve the hash puzzle by finding the hash below a given target through the difficulty requirement. The target, stored in the header, is expressed as a digit number that will determine the mining difficulty based on the number of miners competing to solve a hash function.

It is important to note that this difficulty adjusts after every blocks are created depending on how much time it took miners in the previous blocks to solve an equation. This also helps to maintain the rate at which transactions are appended in the blockchain at 10 minutes. To solve the hash puzzle, miners will try to calculate the hash of a block by adding a nonce to the block header repeatedly until the hash value yielded is less than the target.

Once a mining computer solves the puzzle, a new block is successfully created that is validated in the Bitcoin network after a consensus between the nodes has been reached. When a block is validated, the transactions bundled in it are verified and the block is added to the chain.

As indicated above, this happens every 10 minutes. As there will be many miners systems competing to solve the puzzle, the first miner to get the correct hash value earns a reward in Bitcoin. This process allows more Bitcoins in circulation. However, experts have seen it as a huge advantage because the scarcity of supply breeds value and a stable price for the oldest crypto. From the genesis Bitcoin block mined in with 50 bitcoins, more bitcoins have since been mined and released into circulation.

Bitcoin mining ensures that blocks of transactions are created and stacked in the right order in a way that can be traced and proven mathematically. With the creation of blocks comes bitcoins as a reward, which increases the number of bitcoins in circulation. Bitcoin architecture was structured ingeniously such that every 10 minutes, a block is discovered, and a fixed bitcoin award is offered for every block that is mined.

What if someone tries to hack the data? Each block has solved a puzzle and generated a hash value of its own, which is its identifier. Now suppose a person tries to tamper with block B and change the data. The data is aggregated in the block, so if the data of the block changes, then the hash value that is the digital signature of the block will also change. It will therefore corrupt the chain after it—the blocks ahead of block B will all get delinked, because the previous hash value of block C will not remain valid.

For a hacker to make the entire blockchain valid for the block B that has been changed, he or she would have to change the hash value of all the blocks ahead of block B. This would require a huge amount of computing power and is next to impossible.

With this method, blockchain is non-hackable and prevents data modification. Other than that, people who are curious about this technology and how it works enjoy experimenting with this relatively new technology. The halving event happens after every , blocks have been mined, which is roughly after every four years.

The number of Bitcoins in circulation is calculated by the halving theory laid out by Satoshi Nakamoto in the Bitcoin protocol. When Bitcoin was first launched, the reward for every block mined started at 50 Bitcoins. To date, three halving events have taken place, and the block reward went from 50 from , 25 from , The last Bitcoin halving event took place on May 11th, By September , The next Bitcoin halving event is expected to take place in the early months of the year Halving should continue until all blocks are mined, and the 21 million Bitcoin supply cap is attained sometime in After this, the Bitcoin miners will only earn from transaction fees.

Mining must have been a lot easier in the early days of its launch. As bitcoin and the blockchain concept were relatively new, mining was left to hobbyists on a discovery path. As bitcoin continues to gain wider adoption, it has also succeeded in drawing keen interest from investors, miners, and companies harnessing cryptocurrency as a mode of payment for products and services. With this, mining has become a very competitive undertaking, and the hardware and software demands for bitcoin mining are also more sophisticated.

Figure 50 BTC block rewards every 10 minutes in the space of less competition, lower capital requirements, and lower running power and device maintenance costs. Well, that was then when fewer miners enjoyed the monopoly. However, competition is stiffer, and mining difficulty is greater. Bitcoin mining hardware performance is measured in terms of hash rate. Ordinary CPUs do not have the capacity to produce such fast hash rates. Developed nations may well have an edge when it comes to location because of the low cost of power.

Bitcoin is quite power-intensive. Thus finding the right location with lower electricity costs of less than 10 cents per kWh will help maintain a profitable bitcoin mining venture. In essence, earnings from bitcoin mining should be able to recover the cost of the mining requirements purchased as well as the running costs of electricity. This is possible with efficient hardware, lower electricity costs, and joining a reliable mining pool which we shall see below.

Even though bitcoin has gained wide acceptance across the globe, it still remains highly contested in some countries because of its decentralized nature and volatility and its exorbitantly high power consumption. In countries like China, Russia, Bolivia, Algeria, and Ecuador, bitcoin trading is either restricted or outright illegal thanks to its decentralized nature, volatile value, association with criminal activities, and several other reasons.

In other countries, the legal status of bitcoin is unknown. But remember, if something sounds too good to be true, then it probably is. Our transaction enters the mempool, which is basically a holding area. Picture this as the bitcoin DMV. Thousands of pending transactions, three to five per second, from all over the world, waiting for a number to be called.

All the bitcoin transactions in bitcoin purgatory are waiting for a miner to call their number. He starts chiseling the details of our transaction into his own block to be added to the blockchain. Miners all over the world, from Kazakhstan to Florida, want to add their block to the blockchain.

But there can only be one. The puzzle is really more like a lottery. Maybe the easiest way to understand it is to head to a casino. For any single guess — one pull of the slot machine arm — a miner has an infinitesimally small chance of actually hitting the jackpot. The jackpot, and the incentive miners have for doing all this, is right now 6. The jackpots get awarded every 10 minutes or so, and this is the way miners get most of their money.

Why in the world is this process so elaborate? The correct answer to the math puzzle is easily verified by other miners, and a block with bad transactions in it should eventually be caught when new blocks are added. But the original idea was that miners would really just be nerds with a personal computer and some spare time, one slot machine per miner. As the price of bitcoin has soared in recent years, the value of the mining jackpot has soared along with it.

Multinational mining companies started developing more powerful rigs and pooling thousands of them together. This concerns Erik Franklin, a professor who researches climate change at the University of Hawaii. Bitcoin evangelists argue that you can easily run the rigs off of renewable or orphaned energy sources. But even now, Franklin said, cryptocurrencies are using more energy than some whole countries. Ethereum and other platforms are experimenting with mining methods that are less energy-intensive.

But so far, the bitcoin model is the dominant one. Through it all, Marketplace is here for you.

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Now, have a look at the features of Ethereum that make it so different from other cryptocurrencies. Pool size is the factor that determines the number of blocks you find in the Ethereum network and its share rewards. As the number of miners increases, the chances to get rewards also increase. Minimum Payout is the minimum amount of Ethereum you need to mine before it gets credited to your wallet.

Every pool has a certain amount of Pool fee associated with it. It is the amount you need to pay to continue using the pool. This amount is percentage-based, on the amount of Ethereum you are mining. Note: It would help more if you went for Pool Mining because you might get a smaller reward, but you will not have to wait for days or weeks to get no reward. In Ethereum Solo Mining, you will get rewarded only if you solve the puzzle and mine the Ethereum block first.

Note: Here, since you are competing with many people and companies, you have to be very good at your work. But it has its disadvantages like:. In Ethereum Cloud Mining, you pay someone else with the equipment to mine Ethereum for you.

You pay some amount of money as fees to them for investing their time and resources, and in return, they provide you with the reward they gain by mining Ethereum. Ethereum Cloud Mining is considered a safer way for mining service providers to guarantee a profit for the resources they have purchased.

Before getting started with mining Ethereum, you need to create an Ethereum Wallet to store all your Ether. Trezor Model T and Ledger Nano are the most reliable and secure wallets in the market of cryptocurrency. After creating your digital wallet, you need to update all the hardware, i. Download the latest version of Claymore dual miner for your operating system.

The latest version is Claymore The predictions are made that the ETH price can rise and become more stable in the coming few years. So, it is an excellent opportunity to invest in and save in Ethereum. These are costly, complex mining solutions. Their main task is to process huge amounts of information. Their peculiarity is that they are often made for a specific cryptocurrency. Among the core disadvantages are the noise of their work and low maintainability. The return on investment in ASIC hardware depends on many factors.

So, you need to consider the hash rate speed , adequacy and correctness of the equipment for mining, the difficulty of mining, and the dynamics of prices for a particular cryptocurrency. Nobody knows what will happen to the cryptocurrency in a few months or even years.

The blockchain technology itself is extremely secure so that it can be used not only for cryptocurrency transactions. There are some issues with mining hardware. When an ASIC model for a popular coin appears on the market, the hash rate begins to grow faster in the network, new blocks appear more often, and the algorithm adapts to the new conditions of difficulty.

Mining on video cards and CPUs is becoming less profitable; some users are losing financial motivation to create blocks. Consequently, the extent of the growth center remains in the hands of a smaller number of players. As we have already said, the miners play the guessing game. One of the main features is block time. An average block time of Bitcoin cryptocurrency is ten minutes. However, it means that a Bitcoin block can be found in a minute or an hour. So every miner participating in BTC mining gets a new puzzle every 10 minutes or so.

As you can see, this element should have 64 digits, which consists of numbers and letters. So, in the hexadecimal system, each digit has 16 possibilities. Miners are randomly generating bit hexadecimal numbers, which is called a nonce number only used once , as fast as possible. In Bitcoin mining, a nonce is 32 bits, and a hash is bits.

The first miner, who generates a nonce equal to the target hash, gets a reward. Since your computer does the whole process, those types correspond with the part that will complete the tasks. Currently, there are four types of mining. Back in the days of crypto genesis, the CPU was the primary component. It was the most effective way since most processors could easily use their multi-threads to speed up solving the equations. Nowadays, the CPU is almost non-existent beyond the few cryptos that still support it.

One day someone figured out that GPU may work better and performing multiple calculations at once. This discovery resulted in a rush to buy the most powerful GPUs on the market, emptying stocks, and raising the price. It soon ended, but it brought a lot of attention to the mining as a whole, even from previously not interested users. Today GPU is a default option that minimizes risks while still allowing miners to profit. The final type is ASIC mining.

Its productivity compares to a hundred of GPUs. It would cost you a lot but, on the other hand, ASICs have smaller energy consumption. So, it is a high risk but high reward. Cloud mining is something of an oddity among the community, as people do not consider it a valid option.

It is a company that runs all the needed mining hardware and rents its equipment capacity to the users for a fixed fee. So, you pay a company to mine Bitcoin for you. There is also the ever-present threat of being scammed, as many cloud services often take the money and disappear.

Still, if you find a reliable service with fair prices, you will be able to set up a profitable mining venture, as there would be no additional electricity bills and no need to buy expensive equipment. It depends on many factors like what coin you want to mine, what type of hardware you plan to use, and whether or not you are taking risks. At the same time, cloud mining would allow you to gain crypto without delving into the technical details of which rig is better and why.

The same could be said for different models. Mining pools would allow you to start getting crypto coins quicker, but for a lower cut of a reward. Joining an existing mining pool would require you to buy better equipment. Solo would allow you to receive a full reward but for higher expenses. As you can see, every option has its ups and downs. It would be better for a novice to fully assess risks, look up mining, choose a mining pool and then decide.

Mining rewards are paid to the miners who discover a solution to the target hash first. A small percent of the power is connected to the tiny chance of finding the block for one miner. By working together with other miners in a mining pool, miners can get a steady flow of Bitcoin. However, they share payouts, which can vary. Anyway, the easiest way to get BTC coins is to simply buy them on the exchange.

When you are thinking about a Bitcoin purchase , consider Changelly as a marketplace. We aggregate the list of rates from the exchanges and other liquidity providers to deliver you the most attractive cross-rates. Buying Bitcoin cryptocurrency in the long-term may get you more profit than acquiring all the hardware and spending money on electricity. Follow the BTC price fluctuations and choose the right time for buying Bitcoin.

Many people are concerned about whether there is criminal liability for the use of Bitcoins or other cryptocurrencies. Indeed, according to the laws of most countries of the world, illegal circulation of banknotes is prohibited and may entail criminal and administrative liability.

However, in Germany, cryptocurrencies are accepted as a means of payment. In Japan, it is legal tender. Here is a small excerpt about laws and regulations in the EU. Bitcoin transactions have been categorized as payment transactions in currencies, coins, and banknotes and are therefore not subject to VAT.

The court recommended that all EU member states exclude cryptocurrencies from the list of assets subject to taxation. Choose the best ASIC miner and join the pool! The legal regime for cryptocurrencies varies considerably from country to country. In some countries for example, China , bitcoin transactions are prohibited for banks but allowed for individuals, while the country is leading in mining due to the presence of the most extensive production facilities.

If you are afraid that in your country it is impossible to mine cryptocurrency, you can always buy it on Changelly. The cost of mining depends on the chosen hardware, as well as the cost of electricity. Yes, you still can get a profit. The rise of bitcoin and altcoins makes them more attractive to mine.