The concept of mining is a fundamental part of the cryptocurrency world. It occupies the minds of cryptocurrency veterans and recent enthusiasts alike. However, as essential as mining is for cryptocurrencies, the details of this vital function are often skipped over. Let’s take a closer look into the crypto mining process and learn more about the complex hardware behind it.
The basics: Proof of Work
The concept of cryptocurrency mining was introduced by Bitcoin, the world’s first cryptocurrency. It is the process that all current Proof of Work (PoW) cryptos use to secure their network and validate transactions. It involves people worldwide competing to solve complex mathematical puzzles in the form of cryptographic algorithms using computational power.
The cryptographic algorithm used in Bitcoin is called SHA-256. But there are other popular algorithms that alternative cryptocurrencies use. For example, Ethereum uses the Ethash algorithm and Litecoin uses Scrypt.
Each block in a PoW-based blockchain requires solving an algorithm. The incentive for miners to solve these algorithms depends on the block reward. Each block compensates the successful miner with newly created coins and transaction fees. Currently, the block reward on the Bitcoin blockchain is 6.25 BTC.
Once the algorithm is solved, the miner broadcasts it to the network and it is no longer possible for anyone else to get the reward for that specific block. The process repeats for each block. In the case of Bitcoin, it takes approximately 10 minutes to create a block.
It is important to note that only Proof of Work-based cryptocurrencies require mining. Alternative mechanisms such as Proof of Stake (PoS) use a different method.
The mining process – what is needed?
The process of mining cryptocurrency relies on six key elements:
Electricity: Mining equipment runs on electricity and must be connected to the network at all times to maximize potential rewards. So a stable power supply is essential for cryptocurrency mining.
Mining equipment: The raw computational activity of crypto mining is performed by devices such as CPUs, GPUs and ASICs. Mining hardware has evolved rapidly and there are fundamental differences between each type of equipment, more on that in the next section.
Miner software (Mining Algorithm software): Proof of Work cryptocurrencies can use different cryptographic algorithms. Therefore, mining machines’ software must be compatible with the algorithm of the mined cryptocurrency. It is not possible to mine Ethereum using devices operating on Bitcoin mining software and vice-versa.
Mining wallet address: This is the address where the miner receives rewards for successfully mining a new block. It also serves as a way of identifying, although pseudonymously, the miner of a new block.
Internet: A reliable internet connection is also crucial. After all, everything happens online.
Blockchain network: The final step is to connect to the network and start mining! When the miner successfully solves a block, he it broadcasts it to the network for validation and confirmation from all other participants. Once confirmed, heit receives the mining reward and starts competing to solve the next block.
Evolution of mining equipment
As crypto mining is essentially a competition among miners in the network, a person with the most potent equipment will have an advantage and is more likely to receive the block reward.
This competition has led to a drastic change in the crypto mining landscape over the years. Initially, Bitcoin was mined using only the power of a CPU (central processing unit) of an ordinary computer. As more miners joined the network and the competition increased, people quickly discovered that using their GPUs (graphics processing units) could produce far better results.
GPU miners: GPUs’ higher efficiency and computing power made them an obvious choice for miners to use over CPUs. All computers have a GPU installed, so initially, there was no extra hardware required to use a GPU for mining.
However, as time went on, people found ways to increase their mining output and started building GPU rigs.
For a time, they were the number one choice for Bitcoin miners. ASIC machines, created for this specific purpose, replaced them some time ago. However, GPU mining is still around. Some alternative cryptocurrencies use cryptographic algorithms resistant to ASIC machines, so miners rely on GPU rigs in such networks.
The basic requirements for building and setting up a GPU mining rig include:
- Mining rig frame or stand
- Graphics card
- PCI-E Riser
- PSU – power supply unit
- Operating system – Windows/Linux etc.
- Relevant mining software.
You can find popular GPUs on the market and a list of GPU mineable coins on websites such as whattomine.com.
ASIC miners: The next stage in Bitcoin mining came with the introduction of ASIC miners. As the value of Bitcoin and other cryptocurrencies increased, people began pouring money and resources into developing optimized mining machines that could outperform GPU rigs.
ASIC stands for Application Specific Integration Circuits. As the name suggests, they are designed to perform a specific mission: to solve that mining algorithm! ASICs are exceptionally efficient and capable of producing extremely high levels of mining power.
Since a single machine can only run for one algorithm, most ASICs are only used for the most popular mining algorithms (e.g., SHA-256).
ASIC machines are readily available with a pre-configured mining algorithm and power supply unit. This makes them more expensive to purchase and power-hungry when compared to their old-school GPU rig counterparts. However, they are far simpler to set up.
A general guide on how to set up an ASIC mining machine can be found here. Most ASIC manufacturers provide an easy-to-follow instruction manual with the device.
A list of popular ASICs and their efficiency can be found at asicminervalue.com.
Cryptocurrency mining has grown from humble beginnings to become a global industry. The competitive nature of the process means that regular advancements in technology and machinery are the norm. Meanwhile, the prospect of being rewarded with increasingly valuable crypto continues to attract miners, who in turn drive the development of faster and stronger computational equipment.