One of the most important concepts beginner crypto users face is mining, i.e., producing new cryptocurrency blocks. This is the only way to obtain new coins for many digital currencies: unlike fiat, digital currency is not issued by banks or other organizations.
Below, we explain how mining works, how relevant it is in 2024 and what you need to mine cryptocurrency.
Mining: Main Information
Before we talk about profitability and earning models, let's understand what mining is.
Blockchain is the technology based on which cryptocurrencies work. It represents a chain of interconnected blocks. Each block stores information about transactions made within the network. Regarding blockchain, cryptocurrency mining is the process of «joining» new blocks to the chain.
A hash — a unique number — is required to attach a block. The miner's computer selects it from millions of combinations. The miner who first finds the correct hash adds a new block to the blockchain and receives a reward. The mining process validates the current transactions of the blockchain: transactions are added to the generated block and become part of the chain.
From the miners' point of view, generating new blocks is a competition with other participants: only the user who was the first to find the right combination gets rewarded.
As of October 2024, the reward for 1 block is 3.125 BTC — half as much as before the halving that happened in April 2024. In addition, miners receive a commission from confirmed transactions.
Mining Relevance in 2024
At the beginning of the establishment of cryptocurrency technology, mining was a popular way to earn money, available even for users without special equipment: a home computer with a powerful video card was enough. However, as the crypto market developed, the complexity of mining began to increase.
The reason for this is the limited issuance. Bitcoins can be issued 21 million, and more than 94% have already been mined. It is estimated that this number will reach 99% by the end of 2034. On average, one block is mined every 10 minutes, and with each new block, the difficulty of mining subsequent blocks increases.
Because of this, Bitcoin mining has become almost impossible without special expensive equipment and huge electricity consumption. As a result, the threshold of entry increases and the return on investment of mining popular cryptocurrencies decreases.
Among the main trends are energy-efficient equipment (ASIC miners) and the transition to renewable energy sources in order to reduce the cost of the process.
Mining Earning Models
By number of participants
Depending on how many users participate in the process, three types of mining are distinguished:
- Individual. The user performs calculations independently from a personal device. This approach reduces the probability of calculating the correct hash, especially when working with in-demand cryptocurrencies.
Nevertheless, individual mining has an advantage: the user does not need to share the profit with anyone. As a rule, individual mining is relevant for low-popular currencies.
- Group (via mining pools). The user joins a team of miners, which pools computing power to jointly search for the right combinations. The reward is distributed among all participants and divided among them in proportion to their «investments».
This is a more reliable way of earning, especially when working with popular currencies. Nevertheless, it should be taken into account that the pool can be subjected to a hacker attack or suddenly change the rules of use. - Cloud-based. Instead of using personal equipment, you can turn to mining services. You can rent a specific piece of equipment, a certain share of the service's computing power, and a virtual space for installing your own software.
Such services lower the entry threshold for beginner miners. However, such platforms are not always safe, and their rules may limit the user's capabilities.
By equipment
Several types of hardware can be used for mining:
- CPU — computer's central processing unit. This is an outdated method: in today's market, more than the CPU's processing power is needed for productive work.
It is possible to make money this way only by mining unpopular currencies. Working with lesser-known coins carries the risk of their rate collapsing. - GPU—graphics processor (video card). This is the most popular and universal method. Video cards for mining provide sufficiently high computing power and are available to individual users (including beginners).
Mining farms are assembled using video cards because several GPUs can be placed on one motherboard. In addition, users appreciate the ability to mine several currencies simultaneously. - An ASIC is a special-purpose integrated circuit developed for a specific cryptocurrency. ASICs for mining are professional equipment that provides maximum performance.
Such devices are almost impossible to use at home: they generate a lot of noise, require powerful ventilation, consume a huge amount of electricity, and also have a high price. - HDD/SDD — hard disk drive. This method of mining is suitable only for cryptocurrencies that use PoS and PoC (Proof-of-Space and Proof-of-Capacity) models.
The user is only required to provide hard disk space: the more there is, the higher the reward. This is a simple and energy-efficient way of mining, but its profitability is quite limited.
What Do I Need for Mining?
To start earning money from cryptocurrency mining, you will need to:
- Create a cryptocurrency wallet. It will be required to store assets and make transactions. There are hot and cold wallets: hot wallets have a permanent connection to the network, cold wallets provide more secure offline storage.
- Choose equipment. For individual users, the most suitable option in most cases will be a GPU. This method of mining is suitable for most currencies and can be supported at home. For currencies with Proof-of-Space and Proof-of-Capacity models, mining via hard disk can be used.
For maximum performance, an ASIC should be ordered. If buying equipment is impossible or unprofitable, you can consider cloud mining. In this case, it is important to choose a reliable service, having studied the reviews of other users. - Choose a mining pool (optional). Joining a pool is the best way to earn money for beginner miners. It increases the probability of profit even in the absence of high computing power. When choosing a pool, you should pay attention to its reputation, as well as study the terms, requirements and commissions.
- Install and configure equipment. Mining is associated with high power consumption, so it is important to make sure that the network can handle the load. You should also ensure good ventilation: if there is no airflow, the equipment can overheat, which will reduce its performance and shorten its lifespan.
- Install software. You should choose a program for mining in accordance with the characteristics of the selected equipment. Among the popular programs are ECOS, BeMine, Kryptex Miner.
After that, the user can start mining cryptocurrency. When estimating the potential profit, you should take into account the cost of electricity or the cost of renting the computing power of the cloud mining service.
Mining: Is It Worth Starting?
As a result of the popularity of digital currencies and the active development of the crypto market, mining has become of interest to many users. Although the process has become more complicated than it was a decade ago, the profitability of mining still attracts crypto owners.
