So what is crypto mining? To answer that question, it’s worth considering what cryptocurrency actually is.
For those of you unfamiliar with what has become a global phenomenon, cryptocurrency is a form of virtual money that works as a medium of exchange.
Using encryption techniques to verify and control the generation of new currency units, it is a decentralised digital asset that’s free (thus far) from governmental interference.
Cryptocurrencies operate according to a public database or ledger which is known as a blockchain. Transactions recorded in this blockchain are known as blocks and are secured by cryptography.
Usually, each block contains a hash pointer which includes a timestamp, unique ownership data and link to a previous transaction. The process of recording and verifying these transactions is known as mining.
How Does Crypto Mining Work?
Blockchains are operated by miners on a peer-to-peer network who use powerful processors to keep a record of all transactions.
Their role is to log and verify the authenticity of each transaction, ensuring that each one has been processed correctly. Verification is achieved by solving a hash algorithm known as a ‘proof of work’. Once this is decoded, the miner is then paid a ‘block reward’.
After the block is solved, a new one is generated which outputs another hash containing the block’s information as well as the hash from the previous transaction.
The use of such a chain-like structure guards against retroactive changes: if one block is altered, its hash and all subsequent hashes change, thus alerting the network to a potential breach.
The rate at which hashes are generated differs between currencies. For example, Bitcoin generates blocks at a rate of one every ten seconds.
However, newer altcoins offer faster generation rates which in turn make for the quicker confirmation of transactions.
In essence, the whole process is a kind of online book-keeping.
What Hardware do I need?
Solving the mathematical problem required for block verification is a matter of computerised guesswork.
The objective is to find a number that, when combined with the block data and then passed through a hash function, generates a result that’s within a certain range. This is achieved by using crypto mining hardware that can generate hashes.
The rate at which these hashes are generated has improved significantly over the past few years. In the early days of bitcoin, miners were able to use standard CPUs to generate coins.
However, as the use of GPUs became more widespread, the competition increased to such as a degree that CPU mining just wasn’t cost-effective: the electricity costs involved in generating hashes far exceeded the amount of coins which could be mined.
Thus began the race to find cheaper but efficient machines that could generate coins while keeping energy costs at a minimum.
Since 2009, the following types of hardware have been used to mine for cryptocurrency.
Central Processing Unit (CPU)
CPU crypto mining has been largely phased out for Bitcoin due to the faster hash rates offered by GPUs, FPGAs and ASICs. However, the emergence of alt-coins means that CPUs can still be used for newer currencies where competition is low. They can also be merged for use in mining rigs.
CPUs for Mining
Graphical Processing Unit (GPU)
GPUs are vastly superior to CPUs in terms of raw processing power and speed. Their ability to run similar operations over and over again also means that they’re able to hash data much faster, while also consuming less power per unit of work. Although they’ve been superseded by FPGAs and ASICs, GPU cryptomining remains very common.
GPUs for Mining
Field Programmable Gate Array (FPGA)
FPGA stands for Field-Programmable Gate Array. These devices became popular upgrades to GPUs and offered improved processing performance at a lower power consumption rate. However, their use was rather short-lived due to the introduction of ASICs.
Application Specific Integrated Circuit (ASIC)
An Application Specific Integrated Circuit (ASIC) is, for all intents and purposes, a small computer build that has been engineered to perform a specific task. It usually comprises a specialist ASIC chip, a fan, mining software and a power source. Because ASIC miners are specially designed to perform the task, they are able to generate hashes very quickly.
A crypto mining rig is a computer that has been built exclusively for the mining of digital currencies. The most effective mining rigs are constructed with high-end components that are able to handle a heavy workload. In addition to powerful processors, the best rigs include a motherboard capable of handling multiple GPUs at once as well as a high-wattage power supply.
What Software do I need?
In addition to the hardware, cryptocurrency mining requires specific software.
A cryptocurrency wallet is a program which stores public and private keys in a personal database and interacts with a blockchain. It allows users to send and receive digital currency and keep track of their balance.
Mining software connects the hardware to a blockchain, delivering its work to the cryptocurrency network. As well as monitoring the input/output transactions between the hardware and blockchain, some packages also include extra features such as fan speed control, multi-GPU support and over-clocking detection.
The costs of setting up and maintaining hardware, has compelled many to make to use cryptocurrency mining services. Mining pools and cloud mining services are the most common.
Crypto mining pools allow individuals to pool their resources with other miners. In most cases they’re awarded a share of the block reward according to the amount of hashing power they offer with the provider taking a percentage. These offer a sound alternative to going solo and increase the chances of finding hashes for the correct blocks.
Cloud mining enables users to purchase hash power from dedicated data centres so that they don’t have to buy and manage their own hardware. This removes the extra costs relating to electricity, hosting, equipment and such like. Most providers operate on a contractual basis and calculate their costs according to hash output.