Mining is the production of cryptocurrency through hardware and software, as well as the recording and confirmation of cryptocurrency transfers. Each time a new unit is produced, the difficulty of solving the resulting blocks also increases. For this reason, mining requires computers with very powerful processors.
Cryptocurrency mining basically serves two important purposes:
- Taking Bitcoin as an example, mining is the process of verifying the transaction information distributed across the Bitcoin network and storing it on the blockchain.
- Mining creates a secure, tamper-resistant consensus ecosystem for Bitcoin nodes to determine whether a broadcast transaction is valid. For a Bitcoin transaction to be spendable, it must have at least six network confirmations.
Just as a central bank prints money and issues new notes, the money supply for Bitcoin is created through mining.
In its most basic definition, cryptocurrency mining is the process in which devices with special software and hardware solve complex problems to confirm cryptocurrency transfers and are rewarded with newly generated cryptocurrency. In theory, anyone with a computer and an internet connection can mine.
On most blockchains, transfers between wallets are first placed in a transaction pool (mempool) before being confirmed. These transactions are then grouped together to form a block. These blocks are written to the blockchain after being verified and confirmed by the devices connected to the network.
Cryptocurrency miners verify and confirm transfer transactions and keep a copy of the blockchain.
How Is Cryptocurrency Mining Done?
There are many ways to mine cryptocurrency today. These methods can be distinguished in terms of profitability, cost and difficulty.
ASIC Mining
ASICs, or Application-Specific Integrated Circuits, are systems focused on cryptocurrency mining. The software and special hardware inside them turn these circuits into dedicated devices for cryptocurrency mining. Although ASIC devices, which consist of many processors, have high computing capacity, they consume a great deal of energy. For this reason, miners who mine with ASIC devices need a strong electrical infrastructure to cover their power consumption.
Because of their high computing capacity requirements, cryptocurrencies based on Proof of Work mining, such as Bitcoin and Litecoin, can now be produced only with ASIC mining devices.
GPU Mining
The processors of computer graphics cards are called Graphics Processing Units (GPUs). GPU mining is the type of mining in which transactions are verified through calculations performed by graphics card processors. Graphics card processors are much more powerful than computer processors and are computation-oriented. For this reason, graphics cards are used to verify transactions of cryptocurrencies based on Proof of Work mining, such as Ethereum and Zcash.
Graphics cards are much more affordable than ASIC devices. However, miners also combine multiple graphics cards into devices called “rigs.”
CPU Mining
It is also possible to mine with a CPU, that is, the central processing unit (processor). CPU mining can easily be done by installing mining software on a home computer.
Today, however, this method is almost never used because its performance is very low compared with other methods. Mining with processors has become impossible for the vast majority of popular cryptocurrencies.
Computer processors are no longer used in Proof of Work mining; instead, they are used in Proof of Stake – PoS mining. Because this type of mining does not require high computing power, it is enough to have the mining software running and to hold a sufficient amount of cryptocurrency in the wallet to earn income.
Cloud Mining
Cloud mining is an alternative mining service offered to those who want to mine cryptocurrency but lack sufficient hardware, time, knowledge or capital.
Users who want to mine rent processing power from cloud mining services and can mine cryptocurrency by directing this processing power to the mining pool of their choice.
Cloud mining services rent processing power for different types of cryptocurrency mining under term contracts. They offer users various contracts, taking into account different costs such as hardware, software, cooling and maintenance. Although contracts in which a fee is paid for operating costs appear more expensive, their mining income is higher. In contract packages with lower fees, in which part of the operating costs is covered by mining income, mining income is lower still.
Although it appears to be lower in cost than other mining types, it is becoming harder every day for users who choose the cloud mining method to make a profit.
