Thanks to the high fluctuations in the Bitcoin rate, everyone knows about cryptocurrency. Many people think that is an easy way to earn money. This is theoretically true of cryptocurrency mining, which is considered a simple passive source of income. But in fact, this is not so, it is very difficult to make money on mining, it is necessary to invest substantial amounts of money, by purchasing equipment. First, you need to know what mining is and how a potential investor can earn money with it.
What is Mining
Mining is an English term. And if we are talking about digital assets, then mining is the extraction of new coins. The essence of the process is reduced to mathematical calculations according to the given rules. The result of these calculations is the creation of the next block in the blockchain system. Depending on the type of cryptocurrency, the features of computing activity are found, but their essence is the same – to find a suitable option for the conditions of the problem and check it. Also, the time spent on such calculations is very high. So, the computing power requirements of the equipment for this process are also high. All this causes difficulties in organizing the mining process.
In other words, mining is the process of guessing a hash (it is a 64-digit number written in hexadecimal form). Guessing is done by brute-force, which automatically means a very high power requirement for the equipment. This plan uses a hash rate. So, we can conclude that the process of issuing fiat and digital money is significantly different. The first ones are printed by the central banks of states, the second ones are generated using calculations.
For the first time, the principle of coin mining was invented and implemented in Bitcoin. Most of the existing cryptocurrencies are created also in this way. The peculiarities of Bitcoin mining do not allow modern computers (even very powerful and efficient) to mine cryptocurrency.
The complexity of mining depends on the total computing power of the entire network – the hash rate. With its growth, the time for finding each blocks in the blockchain decreases. But since it should be 10 minutes (the time a block is in the Bitcoin network), the complexity of the calculations also increases. And vice versa, if the computing power decreases (some miners lose interest in cryptocurrency), the complexity will also decrease. After a certain period of time, the reward for creating the next block in the chain is reduced by 2 times. This process is also called halving.
- the cost of electricity – miners often spend tens of thousands of dollars every month for it;
- decrease in the amount of remuneration for the creation of the next block;
- the growing complexity of computations – this also increases requirements for equipment performance.
So, today there are no single miners left. There are special associations – pools. The pool participants share the profit equally, taking into account the capacity of the equipment.
Mining requires a powerful computer and appropriate software. Basic requirements:
- equipment – due to the high complexity of calculations, ordinary PCs or laptops are not suitable (just special computing systems with a powerful cooling system are needed);
- software – special programs for mining, also an electronic wallet;
- an online pool of miners – you won’t be able to earn money by mining alone, you need to find like-minded people united by one goal;
- access to the Internet – a stable, high-speed connection is required since the main work is related to the exchange of information over the network;
- space for equipment – a basic requirement, excellent ventilation, and cooling system, since heat, will be generated during the operation of the equipment;
- electricity, a lot of electricity – if there is access to cheap electricity, this will be a big plus, powerful equipment that works for days without stopping consumes a lot of energy.
At the initial stage, cryptocurrencies were mined using the central processor of a personal computer. Currently, there is not enough CPU power for profitable mining.
A more profitable way is to use a video card processor – GPU. As a rule, they are combined into a kind of “farm”, the total capacity of which is sufficient for demanding calculations. This is a budget method that does not generate a lot of income. GPU mining is relevant for Ethereum mining, for which it remains the best option.
Use of specialized equipment – ASIC. These are integrated circuits designed specifically for mining. They have a fairly high cost, provide maximum performance for hash calculations. By the way, ASIC is used only for mining, they are not able to solve any other tasks.
An alternative to physical equipment for cryptocurrency mining is cloud mining. In this case, the investor does not lease the equipment, but part of the capacity (the hash rate). The advantage is obvious, there is no need to buy expensive equipment and solve other problems. All this is done by special organizations that take on the solution of technical issues. But you should be careful, there are cases of fraud here.
Mining software depends on the hardware (CPU, video card) as well as the operating system installed on the PC. Besides, the software is also developed for a specific cryptocurrency. There are dozens of programs for Bitcoin mining:
- Hive OS – based on Linux (Ubuntu distribution), easy installation, configuration, and use;
- Cudo Miner – basic functions of the platform for mining coins are available, including automatic switching;
- CGMiner – this platform allows you to use any method of mining digital coins, including mining on ASIC;
- SimpleMining – a platform for mining on a video card;
- Hashr8 – advanced software for different mining options with pool support.
There are also other platforms for mining cryptocurrencies.
With the growth of the rate of Bitcoin and a number of other cryptocurrencies, the computing power of the network is growing, reaching a value of 151 EH/s. This indicates the growing popularity of mining. At the same time, it becomes more difficult to mine cryptocurrency privately every year. Moreover, the share of large companies engaged in mining on an industrial scale is growing.
Also, do not forget that the profitability of mining depends not only on the cost of equipment but also on the price of electricity.
After halving in 2020, the reward for the next block has decreased by 2 times – to 6.25 BTC. In this regard, the revenue of miners is decreasing, therefore energy efficiency and equipment capacity are relevant. Accordingly, additional investments are required in the development of mining devices.
With this information, we can conclude that it will be very difficult for an investor to make money on mining without serious cash injections. There are other, more profitable, and easy ways to make money on cryptocurrency.