What is cryptocurrency mining and how does it work?

By Alexander Joe

Cryptocurrency mining is the act of supporting and confirming transactions on a network in order to maintain it and validate transactions that are made by users of that network. Right now, there are thousands of different cryptocurrency coins. However, not all are minable, some of them are proof-of-work and others are proof-of-stake.

The difference between proof-of-work and proof-of-stake is the way the coins are mined. In a proof-of-work network the coins are generated each time there is a new block found using cryptocurrency mining equipment such as GPUs. While in a proof of stake, the coins are generated by staking other coins that already exist. In a proof-of-work network, users usually use ASICs, GPUs or CPUs in order to confirm the transactions and generate more coins.

The most known proof-of-work coin is Bitcoin that has its network up and running since 2010. The second most known is Ethereum that had its first block mined in 2015.

In a proof-of-stake network, users usually buy coins and then lock them for a certain period of time, such as 30 days or more, and earn passive income while they are locked. Once the coins are no longer locked, users no longer earn passive income. One of the most known proof-of-stake coin is ADA, more known as Cardano. Now that we went over the basics of crypto mining, let’s go a bit more into detail about what type of coins we can mine and what type of hardware is needed.

Mining with ASICs

ASIC means application-specific integrated circuit, which means that the hardware was designed to only do one job – to mine that specific algorithm or coin. ASICs are excellent at what they do, as they are designed to only do that one specific job. Nowadays, the Bitcoin network is so big that the only way to mine Bitcoin directly is to use an ASIC. However, this hardware is not easy to obtain for the end-user. They are mostly produced in China and are hard to import into Europe or the US, because of their weight and high cost of the import duties. Let’s go over main pros and cons of this hardware.

Pros:

  • Easy to set up
  • Easy to maintain
  • Plug and play
  • Easy to control and manage

Cons:

  • Hard to buy as they are produced only in China
  • Very noisy while mining
  • Each unit produces a lot of heat and uses a lot of power
  • Can be hard to troubleshoot and repair
  • Warranty hard to activate and most likely require to be sent back to China

Mining with GPUs

The most popular form of crypto mining is, without a doubt, with graphic cards. They are produced in many countries and can be bought all over the world, most of the time without limitations. Ethereum is the most popular coin mined with graphic cards and the network has been growing exponentially since 2015, when Ethereum was invented.

Pros:

  • Easy to buy and activate warranty if needed
  • Easy to maintain and manage
  • Many operating systems support GPU mining, such as Simple Mining OS
  • Can mine many coins and easy to switch from one coin to another
  • Can be sold after they are done mining

Cons

  • When there is a GPU shortage, their price can be highly inflated
  • Some GPUs from Nvidia can be limited to mine Ethereum at lower speeds
  • Scalpers abuse the lack of hardware in order to buy them and resell at much higher prices
  • End users can be limited to buy just one or two units per client by the stores

Mining with CPUs

The less popular form of mining, in comparison with the previously mentioned, is CPU mining. There are only few coins that can be mined with CPUs and in order to obtain a decent profit, the investment required is much higher. One of the most known CPU minable coin is Monero that has undergone many forks and is currently mined by CPUs. However, it only starts to be profitable when using very costly, high-end hardware.

Pros:

  • Mining with CPUs is usually easy
  • Doesn’t produce much heat and noise and thus less power than GPU mining
  • Easy to buy hardware at any hardware/computer store

Cons

  • Difficult to obtain a real profit
  • Most of the time we can only put one CPU per rig, unless we use a very high-end motherboard

Final thoughts and opinions

If you want to start mining crypto, we recommend that you start with GPUs. As mentioned above, it’s the most popular way to mine and at the same time, the most profitable method.

Using a GPU mining system like Simple Mining OS will let you control your farm from any mobile or desktop device from anywhere in the world. The most important advantage of using graphic cards for mining is that the Simple Mining community is full of experienced members, ready to help any new or more experienced user.

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