In 2021, the market for computer graphics processing units (GPUs) was plundered by cryptocurrency miners. These people started hoarding GPUs, so they could amass as much digital wealth over the blockchain as possible. At the time, if you were trying to buy a current generation GPU, you probably didn’t have much luck. Perhaps you noticed that the prices of most high-end GPUs had doubled, if not tripled.
This phenomenon left many to wonder; what is cryptocurrency mining? And why do crypto miners need several high-fidelity GPUs?
What is Cryptocurrency Mining?
In the simplest terms, cryptocurrency mining is the process of creating new coins of a particular cryptocurrency on the blockchain. That being said, cryptocurrency mining isn’t that simple, it’s important to know some of the more technical aspects surrounding cryptocurrency mining.
Investopedia defines Bitcoin Mining as:“The process by which new bitcoins are entered into circulation. It is also the way the network confirms new transactions and is a critical component of the blockchain ledger’s maintenance and development.”
Why Is Cryptocurrency Mining Important?
The purpose of a decentralized, digital currency, is to ensure that each particular token of a given cryptocurrency is non-fungible by nature. This means that each token generated through mining is unique, and this can be ‘validated’ on the blockchain. In essence, this generation and validation process known as ‘mining’ ensures that double-spending of a cryptocurrency is prevented.
Similar to traditional transactions, when mining takes place over the blockchain, the digital ledger must be updated to represent the number of tokens that have been mined. To keep the blockchain platform secure, most cryptocurrencies only allow verified users to mine tokens. Because cryptocurrencies are completely decentralized, this verification process exists to maintain the integrity of each digital asset on the blockchain.
Proof-of-Work Protocol Explained
Cryptocurrency mining is referred to as ‘mining’ because it’s actually quite similar to mining precious metals from the earth. The blockchain is your diamond mine, and the GPUs are your mining tools. During the mining process, the GPUs solve complex mathematical equations set in place by a Proof-of-Work protocol. The more GPUs you have, and the more powerful they are, the more cryptocurrency you’ll be able to mine, not to mention faster.
As more miners join a network, the equations set in place by the Proof-of-Work Protocol become increasingly difficult to solve, thus creating artificial scarcity within the market, that determines the value of the cryptocurrency being mined.
How To Mine Cryptocurrency
If you’re interested in learning how to mine cryptocurrency, the first thing you’ll need is a computer with a powerful enough GPU to solve the complex mathematical equations involved in the Proof-of-Work Protocol. Next, you have to ensure that you have a secure and reliable internet connection, as the mining process can not be interrupted. Lastly, you have to become a verified member of a cryptocurrency mining pool.
What is a Cryptocurrency Mining Pool?
A cryptocurrency mining pool is a collective network of cryptocurrency miners that combine the computational power of their GPUs to mine cryptocurrency faster and more efficiently on the blockchain. Basically, cryptocurrency miners have found that there is power in numbers, and a cryptocurrency mining pool allows them to work together.
Different Methods of Cryptocurrency Mining
There are several different methods of cryptocurrency mining, each one requiring different tools and processes to get the job done. Once you learn how to mine cryptocurrency, it’s important to determine the best method of mining for you:
1. CPU Mining
As mentioned previously, as more and more miners enter a blockchain, the process of mining a cryptocurrency becomes increasingly difficult, requiring more complex technology to get the job done. In the early days of cryptocurrency mining, it was fairly easy to mine cryptocurrencies such as Bitcoin with even the most basic CPUs. As cryptocurrency mining has become more popular, this method has become obsolete, for the most part.
2. GPU Mining
GPU mining is probably the most popular method of cryptocurrency mining today. The process requires a computer with a motherboard, a mining rig made up of several powerful GPUs, and a cooling system to keep the rig from overheating.
3. ASIC Mining
An Application-Specific Integrated Circuit is similar to a GPU, but its sole purpose is to mine cryptocurrency. Generally, an ASIC is more efficient than a GPU, it is able to mine more tokens within the same amount of time. However, ASICs are generally a lot more expensive, making them an impractical option for the average cryptocurrency miner.
4. Cloud Mining
Cloud mining is relatively new, but it’s become increasingly popular in the wake of rising GPU prices. Cloud mining enables individuals to enter the cryptocurrency mining space without investing in high-powered GPUs. All you need is a strong internet connection, and all the computational processes involved in mining are done online.
Should You Become a Cryptocurrency Miner?
If you’re wondering whether or not you should become a cryptocurrency miner, there are several questions you first need to take into careful consideration. The first question you’ll need to answer, is which of the methods of cryptocurrency mining is right for you.
The answer to this question depends on your budget and available resources, such as a strong Wi-Fi connection. How much money are you willing to invest to begin mining cryptocurrency? Consider not just the initial cost of hardware, but the long-term cost of energy consumption as well.
How much time and effort are you willing to put into mining cryptocurrency? That is another question you should ask yourself before diving head first into something you might not be prepared for. Cryptocurrency mining can be an exceptionally lucrative endeavor, if you’re willing to put in the time and effort to do it right.
You also need to be aware of the laws and regulations regarding cryptocurrency mining in your area. Lastly, the cryptocurrency market can be rather volatile. How much money are you willing to invest into your mining operation? How much money are you willing to lose? These are important questions to ask yourself before you get into anything you might not be ready for.