What does it mean to "mine" cryptocurrencies and how is it done?
Lets be clear on something… Bitcoin is not a Blockchain. Bitcoin is the reward generated for supporting and processing transactions on the Blockchain. There are several different Blockchains that generate rewards in different fashions. Those “rewards” are cryptocurrencies. This is often confused among new users.
When a user “mines” cryptocurrencies in the traditional proof-of-work method, they are using computational processing power to verify transactions or data in “blocks”. Once those blocks are verified by miners they are added to the specific Blockchain being mined.
Example: Lets say 100 people send Bitcoin transactions on Bitcoin’s Blockchain. Each user pays a small transaction fee for sending their Bitcoin to other users, wallets, exchanges, etc. Those transaction fees from the 100 transactions are then paid to the miner that “solves” or verifies the block of transaction first along with a pre-defined block reward (currently 12.5 Bitcoin per block). If the block is confirmed by the rest of the network then the transaction fees along with the block reward are paid out and confirmed to the block solver.
Different Blockchains have different hashing algorithms and different methodologies for adjusting mining difficult. As mentioned, the currently Bitcoin block reward is 12.5 BTC and at current rates as of 4/13/20 each Bitcoin is work almost $7,000. So, a block solvers on Bitcoins Blockchain will earn (12.5 x $7,000) = $87,500 + transactions fees for each block they solve. Essentially, the more people that participate in the mining of the Blockchain, the more difficult it becomes to solve a block. In the case of Bitcoin, difficult re-targets roughly every 2 weeks to reflect the current hashing power (mining power) targeted towards the Bitcoin Blockchain.
Can You Generate a Bitcoin Block:
In short, yes. Although it would be a statistical anomaly to do it on your own unless you have multi-millions of dollars worth of computational power of specific computer chips called ASICs (Application Specific Integrated Circuits). Because of this, “Mining Pools” have come to be. Smaller or individual miners pool their computational power together to try and be the first to solve the next block in the chain. If a mining pool solves the next block then all the users in that pool split the block reward and the transactions fees that were included in that block.
This intro refers to Bitcoin because it is the largest cryptocurrency by marketcap and the father of the Blockchain but there are other currencies you can mine.
There are dozens of different encryption algorithms that are used to secure thousands of different types of Blockchains/cryptocurrencies. Bitcoin uses SHA-256 to secure its chain. Due to competition on the Bitcoin Blockchain, it is very difficult to profitably mine Bitcoin without high up front investment.
People mine different altcoins for several different reasons. Some people mine lesser known cryptocurrencies for speculative purposes and hold those coins in the hope of future gain in value. Some people mine specific coins because they believe in the cause or purpose of the project. Other people mine altcoins because they can be easier to mine with standard equipment and then convert those altcoins into Bitcoin for long term holding or into fiat currencies to capture profit and cover mining power cost.
What is the Easiest way to Get Started?
With so many different cryptocurrencies available, it can be overwhelming for newcomers to decide what to mine and how to convert it to Bitcoin or over to fiat. With so many people facing that issue, there have been new releasing in auto-switching mining software that will re-direct your hashing power to the most profitable coin to mine at the time and then convert your mining rewards into Bitcoin for you. We List 2 of the top options we have used below.
Below are 2 great mining software options that make mining cryptocurrencies for newcomers very easy.
NiceHash is not only an all-in-one mining platform but it also hosts a hash marketplace when you can purchase additional mining power for different coins as well as offers an exchange service depending on your country of origin.
Have A Question?
Feel free to reach out to us with all of your questions about mining cryptocurrencies. We will be happy to help walk you through the process of getting started. Fill out a contact for or subscribe to our newsletter