Mining or “mining” any cryptocurrency can be considered a long-term investment, no matter what kind of coins you work with -,, or with another type of digital money. You just need to pay the so-called hash rate on a specialized Internet site, after which you will receive a small part of the “mined” coins every day. The guarantee of daily earnings is hidden in the very essence of mining. Bitcoin mining contracts are lifetime. Paid licenses to mine other currencies (Dash, Litecoin & Ethereum) are valid for 2 years.
How to understand the word “mining”
This term comes from the English word “mining”, which translates as “mining”. So, at its core, cryptocurrency mining accurately reflects the essence of the process. But in this case we are not talking about physical work with mining ore. Nevertheless, by analogy with real mines, a large number of single “miners” are united into groups (mining pools), jointly using special software. The result of the formation of blocks of virtual crypto chains becomes a commission, which is considered as a profit from the money invested.
The main function of mining is software single or group service of cryptocurrency transactions. The process can be roughly described as follows:
- The cryptomining software platform compiles the latest bitcoin (or other) transactions into blocks and proves their validity. A huge number of intermediate mathematical problems are being solved at the same time.
- Finding the right answer is the ultimate goal of an algorithm that maintains the functionality of the entire network of the chosen cryptocurrency.
- The first miners to find the correct number are rewarded accordingly.
- During the mining process, new bitcoins (or other virtual currency units) are generated.
- For bitcoin, the “new money issue” is limited to 21 million coins.
It is quite difficult to mine cryptocurrency alone, since the work requires too much computing power. Therefore, miners are united into pools (farms), in which individual profit decreases, but the likelihood of superiority in obtaining the correct solution for the transactions being processed increases. Today, there are quite a few large “factories” operating on the network that are engaged in the production of bitcoin and other crypto coins. ASIC miners are used as “mining equipment” – the most powerful computer technology of a new generation, created precisely for such work.
For the extraction of cryptocurrency, you can use real computer power or “cloud” computing centers. In both cases, “miners” must be able to work with special software. And if we are talking about “physical hardware” – to bear serious costs for the maintenance of multi-level computer equipment.
Many newcomers believe that it is enough to acquire an expensive “farm”, run a “machine” and the process of making money will be carried out by itself. This is a big mistake – there are an impressive number of players in this market today, most of whom are united in mining pools. It is almost impossible to compete alone with such productive “mines”. Therefore, the money invested in the organization of work can pay off for years.
How Bitcoin mining works
Unlike the usual so-called “fiat” money – dollars, pounds sterling or euros, bitcoin is not printed on machines and is not controlled by state financial institutions. However, in many developed countries, the turnover of major cryptocurrencies is currently regulated by the state. This is done so that one crypto coin is not spent twice. Therefore, in order for a transaction to complete, it must receive a “seal of approval” from all blocks of the chain formed around the world.
While mining bitcoin, all participants create new coins in the process, presented as a commission for a completed transaction. Currently, about 17 million bitcoins have been “manufactured”. So for those wishing to take part in this exciting work, there is still an impressive “reserve” of 4 million expensive digital money.
Maintaining the “status quo” is the main task of mining
Initially, bitcoin was created as an alternative encrypted currency, which anyone could mine from a regular home computer. At the very start, the process of servicing the new financial network brought not only pleasure, but also a real reward in the form of newly formed coins. But at that time, bitcoin was worth a little, so only like-minded people and volunteers were engaged in home mining.
With the emergence of the aforementioned ASIC miners superfarms, the situation has changed radically. And at the moment, single miners are not able to compete with such powerful “factories”. Because at home, in order to ensure the normal operation of numerous electronic boards, a huge amount of electricity is needed. And the cost of service in this case can negate all the profits. That is why the so-called “cloud mining” is rapidly gaining popularity. This format is carried out using cloud servers that charge a fee for the space and capacity provided.
To regulate the mining of bitcoins, special backups are used, the task of which is to slow down the production of new crypto coins. As soon as 2016 blocks of the chain are formed (at the rate of six blocks per hour – that’s about every two weeks), the number of new bitcoins is recalculated.
In most cases, the complexity of control increases as miners and computing equipment are pooled. However, a large number of participants simultaneously reduces the reward received. So, when 210,000 blocks are formed, the commission is halved.
At the beginning of 2018, the completion of the chain was rewarded with 12.5 bitcoins, which at that time was about 150 thousand euros. But over time, mining premiums will steadily decline. According to forecasts of experts in the cryptocurrency market, the last bitcoins will not be mined until the beginning of the 22nd century.
Bitcoin Mining Example
To start the process you need:
- Register a separate wallet for bitcoins received as a commission.
- Choose a mining method – physical (high cost) or cloud (less profitable).
- Choose a site (mining pool) for work.
- Install software.
- Make adjustments to the start.bat startup file.
For example, you will work with three main cryptocurrencies, investing in this business a total of 330 euros. With the right scenario, you will mine from 0.80 to 1.60 euros every day. It is clear that it will take at least a year to fully compensate for investments. However, do not forget that the leading cryptocurrency of the world will accumulate on your wallet, which theoretically can grow in price indefinitely.
Risks of working with cryptocurrencies
Like any valuable asset, alternative digital money can sharply change the course, and not always in the direction of growth. We have already witnessed the collapse of electronic crypto money in 2018, after which many miners simply went broke. And expensive equipment had to be literally thrown into a landfill. At the moment, this currency in different countries has a different legal status, which also increases the risks of a sharp drop in quotations.
The independent payment system, created in 2009 based on the blockchain, can be seen as another opportunity for short-term investments. Because long-term investments in this asset with an unstable reputation can turn into a complete collapse. Cryptocurrency mining is characterized by a higher stability of earnings than trading bitcoins or ether on exchanges. However, mining coins require not only serious knowledge of software products, but also a fairly large start-up capital. And any failure in this case is associated with serious losses. That is why the payment system can be considered as a promising investment with relatively low financial risks.