Understanding Cryptocurrency Mining

“Crypto currency mining is a rather simple concept but vastly confusing for the novice crypto investors. Crypto mining and especially Bitcoin mining is a very popular concept and thus is worthy of description. Through this article you will be able to learn the crypto mining basics and what options are available for you to earn crypto by mining.” 

What Crypto Mining actually is?

In simple terms, crypto mining is a process of obtaining cryptocurrency as a reward for doing some computations using a computer. In more technical terms it is the reward obtained for the validation of the transactions on a blockchain. Cryptocurrency mining is similar to gold mining with fundamental differences. As in gold mining the crust of the earth has to be dug (work) to obtain gold (reward), in crypto mining mathematical puzzles are to be solved (work) to validate the transactions and get cryptocurrency (reward) in exchange for the hard work.

Every blockchain contains a digital ledger which records each and every transaction that occurs on the blockchain. Copy of this ledger is distributed to every node that is connected in a blockchain. Whenever a transaction is executed on the blockchain, it is to be recorded and validated at all nodes and this work is done by the miners which are computers that solve mathematical puzzles to verify the transactions. There is a certain number of equations that corresponds to a group of transactions and is called a block. It is after completing a block containing multiple transactions, the reward is obtained by the miner.

In the case of Bitcoin, the Proof-of-Work consensus mechanism is used for validation and mining. In this mechanism the transactions are validated after performing mathematical computations and the reward is obtained in the form of BTC. At present the mining reward per block is 6.25 BTC.

What are the Mining Option Available

There are majorly two options available for mining:

Hardware Mining

Cryptocurrency mining requires specialized hardware equipment. These mining equipment use CPU and GPU for the processing and solving mathematical puzzles and hence are energy intensive. The mining equipment is expensive in nature and makes it extremely difficult for an individual miner to reap profits from mining. Though a mining pool can be created that will help miners by sharing their mining resources in a pool for profit from mining as per the contribution in mining.

Cloud Mining

As for an individual it is difficult to install and maintain a mining rig, it becomes easy for institutional investors. There are various companies that have created crypto mining farms with thousands of hardware mining equipment running daily and earning rewards. Individual investors can rent the hash power generated by these farms as per the budget and receive mining rewards in return in accordance to the power purchased without worrying about the mining process at all.

Disclaimer: The article is meant for the educational purpose only and in no way it should be considered as financial advice. Own research on the topic is advisable.

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