The millennial generation is super computerized; they have spent more than 25% of their wealth in digital currency alias crypto including blockchains, NFTs, and Defi. Perhaps, for Gen Z virtual currencies are the next big thing, as more and more companies are accepting them as a mainstream currency! Additionally, like many cryptocurrency ardent followers, you must have come across the word “mining”!
So, what cryptocurrency mining is all about? Why is mining required? How does it work? Is it worth investing resources in mining? Like many, if you are pondering on the aforementioned questions- you landed at the right place. We will share with you the full low-down on the same, to learn more read space!
First, What Is Cryptocurrency Mining?
The term Cryptocurrency mining or cryptomining is a process where plethoras of cryptocurrency transactions are verified and those transactions are added into a public digital ledger, popularly known as a blockchain. In technical terms using high-performing computers to solve complex cryptographic equations to acquire cryptocurrencies is known as cryptomining.
In addition to this, when the process of mining is initiated, new coins are added into the existing circulation without a third-party central authority. And this is one of the core elements of crypto, which makes it a peer-to-peer decentralized network. Also worth noting, Bitcoin is the oldest and well-known mineable digital currency. That said, all cryptocurrencies are not mineable. However, anybody can be a miner (great news!) but mining is not meant for everyone (bitter truth).
Fact Check: The majority of Bitcoin mining i.e. 70% occurs in China because operating mining computers are profitable due to cheap electricity.
How Cryptocurrency Mining Works?
Throwing some radiance; the working of the mining process primarily involves crypto miners who compete amongst each other with a basic purpose to resolve convoluted mathematical problems by instigating high-performance computers. Each puzzle employs cryptographic hash functions that are further linked with a block constituting the transactions data of a cryptocurrency.
For your enlightenment; the first person or a miner that cracks the node is given a green signal to carry forward the transaction. In return, he/she is rewarded with small amounts of cryptocurrency that they earned in the process. Additionally, after successfully resolving the compound mathematical problem, the miner is known to add the data to the Blockchain ledger. This all is done after wholly-solely verifying the transaction information diligently.
Is It Worth Investing?
To begin with, the initial days of cryptocurrency seemed to be pretty luring. Anyone dealing with its mining could make substantial profits. Talking about Bitcoin specifically; mined way back in the year 2009, the reward came out to be 50 Bitcoins (BTC). The flabbergasting part was its worth which was close to 6,000 USD at that time. Plus, the demand for the number of computers and energy required for mining was way too less as compared to this day. Consequently, the savings were on a higher side that was relished back then by the miners.
As per the Bitcoin protocol, the number of rewards is pruned to half after every four years. So, if we cut to today, the current price stands at 6.25 BTC in contrast to 50 in 2009.
That said; whilst the reward for mining Bitcoin has seen a rapid downfall, the wonderful side is that the overall value of each Bitcoin has appreciated tremendously. As of June 29-2021, its virtue stands tall at 35,285.40 USD.
However, the contemporary era sees the cost of mining incessantly shooting up. Several factors are accountable for this relentless augmentation entailing hardware costs and electricity-for instance. The total cost also hangs on the location of the crypto miner; if the energy consumption for mining is on the higher side, naturally it will incur more costs. Besides, the inclusion of expensive hardware can further act as a catalyst in swelling the total price. This means the profitability part would also vary and would depend on the above attributes too.
Why Cryptocurrency Mining Is Required?
In this digital era, people simply adore digital cash because transferring money to anyone or buying items online via credit cards and debit cards is just one click away! Also, the young generation is avoiding the hassle of keeping paper money and coins in a physical wallet. And this leads to our main question: why mine a virtual currency?
Before delving deeper to know the answer! Let us learn about a few blockchain technology principles to have a better understanding of cryptomining.
An umbrella term used for a digital system that records the data and transactions over a large network of the computer on a blockchain. To add, the information on this digital ledger is complex to decode, change, or hack.
Decentralization in blockchain denotes a network made up of computers, often termed as nodes. And they interact on a peer-to-peer basis without involving any third parties. Once the transaction is validated it gets permanently engraved onto a blockchain. DLT acronym Distributed Ledger Technology is the decentralized database controlled by multiple participants on the network.
Hashing is a cryptographic function primarily used for security purposes. Hashing transforms random input values into fixed-length bits.
However, here we have some ideologies which state why mining is necessary. To add, every individual has disparate goals, needs, requirements, and interests for mining. Hence the one-size-fits-all solution does not apply to the above-listed question.
- To Have Better Control On Funds
People don’t want to be part of the traditional centralized banking system. But people who still want to keep money safe and away from centralized banks often opt for buying cryptocurrencies or creating new coins with mining.
- To Have Profitable Returns
According to Coherent Market Insights, the crypto mining market globally is anticipated to cross the benchmark of $38 billion by 2025. For some crypto enthusiasts, investment in crypto mining can be extremely lucrative.
However, the underdeveloped mining market could be hugely expensive as ample computing resources are required to mine single coins, such as high-performance hardware and copious energy consumption (high electricity bills).
- To Have Newer Experience
The world is filled with people who want to hop on the bandwagon of new technology as well as part of the change they want to see in the world. According to the Newswire published report, there are more than 1,000,000 Bitcoin miners around the globe.
To conclude, if you want to be a miner, it’s profitable to choose an easy, small, and less popular coin with a minimum hash rate whilst crossing your fingers for the coin price to reach newer heights.