How Does Crypto Mining Work?

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While the money you use every day was created by the central bank of the country you live in, Bitcoin or other cryptocurrencies using the proof-of-work validation protocol are created by a process called mining. Do you know how does crypto mining work? If not, read this article till the end.

Each of the hundreds of crypto coins in existence rely on the core concept of the blockchain. Cryptocurrency was designed to be decentralized, secure, and unalterable. So every single transaction is encrypted. Once that encrypted transaction happens, it’s added to something called a “block” until a fixed number of transactions has been recorded. That block then gets added to a chain — the blockchain — which is publicly available“, explains a Senior Forbes contributor.

How does crypto mining work
Image credit: Depositphotos

Crypto mining is, therefore, the practice of using computer power to solve complex mathematical problems in order to secure the network by validating transactions and creating new transaction blocks. Miners are rewarded for their time and resources to secure the blockchain and participate in its smooth operation by receiving newly created tokens (and transaction fees).

So, you can mine cryptocurrencies and earn rewards if you have a computer with a lot of computing power. While some sites allow you to mine cryptocurrencies with your smartphone, Google and Apple don’t really allow you to do mobile mining.  If you want to use your phone to participate in the cryptocurrency market, you can still do cryptocurrency trading via mobile apps to take advantage of the variation in token prices.

Why is it called mining?

By solving complex mathematical problems, miners “search” for solutions to secure the network, just as gold miners “searched” for gold during the various gold rushes throughout history.

Which kind of material can you use to mine coins?

While the mining of cryptocurrencies could initially be done with personal computers, the computing power required to secure the block of many cryptocurrencies has greatly evolved since the launch of the first cryptocurrencies in 2009 (the Bitcoin).

Now, many companies offer powerful and dedicated hardware that you can use in your mining activities.

These include ASIC (or Application Specific Integrated Circuit) machines that have been developed solely to solve complex mathematical calculations of the mining process. These machines are dedicated to mining using certain algorithms such as the SHA256 algorithm for Bitcoin and the cryptocurrencies from its forks.

Once you have selected the hardware to be used for your mining, you usually have to join a mining pool to maximize your chances of creating a block and receiving a portion of the rewards.

For those who do not want to invest in expensive technical equipment and/or do not have ultra-technical skills, it is possible to use cloud mining. You will then rent a part of the company’s computing power according to your investment and your objectives to try to win rewards.

It is the same goal here as with “conventional mining”, with an investment to be made and potential profits to be received once the process is completed, except that there is no equipment to manage, and you don’t have to spend time to make sure everything is working properly, as all this is done by the cloud mining company you use.

How do you know if mining is profitable?

After knowing how does crypto mining work, it is time to calculate profits. In any case, there are several factors to consider before you decide whether mining cryptocurrencies will be profitable for you. Among the most important criteria to analyze, focus on the hash rate (computational power of miners), the value of the token (how much 1 token is worth at the time of mining), the price of the machines used to mine cryptocurrencies (ASIC or mining rig) and the price of your energy consumption (electricity cost).

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Vinay Prajapati
A digital marketing scholar by choice and tech-savvy by habit. A NIFT Alumni who's consulting and nurturing many fastest growing businesses and blogs.

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