Cryptocurrency mining is the process of generating new digital coins using specialised computer equipment. Miners execute a series of complex calculations, the results of which are added to the blockchain.
Besides creating new coins, mining also involves validating and confirming transactions on the blockchain. In other words, miners’ equipment verifies and records cryptocurrency transactions and solves complex mathematical problems to issue new coins, for which miners are rewarded with new coins.
The term “mining” is a transliteration of the English word “mining,” which originally referred to the extraction of minerals. From this term come the words “to mine” (to generate new coins) and “miner” (one who mines).
Mining entails creating a new block through complex, resource-intensive calculations and adding it to the blockchain to receive a reward (for more information about what a blockchain is, we suggest reading our related article). Moreover, this must be done faster than other miners, as they are performing similar calculations simultaneously. This competitive aspect drives miners’ interest and fosters network development. Miners’ calculations involve searching for a unique hash (the result of a complex block transformation) among millions of possible options.
What is needed for mining?
When the first cryptocurrency, Bitcoin, emerged (to learn more about Bitcoin (BTC), read our corresponding article), computers with standard central processing units (CPUs) were sufficient for mining new coins. The developers intended this to promote the decentralisation of the cryptocurrency.
In 2010, Laszlo Hanyecz (famous for buying two pizzas for 10,000 bitcoins) and an anonymous individual using the pseudonym ArtForz began utilising graphics processing units (GPUs) for mining. This marked a revolution in cryptocurrency mining, leading miners to purchase video cards in large quantities. Mining rigs, consisting of multiple video cards, were created. These rigs were more productive but consumed significant electricity and generated considerable noise.
In 2012, the development of mining using application-specific integrated circuits (ASICs) began. These circuits are specifically designed for mining cryptocurrencies. This method is more efficient, but the equipment is expensive and quickly obsolete. Due to the increasing difficulty, Bitcoin mining is now only feasible with ASICs. For hobbyists, this process is not profitable; BTC mining is almost exclusively conducted by specialised companies or groups of miners pooling resources into mining pools.
An alternative to traditional mining is cloud mining, where equipment is rented from specialised contractors. However, this option carries the risk of encountering numerous scammers.
Is mining profitable?
The economic profitability of mining depends on factors such as equipment performance, computational complexity, electricity costs, and the market rate of the cryptocurrency. The creators of the cryptocurrency project determine the size of the reward. By balancing the costs (material and time) of mining and the potential benefits, miners make decisions about the profitability of such activities.
Crypto specialists claim that as of 2024, the most profitable cryptocurrencies to mine are Bitcoin, Ethereum, Litecoin, Zcash, Dogecoin, Dash, Filecoin, Ravencoin, and Kaspa. Each year, the reward for mining new coins decreases due to the rapid increase in production capacity.
