Mining refers to the process through which new blocks are added to a cryptocurrency chain. The process is carried out by miners on these crypto networks and involves competing to solve complex mathematical puzzles. On solving the puzzle, these coins are issued, and a new block is added to the cryptocurrency blockchain.
This ensures that when a bitcoin is spent, people in the network know exactly which bitcoin was used, the block from where it came and who spent it on what. There is a sense of security in the transaction and no fraudulent transactions can take place in such a scenario.
The process of solving the complex mathematical problem to mine new bitcoins is called proof of work mining or simply bitcoin mining. Proof of work is the effort, in terms of computer space, energy and work, to solve the complex mathematical problem or puzzle.
The puzzle must be difficult for the miner or user but trivial for other verifiers in the network. On successful completion of the puzzle, new bitcoins are released and a new block is added to the blockchain. True enough, mining is critical for successful generation of bitcoins.
Benefits of Mining
As pointed out earlier, bitcoin mining serves two purposes. First is to trustfully confirm a transaction when enough power or computational effort is employed to get a block. The second purpose is to create new blocks on a cryptocurrency chain.
Mining is designed to be difficult and resource intensive because the number of blocks found per day must be constant. New coins are awarded when the blocks are validated and added to the chain.
Two ways to mine cryptocurrencies
There are two ways you can use to mine cryptocurrencies. You can either opt for cloud mining or hardware or hard mining.
Hard mining is also referred to as hardware mining as it requires the use of specific hardware to solve the aforementioned mathematical problems. When the first bitcoin was issued by Satoshi Nakamoto, he (or she, nobody knows) used a regular PC to mine. Back in 2009, the mathematical puzzles that required solving were still relatively simple.
But over time, computational difficulty has increased considerably. This requires miners to use advanced hardware if at all they are to make any gains from the exercise. Initially, these were Graphical Processing Units that were a bit more advanced than regular CPUs in terms of graphic properties.
In 2011, a new industry sprang up to cater to these miners and ensured that transactions speeded up considerably. Thus, the first wave of bitcoin mining devices was born. These mining devices worked on the field programmable gate array (or the FPGA) processors. These devices can be easily connected to a computer using the USB interface.
In over half-a-decade, the bitcoin mining devices have improved considerably and most of them use ASIC, or the Application Specific Integrated Circuit technology. At unprecedented speeds, bitcoin mining has become a breeze-through while consuming very less power. The most popular hard mining devices include the AntMiner S7, AntMiner S9 and the Avalon6.
Other hard mining hardware using a USB port include the AntMiner U2, BPMC Red Fury USB, GekkoScience. These are cheaper than the ASIC mining devices and consume far less power.
Cloud mining allows users to complete blockchain algorithms and earn bitcoins without owning any physical infrastructure and having to pay for power or have any other issues.
The service providers set up the facilities required from mining equipment to cooling facilities and the like. Miners then simply need to pay stipulated fees to access the mining power offered by these remote facilities. Everything is done on the cloud meaning users will not experience the hassle of installation or maintenance.
Advantages of Cloud Mining over Hard Mining
- Cloud mining offers a relatively low entry cost and features lower risks and expenses for miners. The hassle of procuring and configuring high tech equipment does not apply in this case.
- There is no excessive heat because the mining equipment is in a remote place and no electricity costs are incurred.
- Mining operations are noiseless.
- There is a fast and easy bitcoin mining because miners are instantly connected to the hardware in the remote data centre.
- When the mining operation becomes unprofitable, there are no losses that would otherwise have been incurred from acquiring equipment.
Disadvantages of Cloud Mining Compared to Hard Mining
- Many cloud mining platforms have turned out to be scams and are fraudulent. Miners and users need to take appropriate precautions. There are many shady bitcoin cloud mining operators out there in the market and it pays to be extra cautious.
- Hard miners who have the required mining equipment in their possession enjoy having full control over operations. They can decide to sell the hardware at a future date to recover investment costs (at least partly). They also have the luxury to start and stop mining at will without the fear that their contract time is running out. Cloud miners on the other hand do not enjoy these conveniences.
- On most cloud mining platforms, you might have to pay a bigger sum upfront than what it would take to start hard mining.
- There are always chances of getting lower commissions as cloud mining data centres have expenses to bear.
- If the price for a cryptocurrency is too low, it is possible for cloud mining operators to refuse payouts or cease operations.
- No hardware is owned and hence, no possibility of updating the mining software.
The choice is yours
The best option for mining cryptocurrencies depends upon the miner. Cloud mining operators offer instant mining options and incur no cost. However, commissions must be paid to the operator on the profits made.
On the other hand, hardware mining incurs an investment as well as operating cost in terms of power. However, the advantage with hardware mining is that miners can use the device till mining bitcoins is no more profitable.