Cryptocurrency mining, in its most basic definition, is that devices with special software and hardware solve complex problems and approve cryptocurrency transfer transactions, and as a result, they are rewarded with newly produced cryptocurrency. In theory, anyone with a computer and Internet can mine.
Transfers between wallets are transferred to a transaction pool (mempool) before being approved on most blockchains. Then, these transactions are combined to create a block. These blocks are written to the blockchain after they are verified and confirmed by devices connected to the network.
Cryptocurrency miners verify and confirm the transfer transactions and keep a copy of the blockchain.
How is Cryptocurrency Mining Done?
There are many methods of mining cryptocurrency today. It is possible to separate these methods in terms of profitability, cost and difficulty.
ASIC, or Application-Specific Integrated Circuits, are systems focused on cryptocurrency mining. The software and special hardware in them turn these circuits into special hardware for cryptocurrency mining. Consisting of many processors, ASIC devices consume a lot of energy despite their high computing capacity. Therefore, miners mining with ASIC devices need strong electrical infrastructures to meet their electricity consumption.
Proof of Work mining-based cryptocurrencies such as Bitcoin and Litecoin can now be produced only with ASIC mining devices due to the need for high computing capacity.
The processors of the graphics cards of computers are called the Graphics Processing Unit (GPU). GPU mining is also a type of mining in which the processes of the graphics cards are verified by calculating the processors. The processors of graphics cards are much more powerful than the processors of computers and are computationally oriented. For this reason, graphic cards are used to verify the transactions of Proof of Work mining based cryptocurrencies such as Ethereum and Zcash.
Graphics cards are very affordable compared to ASIC devices. However, miners use devices that combine multiple graphics cards together to combine multiple graphics cards called “Rig”.
It is also possible to mine with the CPU, that is, the central processing unit (processor). By installing a mining software on the computers used at home, CPU mining can be done easily.
However, today this method is almost never used because it has a very low performance compared to other methods. Mining with processors has become impossible for the vast majority of popular cryptocurrencies.
Computer processors are now used in Proof of Stake (PoS) mining, instead of being used in proof-of-work mining. In this type of mining, it is sufficient to have the mining software running and have enough cryptocurrency in the wallet to generate revenue as there is no need for high computing power.
Cloud mining is an alternative mining service offered for those who want to mine cryptocurrency but do not have sufficient hardware, time, knowledge or capital.
Users who want to mine can rent processing power from cloud mining services and can mine cryptocurrency by directing this processing power to the mining pool of their choice.
Cloud mining services lease processing power for different types of cryptocurrency mining with periodic contracts. It offers various contracts with users considering different costs such as hardware, software, cooling, maintenance and software. Mining revenues are higher, although contracts for which a fee is paid for operating costs may appear more expensive. Mining revenues decrease even more in contract packages with lower fees and some of the operating costs are covered by mining revenues.
Although it seems less costly than other mining types, it is getting harder and harder for users who prefer the cloud mining method to make a profit.
How Much Does Cryptocurrency Mining Earn?
Although it depends on the type of mining you choose, the cryptocurrency and the prices, it takes time to make a profit from cryptocurrency mining. It is necessary to purchase hardware and wait for it to pay for its cost or to pay for the fees paid for cloud mining. Although the possibility of generating income increases as the processor power increases, electricity consumption increases and it becomes difficult to operate and cool more devices together. As the number of devices increases, so does the time spent on operating, controlling and maintaining the devices.
In order to gain profit from cryptocurrency mining, it is necessary to have sufficient hardware and infrastructure, the area to house and cool the devices, and the technical knowledge to operate the devices. Especially when mining Proof of Work, it’s important to remember that as the difficulty level increases, revenues will decrease. To protect revenue in proof-of-work mining, it is necessary to invest in hardware regularly and renew devices whose performance is declining.
It is increasingly common among users to do Proof of Stake mining instead of Proof of Work mining instead of high hardware costs and electricity consumption.