Let’s start from the beginning. We need to mention that mining is the process by which new cryptocurrency tokens or coins are generated. Unsurprisingly, it bears little resemblance to the work done by those who physically mine for precious metals like gold. Nevertheless, the comparison does hold; digital currency miners use computers in order to solve cryptographic issues as well as to receive a reward in the form of cryptocurrency.
Cryptocurrency and investors
Interestingly, in cryptocurrency lingo, mining is the term for work done to open a new block on certain blockchains. You need to remember that the first miner to solve the cryptographic puzzle called the hash receives a cryptocurrency reward.
Unsurprisingly, one of the first steps to take if you’re interested in mining is to learn which cryptocurrencies can be mined. Bitcoin (BTC), ether (ETH), and Litecoin (LTC) are examples of coins that can be mined.
We also need to mention that the most profitable cryptocurrencies have become much more difficult to mine than in the past. The vast majority of them have a mining difficulty that increases over time, and the number of miners with large-scale mining operations has taken over most of the hashing power of each cryptocurrency’s network. As a reminder, hashing power refers to how many calculations per second a network can complete.
However, not every cryptocurrency can be mined because not all use a competitive reward system.
For example, some cryptocurrencies require expensive hardware to mine, and the massive demand for this equipment has influenced the cost as well as effort associated with setting up a rig to skyrocket. Other cryptocurrencies may be more accessible when it comes to the equipment that you need. Notably, the costs alone make it worth your while to take the time to plan how and which cryptocurrency you’ll mine.
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Miners and technical aspects
There are typically three basic components to a mining operation: the wallet, the mining software, as well as the mining hardware.
Let’s start with a cryptocurrency wallet. Remember that you’ll need a wallet for your cryptocurrency to store the keys for any tokens or coins your mining efforts yield. They have a unique address allowing you to send as well as receive tokens securely.
There are various types of online wallets, and there are even “cold storage” wallets that don’t operate online. Decide which cryptocurrency wallet is best for your needs before you start mining.
Mining Software and hardware
The vast majority of mining software is free to download and use and is also available for various operating systems. In the case of popular cryptocurrencies like Bitcoin, you can use multiple types of software.
While many of these options will be effective, slight differences could impact your mining operation.
Lastly, mining hardware may be the most expensive component of a mining rig setup. You’ll need a really powerful computer, perhaps even one specifically designed for mining.