What Is Cryptocurrency Mining?

Blockchain networks use mining to create and validate new blocks of transactions and secure the network. Simply put, cryptocurrency mining is a process of creating new digital coins.

Bitcoin and many other blockchain networks use the Proof of Work (PoW) consensus algorithm for cryptocurrency mining. Proof of work is a system where computers compete against each other to be the first to solve complex puzzles. In addition, it solves the double-spend problem, preventing spending the same funds multiple times.

So-called miners compete by solving complex cryptographic puzzles with mining hardware to win the right to mine the next block. If the answer is accurate, the new block is added to the blockchain, and the miner receives the block reward. For example, the block reward of newly minted Bitcoin, amounting to 6.25 BTC as of May 2020. Therefore, the process requires effort and time and is expensive. But most importantly, it offers compensation for the work.

HOW TO START MINING CRYPTOCURRENCIES

There are many different methods to mine cryptocurrency (for example, CPU mining, GPU mining, and cloud mining). The right type of mining depends on the cryptocurrency you want to mine and how much you want to invest.

Here are the steps you should follow for mining to start:

• Choose a cryptocurrency to mine

Probably for many people, the first cryptocurrency that comes to mind is Bitcoin. Although because of its popularity, making a profit from Bitcoin mining is much more difficult. There are many more cryptocurrencies you can mine. In October 2022, Bitcoin Mining Difficulty raised to an All-Time High. Bitcoin mining difficulty is an expression of how difficult it is for a miner to produce the cryptographic string that earns cryptocurrency.

• Buy and configure your mining equipment
• Join a mining pool

Mining alone is much harder to earn a block reward. A mining pool is a joint group of cryptocurrency miners who combine their computational resources to increase their chances of successfully mining. Most crypto mining applications come with a mining pool; however, crypto enthusiasts now also join together online to create their mining pools. Also, keep in mind that choosing a mining pool can be challenging. Mining pools need to be fair in work assignments and transparent in their operations.