Bitcoin and many other blockchain networks use the Proof of Work (PoW) consensus algorithm for mining cryptocurrencies. There are many possible ways to mine cryptocurrencies; this can be done alone or together with others. You can use special computers for mining or even devices already found at home, like your personal computer. Although anyone can become a miner, not everyone has profited from it. Before starting, mining requires study, choosing the correct devices and programs and some practical adjustments.
INTRODUCTION
Before starting cryptocurrency mining, you should start with a little research. This is because different protocols may require unique hardware and software. While mining attracts many people to the cryptocurrency ecosystem due to its possible high rewards, it also allows them to play an integral role in enabling decentralized blockchains.
Cryptocurrency mining is a highly technical topic and there is more than one way to do it. This article will cut through the noise and give you a more practical idea on the subject.
WHAT IS CRYPTOCURRENCY MINING?
Blockchain networks use mining to create and validate new blocks of transactions and secure the network. In the process, so-called miners use significant amounts of computing resources to create new units of cryptocurrencies, increasing their existing circulating supply.
Bitcoin, Litecoin (LTC) and many other blockchain networks use the Proof of Work (PoW) consensus algorithm for cryptocurrency mining. PoW determines how a blockchain network achieves consensus among all distributed participants without third-party intermediaries. Furthermore, it solves the problem of double spending, preventing network participants from using the same funds more than once.
PoW promotes good participation in the network by design. Miners compete by solving complex cryptographic puzzles with mining hardware to earn the right to mine the next block. The first miner to find a valid solution and confirm their block of transactions receives rewards. Therefore, the process requires effort and is expensive, but offers compensation for the work.
PoW mining also makes the blockchain network more decentralized. A blockchain can function as a decentralized ledger because countless distributed computers (nodes) around the world maintain it. Therefore, instead of having a single database, these interconnected computers maintain a copy of the blockchain data and communicate with each other to continually ensure the correct state of the blockchain.
However, it is also possible to disrupt a blockchain with a so-called 51% attack. Although it is very unlikely, especially for larger blockchain networks, a single entity or organization could, in theory, take over 50% of the network's computing power. This amount of mining power would allow the attacker to intentionally delete or change the order of transactions, also allowing them to reverse their own transactions.
Another potential issue regarding cryptocurrency mining is related to its sustainability and expense. Cryptocurrency mining requires significant investments, not only in hardware but also in energy. As a result, many miners, especially those that mine bitcoin (BTC), consume enormous amounts of electricity. Furthermore, if a miner does not have access to diverse mining rigs and cheap electricity, mining is unlikely to turn into profit.
TYPES OF CRYPTOCURRENCY MINING
Miners receive a block reward when they successfully validate a block. The more computing power miners contribute to the network, the better their chances of validating the next block. However, as more miners enter the game, block validation begins to require more computing power. Therefore, mining may become too expensive for individual miners.
There is not just one way to mine cryptocurrencies. So let's look at the main ones individually so you can choose the right one, whether you plan to mine as an individual or as part of a collective.
