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Here's a prologue to the Crypto Mining story. Imagine Bitcoin (as an example) is nothing but a huge asset (like dollars) that's maintained by a major bank. Now, that huge bank doesn't necessarily need to have a single computer to validate all the data. Instead, that single computer is shared between thousands or millions of people mining crypto. That's right. Crypto mining is nothing but being a part of a very huge computer. When you are mining crypto, you are basically one of many people piloting a huge computer. Now, the question goes from "What Is Crypto Mining?" to "How Does Crypto Mining Work?"
To start things off, here's a disclaimer: The act of "Mining" defers for every asset. When you are "mining crypto", you're basically partaking in the blockchain and its activities (which may also vary from coin to coin). In this case, I will go through how the good ol' Bitcoin Mining works. Because it's way simpler to understand, and if you're unfamiliar with Crypto Mining, you'd probably want to start things off with this one. Let's go!
Nerds come here: History class! Back in the dark ages in 1978, lived a smart NASA scientist who went by the name Robert Shostak. He first introduced the innocent world to the concept of Byzantine Generals Problem or Byzantine Fault in general. The idea is this: If there are a number of Byzantine generals attacking a fortress, they'd need to communicate to coordinate the attack according to the plan. Now, if one of the generals is a traitor, there will be a catastrophic failure in the system, as a general flees and the rest are put to rest in combat.
This game theory is an analogy to what could actually happen within the current banking systems, especially in the case of decentralized banking systems.
Byzantine Fault Tolerance is what it's called. If you're familiar with "Proof of Work", that's basically what it's all about. Within the Bitcoin ecosystem, if a block of data is approved and validated by +50% of the validators (AKA Miners), the transaction is then permitted, transmitted, and live.
Well, this is where it gets a bit trickier...
While the answer to this question varies from coin to coin, traditional Bitcoin miners would get their money when and if they created a new block. What is a block? A block (as seen in “blockchain”) is a list of transactions that are permitted, transmitted, and recorded within a "wrap" of data.
However, after a while, Bitcoin miners realized this whole money earning by creating a block is very unreliable and tricky; it made the whole mining scene a rat race! So, all the miners across the world became brothers and sisters in crypto and started using mining pools.
A mining pool is essentially a group of miners who gather around and share their computational resources to increase the chance of creating a new block together. The reward of the block is also shared with the participants. This way, everyone is happy, and the pockets are jiggling. Also, it is worth mentioning that in Mining Pools, the people with higher hash rates or, to put it simply, people who had more computational resources earn more. Many of these Mining Pools also have a fee, meaning you get taxed by participating in the mining pool. To get a full account of mining pools, check out this article made at Cryptologi.st.
Here's the deal, if your equipment is right (we'll talk about it later), here's the trade-off: Solo Mining is going to be very risky and volatile, you might see yourself mining for months without a drop of a reward, and then you'll get 6.25 Bitcoins, which is the current block reward. To say this in plain English, Mining Crypto solo is a high-risk, high-reward kind of activity. In contrast, Crypto Mining in a pool will help you put bread on the table every night while being less rewarding.
Stop listening to people on Twitter who vent about crypto mining not being profitable in 2022. Crypto Mining could still be profitable if you do it right. Let's take the first steps together.
First of all, you need to see if mining Bitcoin is profitable with your hardware. How? Just visit this website to see how much you'll earn monthly. This website also calculates your electricity expenses and all, so it should be somewhat accurate.
Now, let's see if it's more profitable to mine Altcoins or Bitcoin. How will we know that? Here's the deal: many hardcore miners I know see Crypto mining as a means of investment rather than actually playing a part within the blockchain ecosystem. Some of the newer projects are rather untouched ground for Crypto Miners, making it a great opportunity for you to start mining them to earn the coins instead of going to an exchange and buying them. With this mindset, you're quite literally investing with your computational resources rather than investing with money. Cool right? However, many of the miners I've spoken to still prefer mining Bitcoin and Ethereum to mining Altcoins or smaller projects. The competition may be tough, but the rewards are guaranteed.
It depends on your country. According to Investopedia, Crypto Mining is illegal in Algeria, Egypt, Morocco, Bolivia, Ecuador, Nepal, and Pakistan. Also, if you're unsure about the legal status of Crypto Mining in your area, please seek a consultant. We don't want to get you in trouble after all!
To answer this question, please first scroll up and read the "Is Crypto Mining Profitable?" section. You need to verify if it's actually profitable for you to start mining or not. You can try manually selecting GPUs and CPUs in the profitability calculators to see if the equipment you can afford is any good in terms of generating cash. Also, please take into consideration that all these GPUs need a Power Supply Unit and a Motherboard as well.
If you're just getting started, there are a few other alternatives for getting started with Crypto Mining as well.
Many coins and Crypto projects actually have their own mining devices you can use. For example, SCprime has its own little cute miner device, which uses electricity as little as a refrigerator, or Helium has a mining device that uses Radio waves to mine Crypto!
Good luck out there, and happy mining!
This article is for education purposes only, we at Cryptologist do not mean to provide any financial advice as we're really a band of Crypto geeks who have little to no knowledge about your personal financial status! Please do your own research before investing in any Crypto asset and take the responsibility yourself! You can read our other investment walkthroughs or free screener tool and guides. Cheers!
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