Here’s What You Need to Know About Mining for Cryptocurrency

in Technology

Cryptocurrency plays a major role in our everyday lives and continues to do so. No one could have predicted that Bitcoin, the most prolific cryptocurrency, would one day reach a value of over $40,000.

Those who thought cryptocurrency was a fad are now waking up to the reality that crypto is here to stay—and they’re looking for ways to get in on the action. One way to achieve this is by mining.

Bitcoin and other cryptocurrencies are able to surpass traditional banking limitations using a distributed ledger, or blockchain technology. The distributed record is maintained by validators—or miners—that leverage that transaction to ensure there are no false transactions on the market. Mining is used to prevent fraudulent activity using the “Proof of Work” consensus algorithm.

Keep in mind that you have to pay taxes on the Bitcoin you successfully mine. The last thing you want is to end up with a bank levy for not claiming your crypto earnings; find a reputable IRS tax attorney to work with if you plan to mine. While mining isn’t as easy as it used to be when crypto was first introduced, there are still a few ways to get involved. Here’s what you need to know:

How Does Mining Work?

Cryptocurrency mining is the process of using your computer to solve complex mathematical equations and generate a 64-digit hash, or number, that’s used to help validate transactions made using crypto. Miners are rewarded for their auditing efforts with crypto.

For example, once an individual has successfully “solved” an equation, they’ll receive a certain amount of Bitcoin. Solving a “puzzle” allows the miner to post the latest block of transactions. At this time of writing, the reward is 12.5 Bitcoin.

It’s important to understand that in order to reap your reward, you have to be the first person to solve a particular puzzle. There are some instances where you might solve it, but someone else has solved it first, and in this case, the other person would receive the reward.

Supercomputers Are Necessary

Although mining is a highly secure process, it requires an enormous amount of computing energy. As previously mentioned, when you’re mining, you’re trying to solve a complex numerical problem. The good news is that there’s no complicated math computation necessary on your own behalf; coming up with the 64-digit associated with each crypto transaction is entirely guesswork, but with trillions of possible combinations, it can take quite a while for your computer to arrive at that number first.

Understanding Mining Pools

Cryptocurrency mining pools are designed to make the lucrative process of mining a little less complex—and maintainable—for everyone. Mining pools help individuals combine resources, allowing them to jointly mine and split any rewards acquired. When you work together, there’s a higher chance that collective blocks are recognized, which creates a consistent value. There are several mining pools you can choose from, but it’s important to do your due diligence and learn more about the structure of different mining pools.

Start Your Own Mining Business

Creating your own mining business allows you to earn a commission from the miners that work collaboratively to mine using your service. Setting up a mining rig and mining business is no easy feat, but it can be done. Although you’ll spend more with an upfront investment, it could be well worth it in the end—particularly during a time like now, when many crypto values are sky high. If you’re a programmer, this could be an ideal venture for you. After all, blockchain—the foundation of cryptocurrency—is often built with C++ (Bitcoin’s original implementation was built in this language).

A typical mining rig consists of a motherboard that supports multiple GPUs, a hard disk drive with at least 100 gigabytes of storage, a power supply, and a cooling system. Check out other mining pools to see how they structure from an operational and user-friendly standpoint. It helps to participate in those programs to learn key differences and come up with solutions to make your platform better.

Check Your Hashrate

To increase your chance of solving a mining equation first, your hash rate should be high as possible, which, of course, requires a significant amount of computing power. Hashrate is measured by the amount of megahashes, gigahashes and terahashes per second. If you plan to set up your own mining rig, you can use the Cryptocompare calculator to determine how much Bitcoin you could potentially mine.

Image Credits: xresch

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