For most users of cryptocurrencies it
is not necessary to understand how the mining process in itself works,
but it is fundamentally important to understand that there is a mining
process to create the virtual currency. Unlike currencies as we know
them today where governments and banks can simply choose to print
unlimited amounts (Not saying they do so, just a point),
cryptocurrencies has to be mined by users using a mining program that
solves sophisticated algorithms in order to release blocks of coins that
can go into circulation.
How does mining work ?
This is part that makes the
cryptocurrencies unique, as there is nobody who can simply press a
button and get unlimited coins. Everybody can compete equally while
mining coins, by buying the same equipment as one another. The
different cryptocurrencies uses different types of algorithms in order
for the blocks to be released, but in general it is not something that
you should be using your computer to do as it takes specific equipment
to mine and it will provide you with a huge electricity bill compared to
the profits you will be able to make from it. It is also worth noting
that the more coins that has been mined from a cryptocurrency, the more
difficult it gets to release new blocks and thus get new coins. The
algorithms has been made this way, to ensure that all the coins would
not be mined instantly and leave room for the currency to stabilize and
not be over populated from the beginning, thus not having any
significant value for anyone besides the miners.
Cryptocurrencies have a limited amount
of coins that can be mined and once they have all been mined, there will
be no more of them being created as it is virtually impossible. This
means that when all 21 million Bitcoins has been mined, they will be the
only coins in circulation forever and no further Bitcoins will be added
to the system. Same goes for all other cryptocurrencies, which is why
many people see them as a good alternative to the currencies we have
today that is based on nothing but goodwill between countries in order
to ensure the value of the currency doesn’t fluctuate.
There are two simple steps in the
mining process for cryptocurrencies, which we will be describing below
as user-friendly as possible. Please bear in mind that we do need to use
some technical terms in order to correctly describe how it works.
Please be aware that it is currently
quite difficult to mine coins for a profit, as equipment, electricity
and so on will cost you more than to simply buy a Bitcoin or similar.
Instead we suggest that you have a look at different cryptocurrency
exchange sites, where you can buy cryptocurrencies easily with your
money and save the hassle of having to mine.
Some of the most popular and trusted
sites to purchase Bitcoins or other cryptocurrencies includes Coinbase,
Cryptsy and AlfaCashier, where you can easily purchase, store and sell
your cryptocurrencies.
Cryptocurrency Mining Program
The very first thing you need in order
to start mining coins is to obtain the mining program that is associated
with the cryptocurrency that you want to mine. For the larger coins you
can find different mining programs that all share the same mining pool,
while the smaller coins usually just have one mining client, which also
works as the wallet of the coin. Simply download the mining program,
install it and you are ready for the next step.
When you first download the mining
program it will have to connect to the network and synchronize with it.
This can take everything from a few minutes and up to several hours,
depending on how many blocks you need to solve first before you can
synchronize. Once the synchronization is done then you are basically
ready to mine.
All you need to do from here is to go
to the mining part of the wallet, enter the values you want to have and
press the “start mining” button. The system will then begin to “mine”
for coins and depending on your system you will see some results within a
couple of days. Start Mining HERE
Cryptocurrency Algorithms
Each cryptocurrency has made a decision
regarding which algorithm they wish to use to mine their coins, before
they are created. There are two different algorithms that are used for
almost all the coins that is in existence today, which is the SHA-256
and Scrypt algorithms. They are both very difficult to mine with,
becoming increasingly difficult the more coins that has been mined. We
have gathered a small explanation of how the algorithms work exactly, so
you can understand mining a little better:
SHA-256:
The SHA-256 algorithm is the first
algorithm that was used with a cryptocurrency, when the Bitcoin was
created using it. SHA-2 which the SHA-256 is under is created by the
National Security Agency (NSA) and was published in 2001. SHA stands for
Secure Hash Algorithm, which makes fine sense for cryptocurrencies as
you will need to solve the hash algorithms in order to release coins.
The more coins that will be mined, the harder the hash algorithms will
become as it is originally used as a security system tool for companies
and governments.
Scrypt:
The Scrypt algorithm that
cryptocurrencies use is a “proof-of-work” algorithm, which is basically
using the same idea behind the Scrypt algorithm, but is targeted against
releasing blocks rather than block an attack. Scrypt is a key
derivation function which was created by Colin Percival, created to
require large amounts of memory on a computer performing large scale
custom hardware attacks. It was released in 2012 and was quickly used by
cryptocurrencies for mining coins as another way than the SHA-256
algorithm that Bitcoin used. Scrypt is seen as a better algorithm for
miners as you can buy equipment that will significantly improve your
performance compared the SHA-256 where you cannot buy equipment to make
ideal mining.
How To Mine on your own…
(Not recommend as it will cost you more to produce, than you get out….)
So, use a Mining Pool and “produce” your coins in a community. My favorite program is SwissCoin.
Starting to mine your own
cryptocurrency is on the surface quite simple as it only takes a
computer, internet and a mining software to begin doing so. If you dig a
little deeper however, you will find out that it is not anywhere near
easy to mine coins, as they are using sophisticated algorithms for the
coins mining process, which makes it harder and harder to mine coins the
more that has already been mined.
While we are not experts in mining
ourself, we do understand the process of optimizing the mining procedure
and make it a little more worth your time than it otherwise would be.
There are different aspects to take into consideration before mining,
the main one being that your electricity bill may increase a lot while
mining.
Mining is a long term investment and
can pay of quite well if you do it right, but first you need to look at
some of the things you should consider before starting to mine:
Mining Software
First thing to do is to find the mining
software for the cryptocurrency you want to mine. Most cryptocurrencies
will only have one mining client, which is part of the wallet where you
can hold the coins, while the big ones like Bitcoin may have different
clients to mine through. So once you have found out which mining client
you want to use, you will need to register your details with the client
and synchronize with the network. This may take everything from a few
minutes and up to several hours, all depending on the amount of blocks
that the system have calculate before you are completely synchronized.
From there you have to go to the mining
part of the software and enter the values you wish to mine for. If you
don’t know what to enter, then you can simply use the default settings
and start mining that way. Last thing to do is to press the start mining
button and you are mining for coins. The result however will vary a
lot based on the mining hardware you are using and if you are part of a
mining pool or not. You can read more about that later on in this
article.
Mining Hardware
The next thing you need to focus on is
the hardware which you are using to mine the cryptocurrency with. Using a
regular computer’s CPU to mine with will work, but it is nowhere near
as effective as if you decide to buy equipment that is made to help you
mine coins faster.
So if you are serious about your
mining, you will need to go out and invest in specific mining hardware
in other for you to be able to compete with other miners and eventually
score a large amount of coins for your efforts. There are several sites
that specializes in the mining hardware for cryptocurrencies, who can
show you exactly what performance you will get out of buying specific
hardware for your computer. What you will need to look for is how many
millions of hashes it will do per second and how much electricity it
will be using, so you can calculate the costs contra profit from your
mining.
The best mining hardware is currently
ASIC, which can provide you with up to 1,000 more hashes per second than
any other type of equipment. The hashes is what will release blocks
that you can mine and is the most difficult part of the mining.
Therefore the more hashes your equipment can go through, the higher is
your chances of actually getting any blocks to mine and thus get coins.
Mining Pools
The last thing you should know before
you start to mine is the importance of joining a mining pool. Mining
alone can be done, but it will not reward you the same way as if you
join a mining pool as you will be mining together. Mining pools rewards
smaller amount of coins at a time than if you would mine on your own,
but you will get coins on a regular level compared to when you mine
alone, making it more profitable for most miners.
You can find several different mining
pool sites online, where some have high requirements to the miners they
accept into their pools, while other mining pools are for everybody.
Furthermore by joining a pool the algorithms you have to solve will be
easier and smaller, which is ideal for you as a new miner until you
understand the entire process and have upgraded your equipment.
