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.
Register for free and get 100 Coins for free HERE.
>>Read more about the Business Plan<<
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.
