Lesson #2 Cryptocurrencies mining Part II: Profitability and myths
Hello friends, I talked previously about mining cryptocurrencies. But now, I want to address the hot topic of profitability, mining algorithms, hardware, and more.
I hope you can enjoy this learning trip, and please don't doubt to comment.
There is a list of cryptos we can truly mine. And for mining, I refer to the Proof of Work(PoW) needed to bring a new currency amount. I will be talking of Bitcoin mainly, and in a future lesson, I will address ETH, LTC, BCH, and pretty much all cryptos with PoW.
A crucial aspect to understand Bitcoin mining is target difficulty. To bring a new block to the blockchain, we must find a number that produces a valid hash(alphanumeric code), just that. It is a computationally expensive operation because of the difficulty. One number is introduced in the SHA-256 function (with other stuff), get a hash, check if it's valid and repeat if it isn't. How many times your hardware performs that task it's reported in the blockchain as block difficulty.
What if it's too hard to mine bitcoin, it will become unprofitable?
Yes and no, because this difficulty regulates itself. Every two weeks, it's adjusted according to the number of blocks produced. If it becomes too hard to mine because of many blocks found, then the difficulty decreases. So the miners will have a stimulus to continue mining.
To mine bitcoin, the calculations must be made with SHA-256 algorithm; you can't mine another currency using this algo. Ethereum and Litecoin also have their own algorithm.
"Hashrate" refers to the total combined computational power used to mine and process transactions. Basically, your "muscle" for mining. The more hashrate, the more calculations can be performed in less time, so more probability to get the reward. You could ask: How much hashrate should I get to earn at least a decent amount of BTC daily. Well, I can only tell that the hashrate increases steadily, so the profit you can get will decrease with time.
Back in 2009, you could mine BTC on your laptop. I even remember an episode of The Big Bang Theory. The protagonists remind them they had bitcoins in a USB flash and tried to recover it (Spoiler: they formatted the USB). Nowadays, the hashrate you can get with a CPU is very low, so you'll have to mine in a GPU or special hardware.
When I refer to special hardware, I mean ASIC hardware. ASIC stands for Application-Specific Integrated Circuit. It is a microchip designed to execute a hashing algorithm as fast as possible, and ASIC is built for a custom single hash algorithm. It can calculate 100,000 times faster hash than the best CPU. Here you can check how much power have different ASIC machines, and yes, they consume a lot of electricity and hella expensive.
GPUs are less expensive than ASIC machines and provide better results than CPU mining.
Solo mining or pools?
If you have enough hash power to generate at least one block per day on average, you could mine yourself. But if your mining power is minor, then you should use a pool. A pool is just a collection/group of miners working together to increase their chances of finding a block at the group level. The rewards are distributed according to the method chosen by the pool: they can be distributed between all members equally or distributed according to the power provided per user.
Of course, you can download the bitcoin code from Github and make a script to mine bitcoin. But usually downloading software that does all the work for you is the best choice. The most used software for Bitcoin mining are :
Best Overall: CGMiner
Best for Customization: BFGMiner
Best for Ease of Use: MultiMiner
Best Centralized Management: Awesome Miner
I'm not interested in mining cryptocurrencies since my hardware is not good enough. However, it still is a fascinating topic.
A few mining software claims that they can mine cryptocurrencies like TRX, ADA, or BNB. That's is impossible. They do mine BTC or ETH and then convert it to the crypto you wish to mine.
Profitable? Yes. Because otherwise, big companies wouldn't buy mining rigs to earn more money. But you have to check it according to your mining power
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