What is Cryptocurrency Mining?
Bitcoins and Altcoins are collectively termed as Cryptocurrencies or Virtual Currencies or Digital currencies.
Cryptocurrency Mining or Digital Currency Mining is a validation of Cryptocurrency transactions by miners.
Mining is the process by which cryptocurrency transactions are verified by miners and added to the public ledger known as the Block chain. It is also the means through which new cryptocurrencies are released.
Bitcoin Transactions occur when one person pays another for goods or services. The transactions are verified by Bitcoin Miners and are publicly recorded into blocks and eventually into the blockchain. The Blockchain is a public ledger which keeps the record of all the Bitcoin transactions ever executed. The Bitcoin miners are rewarded with transaction fees and well as newly released bitcoin.
A Miner is basically anyone with access to the internet and suitable hardware. In the earliest days of Bitcoin, mining was done with CPUs from normal desktop computers. Graphics cards or graphics processing units (GPUs) were found to be more effective at mining than CPUs and became dominant as Bitcoin gained popularity. Thereafter hardware known as an ASIC, which stands for Application-Specific Integrated Circuit was designed specifically for mining cryptocurrencies.
The mining process involves compiling recent transactions into blocks and trying to solve a computationally difficult puzzle. The participant who first solves the puzzle gets to place the next block on the block chain and claim the rewards. The rewards are both the transaction fees associated with the transactions compiled in the block as well as newly released bitcoin.
Mining is of two types Remote Hosted Mining and Cloud Mining:
Remote Hosted Mining is a process where users host their mining hardware in a remote datacentre and have the required technical knowledge and mining experience to manage and maintain the mining hardware. The user pays a fee to the hosting company to cover maintenance and electricity costs.
Cloud Mining is the process whereby a miner purchases a part of the mining power of hardware hosted and owned by a Cloud Mining services provider. The service provider manages and maintains the mining hardware and charges fixed maintenance and electricity fees. The cost of entry and subsequent risk is far lower than in comparison with the remotely hosted model.
Crytocurrency transactions have increased manifold and will continue to increase with time. Cryptocurrency Mining is the only way to release new cryptocurrency into circulation. The miners also earn transaction Fees on verifying cryptocurrency transactions thus assuring constant Return on Investment.
Mining is competitive and today can only be done profitably with the latest ASICs. When using CPUs, GPUs, or even the older ASICs, the cost of energy consumption is greater than the revenue generated.