Mining Cryptocurrencies

Miners make sure the blockchain is fully functional #

In order to properly explain the concept of mining, it is important to understand what exactly a blockchain is. In short, this is a distributed database that maintains a continuously growing list of blocks. Millions of people send cryptocurrencies to each other every day, but if no one keeps track of this on the blockchain, no one can keep track of who paid who and who owns which cryptocurrencies. The blockchain keeps track of this by collecting all transactions within a certain time in a ‘block’. It is then the miners’ job to record this on the blockchain and we call that mining. This mining only costs the miners electricity and equipment.

Satoshi Nakamoto has come up with a solution for this that the miners can be rewarded. Miners who use their computer to record transactions have a chance to win a reward worth 25 Bitcoins in the case of Bitcoin. The computer that solves a (very) difficult calculation first gets this reward. This way of mining is also called Proof of Work. Nowadays there are also other ways of mining, such as Proof of Stake (PoS) or Proof of Importance (PoI).

Limits to mining #

However, finding that block of 25 Bitcoins is regulated. This means that a maximum number of Bitcoins are always made per day in the entire Bitcoin network. And because more computers are mining for Bitcoin every day and the hardware for it is being improved on a daily basis, it is becoming increasingly difficult to mine Bitcoins.

Different rules may apply to mining for other cryptocurrencies. With Litecoin, for example, a new ‘block’ is found every 2.5 minutes. Litecoin also uses a completely different scrypt, making the difficulty a lot lower than with Bitcoin.

Stuff you need if you want to start mining yourself #

Of course, the final question remains: how can I start mining myself? Unfortunately, that is more difficult than you think, and there are major differences per cryptocurrency. Below is a list of ten things that you need in any case if you want to start mining.

1. A wallet of the specific coin you want to mine
2. A software mining package
3. A good and above all reliable internet connection
4. A good location. The miners can get very hot and also make a lot of noise. It is therefore not convenient to do this in your living room. The best is a cellar or shed.
5. For this reason, you also need a cooling system. Think of fans or air conditioning. It is important that you keep your equipment cold
6. A computer built specifically for mining. Gone are the days when your own home-garden-and-kitchen computer is good enough
7. An (AMD) graphics processing card (GPU) or an ASIC chip.
8. It is wise to be a member of an online mining pool. This is a pool that mines the same cryptocurrency as you. By joining this you ensure that your income is more stable.
9. If you want to sell the crypto coins, you need to be a member of an online exchange where you can sell your mined coins
10. And most importantly, you have to like it and be curious about how it all works. It is clear that the difficulty of mining continues to increase and the only way to keep up is to constantly educate yourself on how to improve your miners. You can think of it as a sport and whoever puts in the most effort will eventually get the best result.