Since 2009 when the first cryptocurrency was introduced to the world, many new perspectives have been shared about its activities, data and power consumption for mining, and how it is used. To some, cryptocurrency is a replacement for paper money, the centralized banking system, and the regulations that come with it. To others, their concern is how this cryptocurrency will be produced and the unit of measuring its value.
All these opinions are expected for a revolution as that which digital currencies and its transactions are driving on the web. While it might be difficult to decide which opinion is true and which isn't, one thing is certain; we live in a world where everything including transactions can be done online using computers.
If virtually every transaction can be done virtually, what is stopping us from having a digital currency that matches the reality of our digital world in the best possible way? Of course, nothing is stopping us, and that is why we have cryptocurrencies.
Despite many users hearing a lot of information about these digital currencies and even spending time around people who trade them, there are still many questions? What is cryptocurrency? Who and what is regulating its operation? How does cryptocurrency work? Where and how can one use digital currencies? What is cryptocurrency mining?
Questions will always keep coming up around the subject of digital coins, data security, safety of transactions, and the possibility of malware infiltrating computers. The most important thing is the best answers that are provided to these questions as proof of sustainability of these coins. Proffering answers to these questions help to build the trust people have in cryptocurrencies and attract new investors.
In this article, Superprof attempts to answer one of the pressing questions Nigerians are asking around the subject of cryptocurrency. What is cryptocurrency mining? How can one go about it?
How is Bitcoin Mined?
First, it appears like the discussion is around cryptocurrency mining, and now it seems like the focus is shifted to Bitcoins. Yes, and that is because there is no way you will understand and appreciate what cryptocurrency mining is without recourse to the first coin that was created - Bitcoin.
Nakamoto Satoshi created Bitcoin in 2009 as the first digital currency. The creation of Bitcoin was followed by a series of activities like sparking the interest of investors, suffering a major setback, inspiring the creation of other coins, and bouncing back to success. It also set in motion what is now referred to as cryptocurrency mining.
Crypto mining on the network began immediately Bitcoin was created in 2009 through a defined method. However, a lot has changed in recent times, as several rules and methods of mining cryptocurrency exist today that are differet from the initial or original ones. The focus here seems to be Bitcoin because it holds the record of being the most mined cryptocurrency in the world.
There were two primary reasons why Satoshi Nakamoto introduced mining and the rules of mining Bitcoin. The first is to ensure that more Bitcoins are made available for better circulation. Then, as more people began hearing about Bitcoins, especially the prediction of it being the future of global currency, there was a high demand. With the mining process and rules, it becomes possible for Bitcoin to be available in the needed volume.
Secondly, the rules of mining cryptocurrency were established to create a system that rewards miners for work done. These miners are saddled with the responsibility of verifying every transaction that is carried out regarding Bitcoin. This way, the challenge of double spending can be effectively managed.
While these rules were primarily designed for Bitcoin, they have been widely used and moderated by other cryptocurrencies.
The mining process involves scanning through several Bitcoin transactions and number to prevent anyone from using the same amount of coin twice on the block. Considering many Bitcoin investors, this appears to be a challenging task, which is why rules and rewards were created.
For a miner to be awarded a certain amount of Bitcoin, they must have verified 1MB of transactions and must also be the first to solve the numeric problem before any other person does. The first condition looks pretty simple, but the second doesn't. You have to be patient and take all your time to pass the second condition.
After completing all the necessary steps, miners have a payday and how much they make varies. However, beyond the money you get, what matters is that you get an incentive for doing what you do. Worthy of note is the amount accrued to Bitcoin miners reduces every four years.
It was 50 BTC in 2009 when Bitcoin launched, 25 BTC in 2012, 12.5 BTC in 2016, and 6.25 BTC in 2020. Considering all of these, how do you calculate how much a Nigerian cryptocurrency miner gets? Let's do that using fictitious figures.
Imagine the current market value of Bitcoin is $45,000. To calculate how much a miner gets, you will need to multiply the current reward by the market value, which will be 6.25 BTC x $45,000. That's a whopping $281,250. Convert that into naira and see how rich you will be!
Read on the basics of cryptocurrency investment!
How is Ether Mined?
While Bitcoin is the most popular cryptocurrency globally, Ethereum has grown to be the second in line, and that is why we have decided to consider how it is mined. Many of the mining rules and methods that govern Ether were derived from Bitcoin, so they share certain similarities. However, a few modifications were made, and that's what we will focus on here.
Ether takes a different turn from Bitcoin in that it uses the proof of stake model running on a ledger. This method depends less on the activities of miners globally, but monitors blocks and hash on the blockchain. Instead, it makes use of a system called Blockchain . The use of block or hash on the ledger network doesn't take away the activities of miners totally; it only regulates it and guarantees security of the block and network.
With the Blockchain system, Ether uses smart contacts, which take the form of different mining pools. Using these smart contracts, you can mine Ethereum in less than 20 seconds. Many miners on the Ether network start by building a successful mining farm with less energy. Rigs are then established on these mining blocks to acquire more blocks.
As a miner, you might not make as much mining Ether as you will mining Bitcoin, and that's because it is not so complex.
The Good Side of Cryptocurrency Mining
Crypto mining is not without its advantages and disadvantages, and before you venture into it, knowing what these advantages and disadvantages are will help you.
Major advantages of cryptocurrency mining include:
It's a good way to make money
With the right hardware device and access to constant electricity, you can mine crypto and make a lot of money from it. Alongside hardware and electricity, you will also need patience and the ability to guess right.
It's a good way to grow cryptocurrencies
The activities of miners are what make cryptocurrency as valuable as it is. Beyond earning cryptocurrency and making money from it, miners contribute immensely to the growth of cryptocurrencies worldwide.
The Drawbacks of Cryptocurrency Mining
Nigerians always want to hear the good side of things, especially when it is profitable. Many people focus on the good that they overlook the dangers in their entirety. Crypto mining is not without its drawbacks, and some of them include:
High electricity consumption
Many people who have considered cryptocurrency mining at one point or the other can testify how much electricity it consumes. If you must go into cryptocurrency mining, you must be ready to provide the same amount of energy to power a region.
Increased energy bills
High power consumption doesn't stand on its own. Instead, it results in increased energy bills. The cost of having and maintaining a mining rig to sustain the activities of every block on the network is on the high side financially and can have some devastating effects on the ecosystem.
Higher cost of hardware devices
To mine cryptocurrencies effectively, you must have important hardware devices, and one of them is Graphics Processing Unit for effective data management. These new hardware devices are needed to install and maintain the mining rig. Not only will you have to prepare a huge budget for these hardware devices, but the chances are also that they may be out of stock.
Crypto miners are as important to cryptocurrency as digital currencies are to the digital world. While the process of crypto mining can be a bit tedious and time-consuming, the services of crypto miners will always remain vital to the future of cryptocurrencies. You can be based in Nigeria and still venture into mining of digital coins provided you can access original hardware devices and know the appropriate way to go about it.
The platform that connects tutors and students