Who pays for cryptocurrency mining

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The history of digital assets began in 2008 with their creator, Satoshi Nakamoto, who posted a description of the Bitcoin network to the public. Already in September 2009, the first virtual coin was exchanged for fiat. The article describes the mechanism of mining digital koins and who pays for mining cryptocurrency.

The essence of mining

The word “mining” is translated from the English mining as “mining”, “mining”. This includes creating new coins and verifying transactions with already mined digital assets. This is done in a decentralized manner – there are no regulators and no single servers for storage. Transactions and calculations take place within a network formed by users’ computers around the world. Their task is to verify and protect everything that is entered into the registry.

Blockchain

This is the name of a decentralized data registry for recording and storing information on multiple servers (computers) simultaneously. The word itself is a transliteration of the English blockchain. Each subsequent fragment of the record is linked to the previous one, and correction of one symbol leads to changes in the whole chain. As new information becomes available, links are added and data is updated on all nodes (copies scattered across the network).

Before a new block can be included in the registry, it must be confirmed by a majority of the network. This makes it difficult to hack and manipulate cryptocurrency. You cannot add arbitrarily written code to the database or reuse a coin in a single transaction: such operations will be blocked.

Thousands of transactions are conducted daily through the blockchain – users change, sell and buy cryptocurrency. When this happens, a commission is deducted, which is not deposited in the system, but is distributed among network participants as a reward for confirming transactions. All of this is entered into the registry as blocks of information confirmed by users – that’s what bitcoin and other asset miners are paid for.

Reward for computing

In addition to earning money from validating transactions, cryptocurrency is mined by calculating. For calculating and adding each block to the register, the system mints a certain number of coins. They are received by the one who mined the information and replenished the blockchain with it. To do this, it is necessary to solve a complex task offered by the network.

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The amount of digital currency in one block varies – it depends on the system. In the table – the difference between the features of bitcoin and etherium mining.

Parameter	Bitcoin	Ethereum
Quantity	21 million	Not set
Reward per block	Reduces by 50% every 210,000 blocks (as of 2022 was 6.25 BTC)	Variable depending on system requirements
Generation of new registry sections (frequency)	10 minutes	15 seconds

At the very beginning of the birth of mining, a home computer was sufficient for computing. With each block found and added, the solutions became more complex and the power requirements multiplied.

Now a PC with a simple video card is not enough to mine coins. This was one of the reasons why prices for computer hardware began to rise faster than usual. Miners are buying up video cards and integrated circuits (ASICs) to increase power, causing shortages.

So who pays for coin mining

The question of where the money comes from when mining cryptocurrency has these answers:

Commissions. Already issued coins are constantly sold, bought, given as gifts, paid for services and goods with them. For each operation, a certain amount is charged, which goes into the pocket of miners. Digital assets are distributed by the system.
Issuance of new coins. For each block computed and inscribed, the system allocates cryptocurrency to the participant on whose hardware the problem was solved. Here, miners are rewarded by the algorithm that underlies a particular network.

Bitcoin, Ethereum and other popular koins are needed by buyers: traders on the exchange, customers of online stores, payment systems that take a commission for conversion. In the end, miners are paid money by end users who need the mined cryptocurrency.

Frequent questions from users

❓ Where are mining farms sold?

Numerous specialized or universal online stores deal with these. For example, on AliExpress you can buy a small device or components for it.

⏳ How long does the equipment pay off?

It depends on its cost, quality and energy consumption. For example, if you take a Bitmain Antminer E9 (price average $35,000), it will bring a little more than $64 per day at the cost of electricity $0.1 kWh and will pay off in about a year and a half.

❕ Is mining legal in the Russian Federation?

As of May 2022, the bill on regulating the crypto market was already under consideration by the government. There were no proposals regarding the mining of digital assets.

✅ Can I build a miner myself?

Yes. The components are sold on such marketplaces as AliExpress, OZON and others.

👛 Do I have to have a wallet to mine cryptocurrency?

Yes. The vault will come in handy for receiving rewards and conducting transactions.

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Author: Saifedean Ammous, an expert in cryptocurrency economics.