Who are miners in simple words

Reward

Digital assets do not have a central governing body, regulators and controllers. These tasks are handled by the users themselves. Network participants are paid for maintaining the blockchain.

In the Bitcoin network, the reward for creating another block is the only way to issue new coins. The miner not only verifies and validates transactions, he creates BTC, which he takes for himself. He also receives the network’s commission. It is paid by the person who initiated the coin or token transaction.

In the Bitcoin network, the miner’s reward was 50 BTC for each block mined. This was the case in 2009, immediately after the blockchain was launched. The network uses halving, which is a 2-fold decrease in miner rewards for every 210,000 blocks mined (happens about once every 4 years). This is a tool for slowing down cryptocurrency issuance, necessary to increase hash rate in networks. The capacity grows in proportion to the number of miners.

The reward per mined block on the Bitcoin network is regularly decreasing.

Halving exists in other cryptocurrencies with PoW mechanism:

• Litecoin
• Bitcoin Cash
• Zcash
• Bitcoin SV and others.

A decrease in the reward for mining leads to an increase in the price of the digital asset. Mining participants receive fewer coins. However, due to the increase in rates, the total income of miners increases. This is the way the developers intended.

To find out the amount of income for mining newcoins, you can use calculators on the Internet. They calculate the profit of a miner, taking into account the price of equipment, electricity and other factors.

Pools

The complexity of mining is increasing over time. If in 2010 Satoshi Nakamoto and some of his followers mined bitcoins on home computers, then 3 years later it became a complex task. A miner’s profit is proportional to the performance of the hardware. Powerful computers consume a lot of electricity, so to make money from mining coins, you need to consider the price of 1 kWh.

Users began to unite in pools. The reward is divided among all participants in proportion to their contribution to computing power. In the pool, it does not matter who mined the next block of information. A special server and software are used. They distribute tasks among the pool participants and take into account the contribution of each miner for the subsequent division of profits.

When choosing a community for joint mining of coins, you need to consider different factors (reputation, the size of the commission). The largest pools at the beginning of 2023:

• BTC. The largest pool belongs to the manufacturer of mining equipment.
• Binance Mining Pool. The pool is available for mining coins using SHA-256 and Ethash mechanisms. Binance Mining Pool applies a tool to redirect the user’s hashrate to a profitable cryptocurrency at the current moment of time.
• EMCD. Multipool supports different assets using SHA-256, Scrypt, Ethash, X11 mechanisms.
• Miningrigrentals. Cloud mining pool supports different cryptocurrencies.
• Minegrate. Combined pool provides opportunities for traditional and cloud mining. 7 popular crypto assets are available for mining: Ethereum, Monero, Bitcoin Gold and others.
• Zpool. Pool does not require registration, provides a large selection of cryptocurrencies.

Example of computing

Digital assets use cryptographic encryption methods. For bitcoin and some other cryptocurrencies, the SHA-256 algorithm is used. By the terms of the network, a certain Difficulty Target value is used – a number set for that level of difficulty. The value changes over time.

Miners search for Nonce. This is a number that satisfies the conditions of the task. Nonce is hashed using algorithms (they may vary from network to network) to result in a value no greater than the Difficulty Target.

In the Bitcoin system, a transaction hash consists of 64 characters, the weight of this value is 256 bytes.

If 1 character is corrected in the example, it means that the result has changed completely.

The hash consists of several values and includes data from the previous block, the sum of transaction check numbers, and a random value. In this case, the sought parameter is one, all others do not satisfy the problem condition.

The hash value has no practical function. The whole procedure is needed only to set the necessary level of complexity, control over the issue of cryptocurrency.

You can view the information in the network browser. Example of a real hash value for the block 7000000, mined on September 11, 2021: 00000000000000000000000000000590fc0f3eba193a278534220b2b37e9849e1a770ca959.

Yield

Miners do work for a fee. Otherwise, the activity has no meaning. Depending on the network, the miner’s reward differs. In Bitcoin, it consists of mined coins and the network’s commission.

Yield is the profit of the participant of the process, taking into account all his costs. With the development of digital assets, the complexity of mining grows, performance requirements increase. For mining, different elements of the computer are used, for example:

• CPU
• Video card.

Also sometimes used special equipment – ASIC (integrated circuits). It serves only for mining.

High-performance equipment consumes a lot of electricity. This is another cost item for a miner. On the Internet there are online calculators that allow you to calculate the profitability of mining coins, taking into account different parameters. The main components for determining the profit:

• The price of electricity.
• Type of equipment (CPU, video card, ASIC).
• Model of CPU, GPU.
• The amount of equipment.

Types of mining

Mining cryptocurrency is an occupation that does not require a lot of attention and knowledge. You need startup capital to buy equipment. At the same time, you need to understand the types of mining, their differences.

Video cards

The first owners of cryptocurrencies used the CPU of their home computer to mine coins. Now the CPU power of a desktop PC is not enough. Mining bitcoins in this way will not work.

Subsequently, video cards were used for mining. Powerful GPUs of leading brands are used for mining bitcoins and altcoins:

Gaming graphics cards with high performance and resistance to heavy loads are used for mining. To increase the efficiency of GPUs, they are collected in special farms. In home conditions it is a computer with several video cards and reinforced cooling.

The advantages of this type of mining are low noise (compared to ASIC) and the possibility of mining different cryptocurrencies. Problems are similar to the rest of the equipment for mining coins:

• High power consumption.
• Requirements for a stable internet connection.
• High heat dissipation and others.

SSDs and hard disks

Bram Cohen, founder of BitTorrent, believes that cryptocurrencies based on the PoW algorithm consume too much electricity. So he created the Chia digital asset (XCH), which uses a different mechanism – Proof-of-Space-and-Time. The free space of SSD and HDD hard drives is used for mining. In May 2021, at the peak of the XCH coin’s popularity, the prices of HDDs and SSDs increased significantly.

Developers took into account that the cost of drives is much lower than gaming graphics cards or ASICs. When mining on SSDs or HDDs, power consumption does not increase.

In the spring of 2021, users created a shortage of equipment. In the summer, the price of the coin fell following the market, and mining profitability decreased. Users started selling equipment.

Besides Chia, other coins, such as Signum Coin (SIGNA) or Chives Coin (XCC), can be mined on SSDs and HDDs.

ASIC

An ASIC is a chip-based device that is built for mining coins. The power of an ASIC is disproportionately higher than the most productive computer. Asics cannot be used for any other purpose than mining cryptocurrency.

ASICs are produced for mining a specific coin. Equipment for bitcoin can not be used for another cryptocurrency and vice versa. This is one of the disadvantages of ASICs.

Despite the high cost and other nuances, ASICs provide the bulk of mining. They are used by pools to assemble industrial mining farms. Many companies that produce Asics, themselves mine coins.

Cloud mining

Mining cryptocurrency can also be done with rented equipment. This option is called cloud mining. The owners of the equipment create the necessary conditions for mining coins. Those who wish to participate pay for the rental of resources. You do not need to buy equipment or create a farm.

Cloud mining is a way to earn money on the extraction of cryptocurrency, which can end badly. There is a risk of falling for scammers. They collect rent and disappear. For the sake of appearances, attackers can even pay dividends to pool participants for a few months.

Problems of miners

Mining digital assets has its own disadvantages. The main problems include the following:

• High electricity costs. It is not for nothing that large pools mine in countries with inexpensive access to energy.
• Powerful and productive equipment is expensive. You can no longer mine on the CPU of a home computer. You need to create a farm, buy separate video cards or Asics, and design cooling.
• At the global level, coin mining is highly dependent on the legislation in the country. For example, more than half of all capacities were located in China. After the PRC authorities banned mining, farm owners moved their equipment to other countries (USA, Kazakhstan, Russia).

The problem is unauthorized consumption of electricity. The authorities of different countries are trying to regulate this direction: they use additional taxes, impose restrictions.

How to become a miner

To earn on the mining of cryptocurrency, you need to understand the basic mechanism. It is necessary to determine the asset, the method of mining. You can choose independent mining of coins, participation in a pool or renting cloud equipment.

To assemble a farm, you need to buy:

• A video card or even several
• Motherboard
• Processor
• Power supply
• Hard disk
• Cooling system.

Using calculators on the Internet, potential miners calculate the profitability of the business, taking into account the cost of electricity in the region and the price of buying equipment. A more expensive way is to implement Asics.

The choice of pool or service for cloud mining depends on the algorithms and coins with which companies work. The size of the commission is important, the profit of the participant will depend on it.

The choice of cryptocurrency is also an important stage. On small capacities, it is better to mine new altcoins with subsequent conversion to other coins.

Summary

Mining coins with the PoW algorithm is the basis of their existence. Users who mine koins and confirm transactions participate in supporting the performance of the network. Thanks to miners, the basic principle of digital assets – decentralization – is realized.

Frequently Asked Questions