The Genesis Block, the initial block of the Bitcoin network, was mined on the computer’s central processing unit in 2009 by a person using the alias Satoshi Nakamoto. (CPU).
As the network’s computer capacity continues to increase and the market capitalization of the first cryptocurrency approaches its peak, mining has evolved from CPU mining to graphics processing unit (GPU) mining and, finally, to ASIC mining. CPU mining will therefore be essentially useless in 2022 and 2023.
However, the mining sector is still developing.
Despite occasional setbacks, the cryptocurrency industry is still growing, luring more and more newcomers to try and claim a piece of the crypto cake, especially through crypto mining, which is now feasible in a variety of ways.
Is GPU Mining Dead?
The majority of cryptocurrency enthusiasts have relied on mining with graphics cards or graphics processing units (GPUs) for a while to produce their digital assets, but Vosk believes that this method is no longer economically feasible.
The only graphics cards that currently generate more revenue than they consume in the form of electricity are four, and none of them generate more than 24 cents per day. Moreover, they cost between $600 and $2,000, leading the YouTuber to conclude that “GPU mining is completely obsolete.”
Alternatives to GPU mining
Vosk has examined a number of alternatives to GPU mining, but there are many others.
1) Hard Drive Mining
Hard drive mining, for example, using Evergreen Miner v2, a plug-and-play mining option that generates an average of $60 per month, is one of the most practical long-term cryptocurrency mining options.
Vosk recommends it for mining Chia (XCH) because it offers a mining rig that is quiet, produces little heat, and is inexpensive to operate. Prices range from $299 for a very basic Starter Kit to $2,799 for the Starter Kit Pro.
2) 5G Mining
In addition, Vosk mentions Bobcat miners like the Bobber 500 as a way to mine Helium (HNT) using 5G cellular and LoRaWAN wireless coverage, though this is not a very appealing or lucrative option given that his 18 Helium hotspot miners have only produced $1 per day.
His unpleasant interactions with Helium and NovaLabs have also turned him off, which contributes to his lack of trust in cryptocurrencies. However, he admits that “5G mining could prove to be lucrative whether people love that or hate that.”
3) ASIC Mining
The Bitmain Antminer K7, the second-most profitable miner after the Bitmain Antminer KA3 model, is another viable alternative to GPU and CPU mining that Vosk suggests, though he emphasizes that because it is a relatively new product on the market, the profit figures can change significantly.
Furthermore, he mentioned the Bitmain Antminer L7, which is available at the mining rig reseller CoinMining Central at the price of $10,725 a piece, whereas the K7 costs $5,728, slightly more expensive than on Bitmain’s website but comparably more available.
4) Equihash Mining
Furthermore, Vosk discussed Equihash mining, the algorithm that enables mining cryptocurrencies resistant to ASICs like Zcash (ZEC), which he advises taking into account despite criticism and derision of the token as “Z-trash” from many.’
Currently, there is only one miner showing up as profitable for mining Equihash cryptocurrencies – Bitmain Antminer Z15 from 2020 – which Vosk doesn’t see as very viable considering it is already three years old, and he projects many new Equihash mining devices replacing it very soon.
Crypto Mining is Still Profitable
Vosk’s final piece of advice is for viewers who already have equipment that makes a few dollars per day to keep using it, but to ultimately consider which option is best for them by running the numbers and comparing electricity rates.
Another choice is to build a crypto mining rig from the ground up, which may seem difficult to a beginner but, with some assistance, can become a fun and perhaps very rewarding activity that could pay off in the future, depending on the circumstances in the crypto field (and beyond).
However, using solar energy to mine cryptocurrency might be the best option, despite being a weaker one and with variable results, if independence from the local grid and compensating the electricity waste produced by mining Bitcoin (BTC) sound more appealing.
Key Terminologies
Cryptographic Puzzle – A decryption key is required to solve this particular type of puzzle because it uses cryptography to hide a secret message or piece of information.
Non Fungible Tokens – The ownership, provenance, and authenticity of these distinctive digital assets are confirmed using blockchain technology.
Mining Pool – It is a collective of cryptocurrency miners who pool their computing power to increase their chances of cracking cryptographic puzzles and obtaining rewards, which are then divided among the pool’s participants.
Mining Rewards – These are the rewards received by cryptocurrency miners for resolving difficult cryptographic conundrums and confirming transactions on a blockchain network, which typically take the form of freshly created coins and transaction fees.
Crypto Mining – It is a fiercely competitive, resource-intensive process that is becoming more specialized. The market is dominated by large-scale mining operations, which need specialized equipment and easy access to cheap energy.
Block Reward – It is the sum of cryptocurrency awarded to miners for successfully adding a new block to a blockchain network, and it frequently consists of freshly created coins and transaction fees.
Bitcoin mining is referred to as the method of verifying Bitcoin transactions on the blockchain and generating new Bitcoin just like a central bank printing new fiat currency.
These are the other elements involved in Bitcoin mining as well as how Bitcoins are actually mined.
Understanding Blockchain and Bitcoin
Before understanding how Bitcoins are actually mined, it is important to understand the concept of blockchain and Bitcoin.
Consider blockchain as a central ledger where all cryptocurrency transactions are kept track of. A blockchain is a specific type of digital data structure that enables the sharing of a ledger of digital transactions among a distributed network of computers. In short, a blockchain is a way of digitally documenting data on a distributed ledger.
A blockchain network, which is the foundation of Bitcoin, is made up entirely of computers and typically stores and records transactions. Only after each block has been examined and approved by miners are transactions added to the blockchain. Since the transactions are now already on the blockchain, it is no longer possible to change them after this.
Digital currencies such as Bitcoin use the distributed ledger technology, which is a unique feature of blockchain technology as it ensures no records can be altered, and thus offers a much better transparency of transactions. The Bitcoin blockchain network uses the latest cryptographic algorithm techniques of SHA-256, which is responsible for converting the data into a unique string of characters.
What is Bitcoin Mining?
The process by which new bitcoins are placed into circulation is known as bitcoin mining. It is an essential part of the development and maintenance of the blockchain ledger and is also how the network confirms new transactions. “Mining” is performed using sophisticated hardware that solves an extremely complex computational math problem. The next block of bitcoins is distributed to the first computer to solve the issue, and the cycle repeats.
Mining for cryptocurrencies is time-consuming, expensive, and only occasionally profitable. However, due to the fact that miners are compensated in cryptocurrency tokens for their efforts, mining has a magnetic draw for many investors who are interested in cryptocurrencies. This may be because entrepreneurial types see mining as pennies from heaven, like California gold prospectors in 1849. Why not do it if you have a flair for technology?
The bitcoin reward that miners receive encourages people to help with the main goal of mining, which is to legitimate and oversee Bitcoin transactions in order to ensure their validity. Because many users all over the world share these responsibilities, Bitcoin is a “decentralized” cryptocurrency, or one that does not rely on any central authority like a central bank or government to oversee its regulation.
However, before you invest the time and equipment, read this explainer to see whether mining is really for you.
Key Takeaways
You can earn cryptocurrency through mining without having to pay any upfront costs.
Bitcoin miners receive bitcoin as a reward for completing “blocks” of verified transactions, which are added to the blockchain.
The miner who solves a difficult hashing puzzle first receives mining rewards, and the likelihood that a participant will find the solution is correlated with their share of the network’s overall mining power.
To set up a mining rig, you need either an application-specific integrated circuit (ASIC) or a graphics processing unit (GPU).
Throughout, we use “Bitcoin” with a capital “B” when referring to the network or the cryptocurrency as a concept, and “bitcoin” with a small “b” when we’re referring to a quantity of individual tokens.
Why Bitcoin Needs Miners
Blockchain “mining” is a metaphor for the computational work that nodes in the network undertake in hopes of earning new tokens. Actually, miners are essentially being compensated for acting as auditors. They are doing the work of verifying the legitimacy of Bitcoin transactions. This convention is meant to keep Bitcoin users honest and was conceived by Bitcoin’s founder, Satoshi Nakamoto.1 By verifying transactions, miners are helping to prevent the “double-spending problem.”
Double spending is the illegal use of the same bitcoin by the same Bitcoin owner twice. With physical money, this isn’t a problem: When you hand someone a $20 bill to buy a bottle of booze, you no longer have it, so there’s no chance you could use it to buy lottery tickets next door. Contrary to popular belief, it is not physically possible to spend the same dollar twice. With digital currency, however, as the Investopedia dictionary explains, “there is a risk that the holder could make a copy of the digital token and send it to a merchant or another party while retaining the original.”
Let’s say you had one legitimate $20 bill and one counterfeit of that same $20. If you were to try to spend both the real bill and the fake one, someone who took the trouble of looking at both of the bills’ serial numbers would see that they were the same number, and thus one of them had to be false. An analogous task is performed by blockchain miners, who examine transactions to make sure users haven’t attempted to spend the same bitcoin twice inadvertently. The reason why this isn’t a perfect analogy is explained in more detail below.
Only 1 megabyte of transaction data can fit into a single bitcoin block. Satoshi Nakamoto set the block size limit at 1MB, but this has caused controversy because some miners think it should be increased to accommodate more data. If so, the Bitcoin network would be able to process and verify transactions more quickly.
Types of Bitcoin Mining
There are various methods and forms of mining bitcoin that each produce varying amounts of hashing power and block rewards. Here are the various ways that one can mine Bitcoin:
CPU Mining
Central processing units (CPUs), also referred to as the brain of a computer and containing all the circuitry needed to process input and output results, were used to mine Bitcoin when it was first introduced in 2009 and for the first time. Because there were few miners and Bitcoin was still in its infancy, it was simple to mine bitcoins using CPUs in the early days.
GPU Mining
GPU mining gradually entered the scene as graphics processing units (GPUs) became more and more competitive as Bitcoin’s acceptance and popularity grew over time.
GPUs based systems, which are mainly used for gaming, modern video editing, proved to be more efficient for mining with better hash rate than CPUs. 2010 saw the introduction of the initial GPU mining software. However, Bitcoin GPU mining was only used for a brief period before being replaced by ASIC hardware by 2015.
ASIC Mining
ASIC, or application-specific integrated circuit, is a type of hardware made specifically for mining cryptocurrencies. It was launched in 2012, and proved to be 200 times more powerful than basic GPU miners. However, ASIC mining rigs are very expensive, with prices ranging from $2,000 to $15,000. Buying ASIC miners might be very expensive because of variable power consumption, fluctuating electricity costs, and network challenges. The two most widely used ASIC miner brands at the moment are Bitmain Antminer and MicroBT Whatsminer.
Another excellent option for Bitcoin mining is the MicroBT Whatsminer M20, Whatsminer M30, and Whatsminer M50 series.
FPGA Mining
Field-programmable gate arrays, also known as FPGAs, are faster and more cost-effective than ASIC and GPU mining, respectively. As opposed to ASIC miners, which are designed to be locked into mining a single coin or algorithm, FPGAs are able to maintain strong hashing power. The kind of hardware technology gives flexibility to the miner to reuse the set-up if they change your mining activity for something else. Crypto enthusiasts who don’t want to spend a fortune on mining equipment should consider FPGA miners.
Cloud Mining
This is the most recent method of mining Bitcoins, where the miner can purchase a contract from a cloud mining provider who specializes in cryptocurrency mining equipment or a cloud mining service. This enables the miner to mine bitcoins without having to pay the setup costs and maintenance costs associated with mining hardware. However, one must be extremely careful when selecting a reputable cloud miner in order to avoid any scams or frauds.
Why Mine Bitcoin?
In addition to lining the pockets of miners and supporting the Bitcoin ecosystem, mining serves another vital purpose: It is the only way to release new cryptocurrency into circulation. In other words, miners are basically “minting” currency. For instance, out of a total of 21 million bitcoins, there were just under 19 million in use as of March 2022.
All of those bitcoins were created by miners, with the exception of those that were created through the genesis block, the very first block that creator Satoshi Nakamoto created. The Bitcoin network would continue to function without miners, but no new bitcoins would ever be created. However, because the rate of bitcoin “mined” is reduced over time, the final bitcoin won’t be circulated until around the year 2140. This does not mean that transactions will cease to be verified. Miners will continue to verify transactions and will be paid fees for doing so in order to keep the integrity of Bitcoin’s network.
To earn new bitcoins, you need to be the first miner to arrive at the right answer, or closest answer, to a numeric problem. Proof of work (PoW) is another name for this procedure. For this proof-of-work activity to start, mining must be started in order to start looking for the solution to the puzzle.
There isn’t really any complex math or computation involved. You may have heard that miners are solving difficult mathematical problems—that’s true but not because the math itself is hard. What they’re actually doing is trying to be the first miner to come up with a 64-digit hexadecimal number (a “hash”) that is less than or equal to the target hash. Essentially, it is speculation.
Since there are trillions of different guesses that could be made for each of these problems, it is a matter of randomness, but it is still a very laborious task. Additionally, as more miners join the mining network, the number of potential solutions (also known as the level of mining difficulty) only grows. Miners need a lot of processing power to solve a problem first. To mine successfully, you need to have a high “hash rate,” which is measured in terms gigahashes per second (terahashes per second (TH/s) and gigahertz (GH/s).
Aside from the short-term payoff of newly minted bitcoins, being a coin miner can also give you “voting” power when changes are proposed in the Blockchain protocol. A Bitcoin Improvement Protocol (BIP) is what is used in this situation. In other words, miners have some degree of control over decisions regarding things like forking. You need to vote for these initiatives more often the more hash power you have.
How Much a Miner Earns
The rewards for Bitcoin mining are reduced by half roughly every four years.1 In 2009, when bitcoin was first being mined, one block would bring in 50 BTC. This was reduced to 25 BTC in 2012 by half. At 12.5 BTC in 2016, this had once more been cut in half. On May 11, 2020, the reward halved again to 6.25 BTC. You would have made $243,750 (6.25 x 39,000) for completing a block as of March 2022, when the price of Bitcoin was approximately $39,000 per bitcoin. Not a bad incentive to solve that complex hash problem detailed above, it might seem.
You can check the Bitcoin Clock, which continuously updates this information, to keep track of when these halvings will take place. It’s interesting to note that over the course of its history, the market price of Bitcoin has frequently tended to closely track the decline in the number of new coins put into circulation. Due to historically rising prices and increasing scarcity, the inflation rate’s decline increased the price.
The website CryptoCompare provides a helpful calculator that you can use to estimate how much bitcoin you could mine using your mining rig’s hash rate. Similar tools are available on other websites.
Earlier in Bitcoin’s history, it was possible for users to compete for blocks using a standard home computer, but this is no longer the case. The reason for this is that the difficulty of mining Bitcoin changes over time.
The Bitcoin network strives to have one block generated approximately every 10 minutes in order to ensure that the blockchain operates without a hitch and can process and verify transactions. However, if there are 1 million mining rigs competing to solve the hash problem, they’ll likely reach a solution faster than a scenario in which 10 mining rigs are working on the same problem. For that reason, Bitcoin is designed to evaluate and adjust the difficulty of mining every 2,016 blocks, or roughly every two weeks.1
When there is more computing power collectively working to mine for bitcoins, the difficulty level of mining increases in order to keep block production at a stable rate. The level of difficulty decreases as computing power is reduced. At today’s network size, a personal computer mining for bitcoin will almost certainly find nothing.
Mining Hardware
All of this means that miners must now make investments in high-end computer hardware like a graphics processing unit (GPU) or, more realistically, an application-specific integrated circuit (ASIC) in order to mine effectively. These can cost anywhere from $500 to several thousand dollars. Some miners, especially Ethereum miners, purchase individual graphics cards as a cheap way to put mining operations together.
ASIC machines, which in this case are designed specifically to mine bitcoins, make up the majority of today’s bitcoin mining equipment. Today’s ASICs are many orders of magnitude more powerful than CPUs or GPUs and gain both more hashing power and energy efficiency every few months as new chips are developed and deployed. With just 27.5 joules per terahash, modern miners can produce close to 200 TH/s.
An Analogy
Let’s imagine that after telling three friends that I’m thinking of a number between one and 100, I write that number down on a piece of paper and enclose it in an envelope. My friends just have to be the first to guess any number that is less than or equal to the given number. They don’t even have to guess the exact number. They can make as many guesses as they want, with no upper limit.
Let’s say I’m considering the number 19. Because 21 > 19, if Friend A guesses 21, they lose. In the event that Friend B guesses 16 and Friend C guesses 12, they have both theoretically arrived at workable solutions because 16 19 and 12 19 respectively. There is no “extra credit” for Friend B, even though B’s response came closer to the desired outcome of 19 than did B. Now imagine that I pose the “guess what number I’m thinking of” question, but I’m not asking just three people, and I’m not imagining a number between 1 and 100. I’m thinking of a 64-digit hexadecimal number instead, and I’m asking millions of would-be miners. You can now see that it will be very challenging to make the correct guess. The system collapses if B and C give their responses at the same time.
Although there are frequently multiple correct answers in the context of Bitcoin, ultimately there can only be one. The Bitcoin network will choose which miner to honor by a simple majority of 51 percent when multiple concurrent answers are given that are equal to or less than the target number.
Usually, the miner who has worked the hardest or, to put it another way, the one who has verified the most transactions, wins. The losing block then becomes an “orphan block.” A block that is not added to the blockchain is an orphan block. Miners who successfully solve the hash problem but haven’t verified the most transactions are not rewarded with bitcoin.
There are 64 digits in the number above. So far, comprehension isn’t too difficult. As you probably noticed, that number also includes letters from the alphabet in addition to numbers. Why is that?
To understand what these letters are doing in the middle of numbers, let’s unpack the word “hexadecimal.”
The decimal system uses factors of 100 as its base (e.g., 1% = 0.01). This, in turn, means that every digit of a multi-digit number has 100 possibilities, zero through 99. In computing, the decimal system is simplified to base 10, or zero through nine.
“Hexadecimal,” on the other hand, means base 16 because “hex” is derived from the Greek word for six, and “deca” is derived from the Greek word for 10, which has a hexadecimal system with 16 possible digit combinations. However, our numeric system only supports ten different ways to represent numbers (zero through nine). You must therefore add letters, specifically letters A, B, C, D, E, and F.
The hash’s total value, which is a 64-digit number, does not need to be determined if you are mining bitcoin. I’ll say it again: You don’t have to figure out a hash’s total value.
What Do ’64-digit Hexadecimal Numbers’ Have to Do With Bitcoin Mining?
Do you recall the analogy where the number 19 was written on a piece of paper and placed in a sealed envelope? The metaphorical unpublished number in the envelope is known as the target hash in the context of bitcoin mining.
Miners are making educated guesses about the target hash using those massive computers and numerous cooling fans. Miners make these guesses by randomly generating as many “nonces” as possible, as quickly as possible. A nonce is short for “number only used once,” and the nonce is the key to generating these 64-bit hexadecimal numbers As I keep mentioning, a nonce in Bitcoin mining is 32 bits in size, which is considerably less than the hash, which is 256 bits. The credit for finishing that block and 6.25 BTC are given to the first miner whose nonce generates a hash that is less than or equal to the target hash.
Although rolling a 16-sided die 64 times to generate random numbers theoretically could lead to the same result, why on earth would you want to do that?
The screenshot below, taken from the site Blockchain.info, might help you put all this information together at a glance. You are viewing a summary of everything that occurred during the mining of block No. 490163. The nonce that generated the “winning” hash was 731511405. The target hash is displayed at the top. The term “Relayed by AntPool” refers to the fact that this particular block was completed by One of the more popular mining pools is AntPool (more on mining pools below).
As you can see, they contributed to the Bitcoin community by validating 1,768 transactions for this block. If you really want to see all 1,768 of those transactions for this block, go to this page and scroll down to the Transactions section.
Source: Blockchain.info
How Do I Guess at the Target Hash?
A line of leading zeros appears at the start of every target hash. Although there isn’t a minimum target, the Bitcoin Protocol has set a maximum target. No target can be greater than this number:
A hash that has at least the minimum amount of leading zeroes specified by the mining difficulty is the one that a bitcoin miner will be able to successfully mine.
Here are some examples of randomized hashes and the criteria for whether they will lead to success for the miner:
You must purchase a quick mining rig or, more realistically, join a mining pool, which is a collection of Bitcoin miners who pool their computing power and divide the generated Bitcoin, in order to find such a hash value. Mining pools are comparable to Powerball clubs whose members buy lottery tickets en masse and agree to share any winnings. Instead of individual miners, mining pools produce a disproportionately large number of blocks.
In other words, it’s literally just a numbers game. You cannot guess the pattern or make a prediction based on previous target hashes. At today’s difficulty levels, the odds of finding the winning value for a single hash is one in the tens of trillions.6 Even with a mining rig that is extremely powerful, the odds are not favorable if you are working alone.
In addition to the high cost of the expensive equipment needed to have a chance of succeeding in a hash problem, miners must also take into account the significant amount of electricity that mining rigs use to produce the vast quantities of nonces necessary to find the answer. All things considered, most individual miners are currently largely losing money when mining bitcoins. You can enter information like your hash rate and electricity costs into the helpful calculator on the website CryptoCompare to get an idea of the costs and benefits.
Source: CryptoCompare
What Are Mining Pools?
The miner who discovers a solution to the puzzle first receives the mining rewards, and the probability that a participant will be the one to discover the solution is equal to the proportion of the total mining power on the network.
A small number of participants have a very slim chance of independently finding the upcoming block. For instance, a mining card that one could purchase for a couple of thousand dollars would represent less than 0.001% of the network’s mining power. With such a small chance at finding the next block, it could be a long time before that miner finds a block, and the difficulty going up makes things even worse. The miner might never get their money back. The solution to this issue is mining pools.
Third parties manage mining pools, which assemble miner groups. Miners are able to receive a consistent supply of bitcoin from the moment they turn on their miners by cooperating in a pool and splitting the payouts among all members. On Blockchain.info, statistics on a few of the mining pools are available.
A Pickaxe Strategy for Bitcoin Mining
As mentioned above, the easiest way to acquire Bitcoin is to simply buy it on one of the many Bitcoin exchanges. Alternately, you can always leverage the “pickaxe strategy.” This is based on the adage that during the California Gold Rush of 1849, manufacturing the pickaxes used in mining was a wiser investment than panning for gold.
To put it in modern terms, invest in the companies that manufacture those pickaxes. An organization that produces tools used for Bitcoin mining would be the pickaxe’s cryptocurrency equivalent. You may consider looking into companies that make ASIC equipment or GPUs instead, for example.
Downsides of Mining
The risks associated with mining are frequently monetary and legal. As mentioned, mining involves a risk in terms of money because one might spend time and money buying mining equipment costing hundreds or thousands of dollars only to see no return on their investment. That being said, joining mining pools can help to reduce this risk. You should think twice if you want to mine but live in an area where it is illegal. It may also be a good idea to research your country’s regulation and overall sentiment toward cryptocurrency before investing in mining equipment.
A further potential danger stemming from the expansion of Bitcoin mining (and other PoW systems as well) is the rising energy consumption of the computer systems that power the mining algorithms. Though microchip efficiency has increased dramatically for ASIC chips, the growth of the network itself is outpacing technological progress. As a result, there are concerns about Bitcoin mining’s environmental impact and carbon footprint.7
However, there are initiatives to reduce this unfavorable externality, including the use of carbon offsets and the search for more environmentally friendly and cleaner energy sources for mining operations (such as geothermal or solar sources). Another approach is to switch to less energy-intensive consensus mechanisms, such as proof-of-stake (PoS), which Ethereum has adopted. However, PoS has its own set of flaws and inefficiencies, including a risk of consensus control centralization and an incentive for hoarding rather than using coins.
Because mining requires (computational) work, much like mining for gold or silver does, it can be thought of as the process of adding new bitcoins to the system. The tokens that miners discover are, of course, virtual and only exist within the blockchain’s digital ledger.
Why Do Bitcoins Need to Be Mined?
There is a chance that someone could copy, counterfeit, or use the same coin more than once because they are entirely digital records. Mining solves these problems by making it extremely expensive and resource-intensive to try to do one of these things or otherwise “hack” the network. Indeed, it is much more economical to become a miner on the network rather than to try to undermine it.
How Does Mining Confirm Transactions?
In addition to adding new Bitcoin to the market, mining is essential for validating and confirming fresh transactions on the Bitcoin blockchain. This is significant because no single body, be it a bank, court, government, or anything else, decides which transactions are legitimate and which ones are not. Instead, a decentralized consensus is reached through mining using proof of work (PoW).
Why Does Mining Use So Much Electricity?
Anyone could easily run a mining program from their computer or laptop in the early days of Bitcoin. However, the difficulty of the mining algorithm increased as the network grew larger and more people became interested in mining. This is because the code for Bitcoin targets finding a new block once every 10 minutes, on average.1
The likelihood that someone will find the correct hash sooner rises as the number of miners increases, which makes it harder to achieve the original 10-minute goal. Imagine if the network’s mining capacity increased by thousands or even millions of times. There are a lot of new machines using that much energy.
The Bottom Line
Bitcoin “mining” serves a crucial function to validate and confirm new transactions to the blockchain and to prevent double-spending by bad actors. New bitcoins are also added to the system in this manner. The task involves producing proof of work (PoW), which is inherently energy-intensive and is based on a challenging puzzle. However, this energy is embodied in the value of bitcoins and the Bitcoin system, which maintains the stability, security, and reliability of this decentralized system.
According to developers’ plans, the Ethereum blockchain will switch to the Proof-of-Stake (PoS) mining algorithm in 2022. This will mean the end of ETH mining using specialized equipment. The number of tokens stored in a user’s account will now play a key role.
Features of Ethereum mining in 2021
Initially, the Etherium blockchain uses the Proof-of-Work (PoW) consensus algorithm. With this network mechanism, the creation and verification of new blocks takes place by solving mathematical problems. This process requires enormous computing power. It can be performed with special equipment:
processors;
video cards;
ASIC (integrated circuit of special purpose).
It is worth mentioning that in this case we don’t mean the processors and graphics cards of an ordinary PC. Such equipment has a much higher performance and is created especially for mining. This equipment provides the level of computing that is needed to solve the cryptographic task.
As soon as the task is solved, the created block is accepted into the general chain. And whoever manages to get the solution is paid a reward. The same principle of adding blocks is used in the Bitcoin blockchain.
The main disadvantage of Proof-of-Work is that it forces miners to buy expensive equipment. Unlike the VTS blockchain, Ethereum developers made this process more affordable, as this network uses a slightly different hashing algorithm – Ethash. However, with the growing popularity of the Ethereum cryptocurrency, the complexity of its mining has increased significantly, and already requires huge power as well.
Today, only ASICs need to be used to mine VTCs, and it is desirable to build farms of them to get high hash rates. But AMD and Nvidia graphics processing units (GPUs) are also suitable for mining Ethereum coins. So you will have to spend money on “hardware” anyway.
It should be noted that the process of mining in Ethereum blockchain is gradually ceasing to be fair. Miners with funds to spare are buying special integrated circuits designed to mine ETH. This gives them the ability to mine blocks faster than users with GPUs.
As a result, regular GPU miners began to under-earn, and some of them switched to mining other assets. Many users began to express their indignation over the fact that Ethereum’s technical document says that the network is resistant to ASIC mining, but in reality it is different.
The only way to compete with ASICs is to build farms, which not everyone can afford. The alternative is to pool their technical capacities by forming mining pools.
Ethereum transition to PoS
The developers of Ethereum are aware of the problem with the complexity of mining and plan to replace the consensus mechanism. Around Q3 2022, the Ethereum blockchain will switch to the Proof-of-Stake (PoS) algorithm.
This is an alternative way of adding a new block to the chain. When it is used, there is no need for powerful hardware – no complicated tasks are needed anymore. Any users, including those with ordinary PCs or smartphones, can participate in coin mining.
Despite the fact that the difficulty of buying expensive equipment will be gone, there will be a new problem – the need to have a large sum for steaking and mining, because when using PoS there is a greater chance to mine a block from someone who holds a lot of coins. That is, asset share is used as proof (instead of problem solving). Accordingly, users will now have a new goal: to get more Ether tokens to increase their chances of profit.
In addition to changing the proof-of-work algorithm to proof-of-share, the second version of Ether will feature sharding. This is what is called splitting a single set of data and storing it as multiple bases. The main advantage of sharding is that it can increase the speed of transactions by 64 times.
The updated network will be called Ethereum 2.0, and validators will be responsible for its security.
What ETH miners will do in 2021
Those mining Ethereum 1.0 coins need to think about switching to a new consensus mechanism. Until the end of this year and the first half of next year, ASICs and video card farms will still be able to bring in ETH. But then the PoW mining method will no longer be available. As a result, the purchased equipment will have to be used for mining in other networks. Some experts are focused on switching to cryptocurrencies such as Ravencoin and Ethereum Classic.
If the goal is to mine exactly ETH, it is already worth stocking up on coins, which can then be steiked (frozen). Without blocked tokens, it will not be possible to mine Ether and be rewarded for the validator’s work.
Validators are members of the network who check the generated blocks against the requirements of the blockchain. To get this status, you need to block 32 ETH. At the current ETH/USDT exchange rate, that’s about $140,000. And at the ETH/RUB exchange rate, that’s more than 10 million rubles.
If the validator lets a bad block into the system, he will lose all the blocked coins. For this reason, none of the validators are interested in violating the requirements in favor of any member of the network. All of this should make the Ethereum 2.0 blockchain noticeably safer.
According to Ethereum developer Tim Beiko, miners should already begin the process of abandoning the use of asics and video cards. The gradual transition to working with the new consensus mechanism will be less painful than an abrupt change in the way of mining.
Certain changes have already been made this year. In August, developers launched an update to EIP-1559. Now the work with gas is automated. In addition, the process of burning Ether tokens has been launched, by which the number of coins in circulation is reduced. And this is one of the ways to encourage miners to give up working in PoW mode.
Pros and cons of switching to PoS
The introduction of the Proof-of-Stake consensus algorithm in Etherium has a number of important benefits:
The system will become more reliable due to the operation of validators;
mining will be available to users with any equipment;
avoidance of powerful equipment will reduce the level of electricity consumption during block mining by about 99.95%;
Ethereum 2.0 blockchain will become noticeably faster;
the opportunity to increase one’s chances of mining blocks at the expense of expensive hardware will be neutralized;
new roles (validators) will appear in the system, providing additional income in the form of a commission for the work performed;
the effect of decentralization will increase due to sharding;
commissions will be reduced several times.
The transition of Etherium to PoS has its disadvantages:
The need for startup capital to mine blocks. When using PoS, the efficiency of mining is directly affected by the number of blocked tokens;
the lack of ability to quickly withdraw the invested funds. Users planning to own tokens in Ethereum 2.0 need to be prepared for the coins to remain blocked for 1-1.5 years. The reason is the time it takes to fully merge the first and second versions of the Ethereum blockchain. Until this merger is complete, it will not be possible to withdraw their tokens;
low stacking yields. In a PoS-based network, the return on blocked tokens will be in the range of 1.8%-18.1% per annum. According to Ethereum developer Justin Drake, the average stacking return would be 5% per year. For example, on the Binance platform, you can find fixed stacking at a rate of up to 100% p.a.
Some disadvantages can be bypassed. For example, using services that allow you to stack small amounts in ETH. But there is still a risk that some users will lose interest in mining in PoS format.
The low yield can be compensated by a significant increase in the value of tokens of the second version of Ethereum. The main problem of Ethereum 1.0 comes down to low bandwidth and high commissions. All of this prevents the project from scaling. Against the backdrop of such disadvantages, second-tier networks are gaining popularity, as well as competing blockchains (lighter and cheaper).
After switching to PoS and implementing sharding, Ethereum’s efficiency will reach a new level. The network will become much faster, commissions will be greatly reduced. According to analysts, such changes will allow the blockchain to gain an even stronger foothold at the top of the altcoin ranking.
ETH mining after the merger
The Ethereum blockchain upgrade should solve 3 key problems of the existing network:
low transaction speeds due to the massive nature of the system;
decreased stability of the blockchain;
high requirements to the technique for mining ETH.
Thus, by implementing the Proof-of-Stake consensus mechanism, the competition between miners will be neutralized.
Those who want to be a validator, but do not have 32 ETH in their account, can use the services of cryptocurrency services that provide staking with minimal amounts. For example, the Binance Staking site has a special staking pool. The minimum amount to participate in it is 0.0001 ETH. In dollars, it is 0.44 USD. Profits are distributed according to the shares of participants. Another advantage of working through the exchange is that from time to time you can receive bonuses, provided full verification. The yield of such pools is 5-20% per annum.
Those who have 32 ETH can become network validators directly. In this case, coins are better stored in a hardware wallet – you don’t need to use them anyway. To get validator status, you need to go to the official website of the project.
There you will need to do the following steps:
click on the button “Become a validator”;
study the instructions (10 sections), clicking “I accept”;
choose one of the suggested Eth1 clients and configure the node;
read the 10 sections of the Ethereum 2.0 manual again;
select Eth2 client and configure the node;
specify the number of validators to run: each will cost 32 ETH;
choose the operating system of your device and the OS to run the node;
connect a cryptocurrency wallet.
After that, the user will become a validator and will be able to receive ETH cryptocurrency for confirming blocks.
In the second network, the scheme for generating new blocks will be different, but the principles of entering mining will remain the same: either a large starting capital or joining a pool for mining.
Internet suspension in Kazakhstan, the world’s second largest bitcoin mining center, sends crypto down by almost 6%.
The global computing power of the bitcoin network dropped drastically due to the suspension of the Internet in Kazakhstan during the deadly revolt that the country is experiencing, affecting the cryptocurrency mining industry, and essentially the digital asset, which is currently registering a 6% drop.
Kazakhstan last year became the world’s second largest bitcoin mining center after the United States, according to the Cambridge Centre for Alternative Finance, after the main center, China, cracked down on cryptocurrency mining activity.
Russia sent paratroopers to Kazakhstan in these hours to help quell the nationwide revolt affecting the former Soviet state. Police said they killed dozens of protesters in the main city of Almaty, while state television said 13 members of the security forces perished.
The day before, the Internet was cut off across the country as a result of the revolt, in what monitoring site Netblocks called “a nationwide Internet blackout.” The move is likely to have prevented Kazakh miners from accessing the bitcoin network.
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Bitcoin and other cryptocurrencies are created or “mined” by high-powered computers, usually in data centers in different parts of the world, competing to solve complex mathematical puzzles in an energy-intensive process.
As of August last year, the most recent data available, Kazakhstan accounted for 18% of the global “hashrate,” the term used in cryptocurrency jargon to refer to the amount of computing power used by computers connected to the bitcoin network.
In April, before China’s latest crackdown on bitcoin mining, the figure was just 8%.
Bitcoin was falling below $43,000 this afternoon, touching multi-month lows, posting a nearly 6% drop according to Investing.com at a time when investor appetite for riskier assets declined after Federal Reserve minutes indicated its policymakers are leaning toward more aggressive policy action.
On Monday, November 8, local time, the U.S. Department of Justice announced that approximately $3.36 billion worth of stolen bitcoin at the time was seized in a 2021 raid on the residence of cryptocurrency investor James Zhong.
On Friday, local U.S. time, James Zhong pleaded guilty to wire fraud in September 2012 and could be sentenced to up to 20 years in prison. The U.S. Department of Justice said that on November 9, 2021, during a search of James Zhong’s residence in Gainesville, Georgia, they seized approximately 50,676 bitcoins, worth more than $3.36 billion at the time.
This is the second largest cryptocurrency seizure by the U.S. Department of Justice to date, after the agency announced in February that they had seized $3.6 billion in stolen cryptocurrency related to the 2016 hack of cryptocurrency exchange Bitfinex.
James Zhong reportedly stole bitcoins from the illegal dark web forum Silk Road. Silk Road was launched in 2011, but was shut down by the U.S. FBI in 2013, and its founder, Ross William Ulbricht, is currently serving a prison sentence.
U.S. Attorney Damian Williams said, “The whereabouts of the stolen bitcoins have been a mystery worth more than $3.3 billion for nearly a decade.”
James Zhong is said to have used the Silk Road vulnerability to launch the hack. Tyler Hatcher, special agent in charge of the IRS criminal investigation, said James Zhong used a “very sophisticated strategy” to steal bitcoins from Silk Road.
Hatcher revealed that in September 2012, James Zhong created nine fraudulent accounts on Silk Road, each with anywhere from 200 to 2,000 bitcoins. He then quickly conducted more than 140 consecutive transactions, spoofing the marketplace’s withdrawal processing system and releasing approximately 50,000 bitcoins into his accounts. James Zhong then transferred bitcoins to various wallet addresses under his control.
Public records show that James Zhong is the president and CEO of JZ Capital LLC, a self-starting company that was incorporated in Georgia in 2014. A profile on LinkedIn, a professional networking site, shows James Zhong’s focus is on “investments and venture capital.
James Zhong’s social media profiles include photos of him on yachts, in front of airplanes, and at soccer games.
But these types of hacks didn’t end with the demise of Silk Road, and cryptocurrency platforms remain vulnerable to criminal attacks.
In October 2022, Binance, the world’s most traded cryptocurrency exchange, suffered a hack that cost $570 million. The company said a vulnerability in the smart contract allowed hackers to exploit the cross-chain web bridge BSC Token Hub, which as a result allowed hackers to withdraw the local cryptocurrency BNB on the platform.
In March 2022, another hacker discovered a vulnerability in the decentralized financial platform Ronin Network, stealing more than $600 million worth of cryptocurrency.
Blockchain analytics firm Chainalysis published a report showing that a total of $1.9 billion worth of cryptocurrency was stolen in hacking services this year as of July 2022, compared to close to $1.2 billion for the same period in 2021.
LAS VEGAS–(BUSINESS WIRE)–BitNile Holdings, Inc. (NYSE American: NILE), a diversified holding company (“BitNile” or the “Company”), today announced that the Company has recently entered an agreement with Bitmain to purchase a total of 1,140 S19 XP Hydro Antminers (“XP Hydro”), along with 6 customized power containers (“Container”). The XP Hydro’s feature water cooling and a maximum hashrate of 255 TH/s at 5304W and were introduced by Bitmain in October 2022. The Company anticipates delivery of 190 XP Hydro’s and one Container per month for six consecutive months starting in July 2023.
The Company will update the market on production performance once the new Antminers have been delivered and installed.
Milton “Todd” Ault, III, the Company’s Executive Chairman, stated, “Despite the market having experienced tremendous volatility over these past many months and, more recently, failures and bankruptcies that have spawned a crypto downturn and lack of faith by some in the future of crypto, we remain committed to our strong favorable outlook with respect to Bitcoin, in our investment in the Michigan data center and our positive relationship with Bitmain. We have confidence in our long-term plans to grow our Bitcoin mining operations and our most recent purchase of additional mining equipment evidences this belief as well as in the prospects of Bitcoin itself.”
The Company noted that it anticipates by the end of 2023, a total number of 23,065 mining units will be operating.
As previously disclosed, BitNile has entered into purchase agreements with Bitmain Technologies Limited for a total of 21,925 Bitcoin miners, including 4,600 environmentally friendly S19 XP Antminers that feature an average processing power of 140 terahashes per second (“TH/s”) and 17,325 S19j Pro Antminers that feature a processing power of 104 TH/s. Once all of the miners are fully deployed and operational, BitNile expects to achieve a mining production capacity of approximately 2.67 exahashes per second.
The Company notes that all estimates and other projections are subject to the actual delivery and installation of Bitcoin miners, the volatility in Bitcoin market price, the fluctuation in the mining difficulty level, and other factors that may impact the results of production or operations.
