Cryptocurrency miners – their place in the ecosystem
Cryptocurrency mining is a process in which transactions for various forms of cryptocurrency are verified and added to the blockchain digital ledger. Also known as Bitсоin mining (for the most popular сrурtосurrеnсу - Bitсоin) or altcoin mining, crypto mining has seen a substantial growth both as a topic of discussion and activity over the past few years.
Every time a cryptocurrency transaction is made, a miner is responsible for verifying the authenticity of information and updating the blockchain with said transaction. The process of mining involves the use of specialized hardware with the appropriate software and solving a complex mathematical puzzle. The puzzle in question is cryptographic in nature, which leads to a need for powerful machines that can perform millions of calculations per second – these calculations are pretty much guesswork. The aim is to find an answer which is with a high enough complexity, that it would match the set difficulty target for the network. Whoever completes this task first is assigned the opportunity to verify transactions, add them to the blockchain and receive a reward for his work.
To perform these actions there are a few steps you must go through, namely:
- Acquire basic knowledge what crypto is all about
- Research the market and pick a coin to mine for, which you believe has a bright future
- Procure the necessary hardware and software
- Decide whether you would solo mine or increase your chances by joining a mining pool
- Set up your mining rig(s)
- Enter the necessary details into the software and begin
What do you need to become a miner?
To get started, you would first need to pick a coin of interest. This would in turn allow you to choose the most appropriate mining hardware for the job, depending on the algorithm of the currency. For this article, we are going to pick Bitcoin.
At the beginning, there was only one cryptocurrency – Bitcoin. Mining it was an easy enough process, due to the fact there was not much competition. At that point in time, all you needed was an average PC which would use its Central Processing Unit (CPU/Processor) to perform the task. Due to its limitations in how many calculations it could do per cycle, it quickly got replaced by video cards (GPUs). Some of the savvier miners realized that GPUs could process the required calculations much faster than a CPU while also costing less to run. Take for example a single GPU from that era – an ATI Radeon HD 5970. It’s processing power was five times more than that of four 12-core CPUs. And the price difference – one card was $350 while all those CPUs would set you back $4700. You begin to see why GPUs displaced CPU mining.
Although not very popular, there are some coins on the market that still employ CPU only mining. They are all based on the CryptoNight algorithm – Monero (XMR), Electroneum (ETN), Sumocoin (SUMO) etc.
Owing to the introduction of GPUs to the fold, there has been an uplift in the amount of people interested in mining for cryptocurrencies. In the past few decades, there have been only two major producers of video cards – Nvidia and AMD. Historically, the latter has performed better, but in recent years, they have been surpassed by Nvidia in purely hardware terms. Depending on the coin you choose, there could be software optimized for either brand and you might see different results. As interesting as GPU mining sounds, the advent of FPGAs and ASICs has roused some controversy in the field of crypto. With some coins doing hard-forks just to keep the process only GPU based, while others welcome the addition of more effective hardware, price fluctuations and swaps from one coin to another are common. We recommend you do your due diligence and research the potential future of your coins of interest, before deciding whether to invest in a GPU rig or go ASIC all the way. In the case of Bitcoin, GPUs have all but been replaced by ASIC miners and it’s no longer profitable to mine via video card.
Examples of viable GPU mining coins: Ethereum (ETH), Vertcoin (VTC), Zencash (ZEN)Shop for GPUs here: insert link
FPGA and ASIC
FPGAs or Field Programmable Arrays were first introduced to the cryptocurrency field around the year 2011. Although they were developed long before cryptos were a thing, FPGAs were seen as a less power hungry and more effective alternative to GPU mining. The downside though, is that they had to be programmed to work, and that required extensive knowledge in an unpopular programming language – be that Verilog or VHDL. Even though they are better suited for switching between algorithms and different coins, FPGAs never really took off, since the people that could actually set them up and make use of their capabilities, were limited in numbers. Also, getting a hold of such chips was no easy task, as they were not widely available at your local pc store.
That is where ASICs (Application-specific integrated circuit) come in. More powerful than FPGA devices, although at the cost of higher power draw, they were the first mass produced hardware, dedicated to mining. By implementing an array of very efficient chips, manufacturers could offer a single device, more powerful and with a lower power consumption, compared to any GPU that is available. In theory, ASICs can be designed for any algorithm, but whether that happens, depends on factors like potential profitability, development costs, price per unit and the willingness for people to pay for the device etc. If you’re looking to maximize your profits, going with an ASIC machine would be your best bet. Mining for Bitcoin with ASICs is the only viable option currently. There are machines designed for not only the SHA-256 algorithm, but also for Scrypt, X11 and Equihash coins.Shop for ASIC here: insert link
After you have your hardware installed you will need to get yourself a wallet to store the coins you’re going to mine. For Bitcoin, things have been made easy and you can visit this link to pick your first one. We would suggest using Electrum but you are free to choose whatever you believe would be best. There is a lot of information and reviews available. Once you have installed your wallet and generated your first set of private and public keys, you are ready to continue setting up your mining software.
In the case of Bitcoin, your major options include BFG Miner for use with any available hardware and EasyMiner for CPU/GPU based mining.
For GPU mining, we have specifically optimized software available. Nvidia card owners should make use of CCMiner and AMD ones can benefit from SGMiner.
That’s it! Once you hit start, you can officially call yourself a miner. That doesn’t mean that there isn’t a lot of other information which will be beneficial, but for starters, you are all set.
Types of Nodes
There are two types of nodes on the Bitcoin network. Lightweight ones and full nodes. The purpose of these units is to make sure everything is running smoothly, and consensus is achieved about who sent what, how much everybody owns and whether or not someone is trying to double spend their money.
Miners are also lightweight nodes (in most cases). Every major wallet software downloads a portion of the entire blockchain, which uses a method called SPV – Simplified Payment Verification. This allows users to save space on their hardware and keep only relevant information to their transactions and how they interact with other users.
Full nodes on the other hand, are miners or crypto enthusiasts that store the entire blockchain on their computers. This enables a high level of security, since data is stored in multiple locations and it would be very hard and costly to attack everyone on the network at the same time. Furthermore, even if one full node disagrees whether a transaction is valid, it gets rejected. This tamper resistance and the fact that there are more than 30 000 full nodes across the world, make Bitcoin one of the most secure networks to date.
How are transactions handled?
- Using your wallet software, you can request to make a transaction on the network.
- Once you have ironed out the details, you broadcast the transfer to all members.
- They will be able to see that your public address (which is what you are represented by when using your wallet) has decided to transfer “X” amount of Bitcoin to John, who’s public address is also visible. Mind you, you cannot be identified by that data, since it’s a randomly generated alphanumeric string that carries no personal information.
- Once the computers on the network validate your request based on pre-defined rules and confirm the transaction, it is then added to a block.
- Blocks are made up of hundreds of transactions. Once they are compiled, the miners begin to calculate the hash amount of that block using their hardware.
- Whoever finds the solution to this complex mathematical problem first, receives a reward for his work and can add the block to the blockchain.
- Once the block is added, transactions are processed. A block is found, roughly, every 10 minutes.
If you are receiving large sums, for safety reasons, we recommend waiting for at least 5 confirmations, i.e. that there are 5 more blocks found after the one that contains your transaction. This advice is in line with the phenomenon called “double spending”. Due to malpractice, some users may try and send their money to two or more different people at the same time and effectively, use money they don’t have. Since the blockchain corrects itself automatically and invalidates such transactions, the money you have received may end up in an orphaned block. Orphaned blocks are part of a separate chain that for a plethora of reasons could end up being dropped and deemed unoriginal. So, to make sure you are on the safe side, wait for the system to correct itself, which usually takes 5 or 6 blocks time. The more miners a network has, the more participants there are that keep track of what is happening on the blockchain and making sure that everything is working correctly. Without miners, the network would lose its integrity and be vulnerable to attack.
Reputable sources of information
Speaking of integrity, in this section, we would like to share with you, some of the major websites that cover the crypto industry news and trends, offer reviews and further knowledge into the world of mining. We believe that the essence of crypto and decentralization goes hand in hand with users interconnecting and sharing their knowledge, aiming for a common goal and progress.
One of the best sites to get you started with some basic knowledge regarding the inner workings of crypto. You can find the website on the following link. You can find information about the history of crypto, types of currencies, exchanges, wallets etc.
Also known as CCN (a play at CNN), one of the more reputable news sites connect to crypto. You can find the latest advancements in the sphere, along with reviews of some of the popular coins like Bitcoin, Ethereum and many altcoins. You will also find some guides to get you started with said coins and you can also track the prices of upcoming ICOs.
Coindesk is one of the most well-known sources for information in crypto. Established back in 2013, it reaches over 10 million unique visitors each month. The company also hosts one of the largest events in the crypto sphere – Consensus Summit. You can take part in this annual gathering and learn about the latest and greatest in the field. On their website, you will be able to find information about basics surrounding blockchain and virtual coins, research of the state of different currencies and the potential benefits of investing in certain ICOs.
The official source for Bitcoin information, the Bitcoin Forum houses extensive knowledge shared from a multitude of users and experts in the field of crypto mining. You can also find data regarding performance of different hardware, how to set up your mining rigs, what the best software as and it is also where developers get in touch with the community, share their vision for the future of technology and discuss with participants what new innovations they might add to their respective blockchains. The forum is not solely focused on Bitcoin, but offers a section for altcoins as well.
Some other sources include Blockonomi, Bloomberg and others.
The topic of miners and their role in cryptocurrency is an extensive one. Even though we have covered some of the basics, much remains unexplored and we suggest that you continue your research into the matter, should it be of interest to you. If you are looking to become part of the crypto world or simply play the market of crypto coins, miners are the backbone that holds everything together. To them we owe the security and integrity of the network, its day to day operations, transaction validation and the potential growth and market value of a coin. At present, there is a lot of incentive to become a miner and there are even options for the people out there, that are interested, yet do not have the capital to begin their own venture. Renting out hashing power is a possibility and a very easy process, more about which you can learn here. No matter your end goal, in one way or another, you will interact with the most important factor of blockchain – its miners.