Cryptocurrencies are a special type of electronic money that have their own decentralized payment system and usually operate based on blockchain technology. The essence of the blockchain is that the information encoded in it is stored on different, independent computers. That is, there is no single server. Instead, a peer-to-peer network is created between the sender and the recipient. As a result, transactions cannot be monitored or tracked.
Cryptocurrencies are usually obtained through mining, forging, and ICO (Initial Coin Offering). Mining is the process of using specialized equipment to solve complex mathematical tasks to receive a reward in the form of cryptocurrency. Forging is performed by the user, taking into account the number of blocks he has already created in the blockchain. The ICO method, or crowdsale, consists of the rapid emission of a new cryptocurrency and its sale to a certain circle of investors.
Mining is the main source of cryptocurrency today. However, it is not allowed in all countries of the world. Thus, for example, North Macedonia prohibits all transactions with cryptocurrencies. US law allows the mining and exchange of digital coins, although regulation varies by state. Canada also allows mining, but regulation varies by province. Mining in the UK is legal when registered with the Financial Conduct Authority (FCA). Is crypto mining legal in UAE? Cryptocurrency transactions are allowed in UAE, and there are no restrictions.
Crypto Mining: General Description
Mining is the activity of generating new structures to ensure the functioning of cryptocurrency platforms. It is a series of precise calculations with an enumeration of parameters for finding a hash with given characteristics.
Practice shows that various calculation models can be used for this purpose. It always takes a lot of time to find the right option. But verification and analysis of the solution found are usually fast. Cryptocurrency algorithms use computations to protect from repeated spending of the same units, and rewards encourage people to spend their computing power and keep networks running.
Mining ensures the decentralization of issuing cryptocurrency as a means of payment, in contrast to the national currency issued by states’ central banks. It is carried out through chains of individual miners and nodes that store copies of the public ledger. Each node on the chain independently verifies any new transaction data to maintain network stability.
The computing resources spent on hashing blocks far exceed the power of any supercomputer. Therefore, modern mining uses expensive specialized devices and chips, the production of which has already turned into a separate multi-million-dollar industry.
Types of Crypto Mining
Depending on the selected computer hardware and software, mining is divided into:
- CPU mining on processors. It is used mainly by newcomers to the cryptocurrency market who do not have a long history of transactions and, accordingly, have a significant speed of processing transactions;
- GPU mining on video cards. It is the most popular type due to the high speed of processing a large volume of the same type of video data;
- ASIC-mining. Mining on an industrial scale requires the use of specialized equipment – Application Specific Integrated Circuit (ASIC);
- Browser mining. It is carried out by opening a certain page on the Internet, through which the miner uses the computer of another user to mine cryptocurrencies and pays a reward to the owner of the equipment;
- Cloud mining. Some miners rent out part of their own equipment online to other miners through special programs;
- Mining on laptops. Suitable only for expensive professional laptops and cryptocurrencies with little transaction processing complexity (Litecoin, Equihash, Monero, etc.).
How to Mine Cryptocurrencies Step by Step?
It is recommended to follow a certain sequence of actions to mine cryptocurrencies successfully:
- Choose the right time to buy or rent computer equipment. It is advisable to purchase mining equipment during a significant decrease in the value of cryptocurrencies;
- Register on the cryptocurrency exchange. This will make it possible to purchase other cryptocurrencies for crypto coins received from the mining pool or to exchange existing crypto coins for fiat currencies;
- Register a crypto wallet;
- Select a mining pool (a server that unites miners, allowing them to jointly find block solutions and share the reward among themselves) and join it using an identification code;
- Install mining software that provides the mining process and connects the miner node with other members of the crypto network. After that, enter data about the miner’s crypto wallet and mining pool;
- Develop effective protection of own registered accounts serving to mine (e-mail box, mining pool, cryptocurrency exchange). It is preferable to use Google two-factor authentication (2FA);
- Be patient, vigilant, and mindful of carrying out safe and cost-effective mining.
Therefore, cryptocurrency mining is the process of issuing coins in blockchain systems. Its essence is that computers located in different parts of the world perform calculations, thus generating new blockchain blocks. Miners’ work consists of selecting a single hash from millions of combinations. They receive a reward in the form of coins on the blockchain in which they work.
Crypto mining is not allowed in all countries of the world today. However, many states still do not prohibit it. To learn how to mine cryptocurrency effectively, you need to follow the simple rules described in this article. Apply the guide, and you will succeed!