What You Need To Know About Cryptocurrency Mining
Cryptocurrency news has been hot of late, thanks in no small part to the skyrocketing prices of Bitcoin and Ethereum, the two largest cryptocurrencies right now. Litecoin and other cryptocurrencies are also up in value, and given the prices on graphics cards that are supposed to be useful for gaming, some of you will inevitably wonder: should I get into the mining business?
That’s a big, open-ended question, and the answer depends on many factors. I’m not going to try and cover every aspect, because Google is your friend, but let’s quickly go over the basics of what you would need to get started, and I’ll include some rough estimates of how much money you can make at the end.
Blockchains and the block reward
The core of mining is the idea of block rewards. For most coins, these are given to the person/group that finds a valid solution to the cryptographic hashing algorithm. This solution is a mathematical calculation that uses the results of previous block solutions, so there’s no way to pre-calculate answers for a future block without knowing the solution to the previous block. This history of block solutions and transactions constitutes the blockchain, a sort of public ledger.
What is a block, though? A single block contains cryptographic signatures for the block and the transactions within the block. The transactions are collected from the network, typically with a small fee attached, which also becomes part of the block reward. There’s a difficulty value attached to the solution for a block as well, which can scale up/down over time, the goal being to keep the rate of generation of new blocks relatively constant.
For Bitcoin, the target is to generate a block solution every 10 minutes on average. For Ethereum, block solutions should come every 16 seconds. That’s obviously a huge difference in approach, and the shorter block time is one reason some people favor Ethereum (though there are others I won’t get into). Simplistically, the number solution has to be less than some value, and with 256-bit numbers that gives a huge range of possibilities. The solution includes the wallet address for the solving system, which then receives all the transaction fees along with the block reward, and the block gets written to the blockchain of all participating systems.
Think of it as panning for gold in a stream—you might get lucky and find a huge gold nugget, you might end up with lots of flakes of dust, or you might find nothing. If the stream is in a good location, you make money more quickly. The difference is that with cryptocurrencies, the ‘good location’ aspect is replaced by ‘good hardware.’