How to Know Mining: Key Terms
What is the difference between halving and asic, what is a hash rate, and why do miners unite?
Mining is the process of finding a block in a blockchain. For this, miners receive a reward in cryptocurrency, the amount of which is known in advance.
It used to be possible to mine bitcoin even on a not very powerful laptop, but now it requires expensive specialized equipment.
Reward for the mined block
Once miners mine a unit in a blockchain, they get a certain award. For instance, in the example of bitcoin it is 6.25 BTC. In addition, miners earn from the commission paid by users for making transactions.
It is possible to mine a block in bitcoin network by yourself and this happens with certain periodicity. For example, in September 2022, a solo miner with the computing power of 270 TH/s, having 1 chance in 858 thousand, successfully found block and took the reward of 6.25 BTC.
Every 4 years, the bitcoin blockchain undergoes a halving process - the reward for a mined block is cut in half. Initially miners received 50 BTC, in 2012 the reward was reduced to 12.5 BTC, and in 2020 it was reduced to 6.25 BTC. The next halving is expected in 2024.
Bitcoin issuance is controlled by halving. New bitcoins are released to the Market at an ever-slower rate, keeping inflation in check. It is believed that the final bitcoin will be produced by around 2140.
All cryptocurrencies operate on consensus algorithms. These are certain ways in which transactions are validated on the blockchain. It is necessary to know the algorithm of the cryptocurrency, because the choice of equipment for mining depends on it.
For example, Bitcoin runs on the PoW SHA-256 algorithm, as does Bitcoin Cash. Litecoin and Dogecoin function on the basis of PoW Scrypt, while the PoW X11 algorithm allows mining DASH and other altcoins.
What about Ethereum?
Ethereum has been running on the PoW algorithm Ethash for a while now, but the cryptocurrency switched to Proof-of-Stake in September 2022. Now instead of miners, ETH transactions are confirmed by validators.
You don't need hardware to become a validator on the Ethereum network. It's enough to block 32 ETH ($51.8 thousand at current "ether" rate of $1.6 per coin) on a special contract.
Hashrate is a unit of measurement of the power of a miner's equipment. The higher the hash rate of a device, the more powerful it is. Bitcoin mining requires the most powerful equipment; to mine a block in its network you need a processing power of about 260 EH/s.
If you know the processing power of ASIC or graphics card, you can calculate its approximate profitability over a certain period.
One of the main indicators for miners is the payback period of the equipment. It determines how many months it takes for the device to pay for its cost and start generating profit.
The payback period depends on many factors, including the cost of equipment, electricity, room rent, quotes of the mined cryptocurrency and other parameters.
Power consumption indicates how much electricity a piece of equipment consumes. A more powerful device will require more power, but will produce a higher hash rate.
Equally important is energy efficiency. It serves as a characteristic of how efficiently the electricity consumed by the miner is used.
With the development of the crypto industry there have appeared special devices for mining cryptocurrencies - ASIC-mainers (application-specific integrated circuit). They are more efficient than video cards, while the cost of ASIC is higher.
ASIC-mainers are designed only for mining specific cryptocurrencies. It is believed that such devices are more suitable for industrial mining because of their high price.
Several ASICs or video cards combined to mine a specific cryptocurrency are called a "farm". In the case of video cards, a farm also includes a motherboard, power supply, processor, RAM, and hard drive.
A mining farm can consist of several video cards as well as thousands of ASIC-mainers.
Mining new altcoins
One way for miners to make money is to mine altcoins that have not yet been listed on cryptocurrency exchanges. If they appear on the trading floors, you can count on a multiple growth of the rate.
There is a risk that the altcoin will never appear on any of the platforms, or will only be added to small crypto exchanges. However, this strategy is similar to venture capital investing: miners mine many different coins to increase the chance of listing one of them.
Often, huge computing power is needed to find a block, so miners unite, create pools and share the payouts among themselves. The most popular mining pools mine bitcoin.
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