When it comes to cryptocurrency, most people nowadays associate it with financial investments, trading, and big exchanges at the platform scale. But where does cryptocurrency come from? How is it minted? This is done through the act of mining, at least on some methods of consensus such as Bitcoin.
Given that mining discussions have become something of a niche compared to the early days of crypto, what do people get wrong about mining cryptocurrency?
What is Cryptocurrency Mining and How is it Done?
Cryptocurrency mining is the act of validating transactions using a computer processor and electrical power. Each blockchain network has its methods and rewards for mining. Bitcoin has what’s called a block reward schedule which is programmed into its code and was set by Satoshi Nakamoto himself. On the Bitcoin network, the initial reward for mining was 50 BTC, but since it follows a reward schedule, as more blocks are completed the network decreases the amount of BTC earned per block which is called a “halving”. Currently, the reward for mining a block of BTC is 6.25 BTC.
Cryptocurrency mining is done by processors validating transactions on a given blockchain network. To do this validation, the processor solves complex math problems called a “hash”. How fast this is performed is called the “hash rate”. To incentivize using one’s processing power on the network provides miners with a potentially lucrative opportunity to turn computing power into money. Under ideal circumstances, mining is done somewhere where the price of energy is cheap, to reduce expenses and thus increase the profits of currencies extracted from mining.
Now that we know what mining is, what do people get wrong about it?
Misconception #1: It’s Going to “Consume All Energy”
Contrary to some of the doomsday inspiring theories about the nature of cryptocurrency energy use, cryptocurrency mining is not going to consume all of the energy on the planet. While there has been concern over the energy use of cryptocurrencies, specifically currencies using the proof-of-work (PoW) model, they will not suck up all of the energy on the planet. Miners typically use the cheapest energy sources they can find, which puts waste energy to work, such as with Exxon Mobil’s new flare-off methods.
While Bitcoin remains dedicated to the PoW model, there are other methods of consensus that do not consume as much energy. Ethereum will be switching to a proof-of-stake model, which puts an end to mining on its network. While this reduces energy consumption, it does so by radically altering the mining side of the network.
Whether or not ETH miners survive the switch to ETH 2.0 or remain on a fork of ETH 1.0 is a current topic of debate. We’ll only know for sure after the switch.
Misconception #2: Mining is Only Done by Large Organizations
Currently, some of the largest mining organizations come in the form of warehouses full of computer processors that mine huge amounts of crypto. While this can be a powerful method of mining, it’s not the only way. In the early days of cryptocurrency, and even still true today, the small-time miner was fairly common. These miners were notorious for mining with graphics cards designed for playing video games but were also useful in mining bitcoin. The rise of small-time BTC miners altered the market for computer parts.
In addition to these two methods of mining, there are consumer-level cryptocurrency miners that are very easy to purchase. They are dedicated solely to the act of cryptocurrency mining, in the linked video above, LinusTechTips reports that he was earning $32.46 per day after the cost of power in 2018 using a handful of these kinds of miners.
It is very possible to mine cryptocurrency at any level, whether you’re a DIY GPU miner, a corporate warehouse, or making an individual investment in the technology.
Misconception #3: You Have to Do the Mining Yourself
Not true any longer. With the rise of the mining as a service AKA cloud mining platforms such as ElevateGroup, you need not even make a physical investment in miners and can purchase computing power. This comes with advantages and disadvantages compared to running your miners.
The advantage of cloud mining is that you avoid the startup cost of buying a miner and getting it set up. Instead, what’s common is that users will pay for the computing power required. This comes with the drawback of volatility in cryptocurrency markets, as some days the computing power is more valuable than others. Another advantage is that downtime isn’t your responsibility to manage, it’s on the company you’re purchasing cloud mining services from. Finally, you also choose how long you want to cloud mine for. Typically this involves signing a contract for a set amount of time, but after that time you can choose not to continue mining. This saves the service buyer from covering the cost of electronic waste disposal or from falling for the sunken cost fallacy if they go in too deep.
The disadvantages begin with volatility as mentioned above. Since this is an emerging service, credibility isn’t clear yet about who the mining companies are. Meaning where they get their miners from, the reliability of energy acquisition, and other critical information that potential investors might want to know about before putting money into it. As well, you don’t have as much control over what’s being mined or the method of mining itself, since the mining service maintains control over that and its facilities. So while you don’t have to do the mining yourself, it might not be worth the plunge into cloud mining unless you’ve done the research ahead of time.
Conclusion: There Are Still Opportunities in Mining Crypto
In conclusion, mining is a complex operation that can be performed by users of multiple scales, whether you’re a GPU miner or considering the construction of a large array of miners in a warehouse, mining crypto is still viable.
Contrary to sensationalist headlines, it’s not going to consume all of the energy on the planet. Several efforts are being made to ensure cryptocurrencies are a part of sustainability plans across the globe ranging from renewable energy investments, alternative methods of consensus that are not PoW systems, and using waste energy in productive manners. Finally, you don’t even need to do the mining yourself, thanks to the development of cloud mining services.