Cryptocurrency mining is one of the most important processes, if not the most, for the operation of any chain of blocks. It is related to the creation, security and incentives of the blockchain. It can be an investment opportunity and at the same time give more understanding about the keys of this technology.
A blockchain is, as his word indicates it, a chain of blocks. In each block the user transactions are written, that is, the movements of coins that were made. Many compare it to an accounting book, where each line can be thought of as a new transaction and each page as a block.
Mining cryptocurrencies consists of adding a new block to the chain. Thanks to this is how the chain always grows forward. The new block is cryptographically linked to the previous block, and will be linked in the same way to the next one. This is how a chain is formed, hence the name.
The miner who adds this block to the chain will be the one who receives the reward. In the case of the Bitcoin network, the reward today is set at 6.25 bitcoins.
But… what do the miners do to add the block?
The miners are in charge of taking all the transactions that are pending from the users and adding them to a new block. In this way the transactions are permanently registered in the blockchain and nobody can modify them. The new block that the miner mounts must be signed with some elements. The 3 most important are: the hash of the previous block, a timestamp (date and time), and a nonce.
The hash is the result of a cryptographic function. You can convert any source data string to a unique, unrepeatable identifier that has a specified length. In the case of Bitcoin, it is 256 bits. Any modification, no matter how small, in the content of a block will generate a hash totally different. The combination of numbers and letters will be different.
Any change in the content, generates a hash of the same size but totally different. Source: rauljaimemaestre.comThe network establishes in advance the extension that the resulting hash must have. With this, the difficulty changes, since the miners must obtain a hash of a size less than or equal to that defined by the network. To achieve this they perform tests with different nonces.
Nonce means “one-time number” and is simply a number. Any number. But once one was used, it cannot be used again in the entire blockchain.
Thus, the mining process starts with testing a random nonce. With this value and all the other data they generate a hash. They then check if the new hash fits the characteristics requested by the network. If it does, they can generate the new block since they met all the conditions. If it doesn’t, they have to repeat the process. They try another nonce that hasn’t been used before, generate the hash, and check against the network requirements. So until the correct nonce is found.
As the nonce is any number, random and must go through a cryptographic function to know if it is correct, this is a process that can only be solved with trial and error.
This is why the miners perform the process thousands of times per second until they find the that adapts to all conditions. All the miners connected to the network are competing to be the one who finds the nonce that provides the correct hash, since the one who does it will get the reward plus all the commissions paid by the miners. network users.
The power of mining
This test process to solve the cryptographic equation It is done with hardware. In the early days of Bitcoin, simple home CPUs could be used, but as the network began to grow, graphics cards, which had more computing power, began to be used. Currently it is necessary to have specific hardware for mining. They are called ASICs, Integrated Circuit for Specific Applications, for its acronym in English.
ASICs have a very large computing power. One can only generate about 90 trillion hashes per second, or 90 Th/s (tera hashes per second). As large as this number may seem, the task of solving the cryptographic problem is so complex that miners have tens or hundreds of teams performing calculations.
Even in the entire Bitcoin network today, the computing power of all miners connected to the network is 170 Eh/s . This is 170 Exahashes or 170 quintillion hashes per second globally. With this capacity it takes about 10 minutes to mine a block.
The 10 minutes is a number established a priori in the Bitcoin programming, and the network increases or decreases the mining difficulty so that each new block is created every 10 minutes.
Mining… for what?
When Bitcoin was created, it was thought about the problems that could be generated if this technology began to be used by many people. One of them was security. As a solution to this issue, they devised the Proof of Work or Proof of Work (PoW).
In PoW, the computational force of the miners is used to provide security to the network. Security is necessary so that no one can alter the record of transactions that they are written each time a block is created. If this system did not exist, any person could take control of 51% of the network and, with this, begin to alter the accounting record to their liking.
Types of mining
Proof of Work is the first security system to be created, and it has many benefits in this regard. It is a very robust system and highly resistant to attacks that try to gain total control of the block chain. The problem arises at the time of mass use.
Since each block is created every 10 minutes and can store a limited number of transactions, Bitcoin can process about 7 transactions per second. Something that is not very useful if the whole planet wants to use it for day-to-day expenses. As an alternative to the PoW, the Proof of Participation or Proof of Stake (PoS).
With PoS it is not necessary to have hardware to mine, but rather it is the users themselves who, by blocking their tokens on the network, can contribute to security. In this way, the need for hardware is eliminated and energy consumption is drastically reduced.
In fact, many of the new blockchains that are created are based on this protocol . Users who block their coins on the network receive a reward in the same currency for their contribution to the block chain.
With proof of participation it also improves scalability for mass use, in addition to being more friendly to the environment.
Mining and profitabilityCryptocurrency mining is an industry that has grown in quantity. With the recent boom in this sector, mining equipment has been in high demand. In addition to this, there is a shortage of chips, which limits industries’ ability to produce mining supplies. This combo caused the price of mining equipment to increase drastically.
To mine Bitcoin it is It is necessary to have ASICs, equipment that is very energy efficient but its price is quite high, around 14 thousand dollars each. Of course, once it is working, its estimated profitability is 0.017 BTC per month, about 700 dollars.
To mine Ethereum (ETH) , the second cryptocurrency in market capitalization, video cards, also called GPUs, are used. The initial cost of the investment is more accessible: a top-of-the-range graphics card costs around 3,000 dollars.
The set of several GPUs to mine is called a “rig”. The profitability of a top-of-the-range 3-plate rig that mines ETH can be around 0.147 ETH per month, about 475 dollars.
These are raw values taken from a web that is dedicated to calculate the profitability of each mining hardware. To obtain an estimated profit value, it is also necessary to take into account electricity costs. This is a key factor when considering whether it is worth the investment. Both the energy consumption of the equipment itself and that of the cooling systems must be considered, since in addition to consuming a lot of energy, they also generate a lot of heat.
The union makes the profits
The main problem found when mining is that is competing with the network around the world. If the mining equipment you have is not powerful enough, it will be more difficult to obtain the reward. A solo miner could spend several months or more before being able to create a block .
To solve this, there are mining pools. They are sites where many miners pool their computing power to obtain the solution together and thus be able to obtain more rewards. The prize obtained is divided among all the miners
The pools provide the infrastructure for this to happen and in return they charge a commission from the reward. This is a very efficient way to earn consistent income when you have a small mining team.
Improvements to What to watch out for
Today one of the networks most chosen by those who want to enter cryptocurrency mining is Ethereum. Thanks to its PoW protocol, it allows a low entry cost and even allows many people to take advantage of their desktop PC to start in this sector.
For those who do a specific initial investment to enter, it is important to keep in mind that Ethereum is in a system migration process. It will go from PoW to PoS, dispensing with hardware mining for security.
This process is already underway and ETH users can peg their coins for rewards and provide network security. In parallel, hardware mining also continues.
With the Ethereum Arrow Glacier update, in December 2021, the EIP 4345 update was implemented. This postponed the implementation of the “difficulty bomb” to June 2021. What is sought with the “difficulty bomb” is to increase the complexity of mining to the point that it is not profitable and the total transfer to Proof of Participation occurs.
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