What is Mining in Cryptocurrency World?

Cryptocurrency is probably one of the most unique inventions in the digital era. In a sense, it functions as an exchange medium, similar to real-world currency. However, instead of printed, they were mined like natural sources–albeit in the digital realm. So, what is mining in cryptocurrency? 

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Basic Understandings

Sumber : Dunia Fintech

The definition of mining in cryptocurrency is the process by which networks of computers generate new ‘tokens’ or ‘coins’ of a targeted cryptocurrency. However, mining can also mean the process of verifying and adding new transactions into the blockchain.

The network involved in crypto mining itself is spread all around the world. Each computer inside the network holds the authority to verify and secure transactions and add them to the blockchain. By lending their computing power to the ledger for this task—and successfully execute it—these computers are rewarded with new coins.

This process is a cycle that benefits all the parties involved. The blockchain is maintained, secured, and grown by miners; miners are awarded coins for their contribution; the awarded coins can then be used for digital transactions, starting the cycle all over again.

How It Works

Cryptocurrency mining is a process that requires a considerable amount of computing power. This computation ability is necessary to solve complex mathematical needed to verify a transaction. These equations—known as hashes, to be more precise—are randomly generated algorithmic equations. A successful attempt to solve these hashes verifies the transaction and the computer that solved it is rewarded with cryptocurrency.

A hash itself is a 64-digit hexadecimal equation. The first computer in the ledger to solve the hash will be the winner. It is then given the authority to update the blockchain ledger and thereby eligible for the reward. The more powerful a computer’s computational power is, the faster it can generate answers that will eventually solve the hash.

The newly verified transaction, referred to as a ‘block’, is then added to the blockchain. The winner is then granted a predetermined amount of Bitcoin. As of 2020, the reward is 6.25 BTC. In 2024, the reward will be halved and will continue to be halved every four years until there are no more Bitcoin to be mined.

What Miners Need

Sumber : Miami Herald

Not too long ago, cryptocurrency miners only needed a fairly decent computer with enough computational power to run a mining program. Back then, the computation power needed to mine those digital currencies was not as high as it is today. Nowadays, only big corporations can afford to run and pay for the mining cost of popular cryptocurrencies like Bitcoin and Ethereum.

Today, the computing power needed to solve the hashes comes from the combination of the computer’s central processing unit (CPU), graphic processing unit (GPU), or application-specific integrated circuit (ASIC)—or a combination of all three. The main computing power comes mainly from the GPUs. This is why GPU markets suffered a heavy blow with the crypto mining boom prior to the 2021 crypto crash.

Typically, a crypto mining-configured computer, also known as a ‘rig’, cannot mine different coins at the same time. There are ways to bypass this limitation, but they will be discussed on a separate occasion.

Crypto mining rigs typically consist of a single CPU, single motherboard setup equipped with a bunch of GPUs, up to the number of PCIe lanes the system can manage. Alternatively, miners can use an ASIC Miner rig, which is a hardware manufactured exclusively for crypto mining.

Since all that shiny hardware won’t do anything on its own, mining software is required to drive and utilize the raw computing power of the rig. Once the rig is set up and the mining software is running, the rig will mine autonomously. Human involvement will be needed only in situations like system maintenance, network failure, system crash, or power outage.

Profitability

Cryptocurrency mining used to be a lot more profitable than it is today. Let’s once again use Bitcoin as an example. Bitcoin reached an all-time high record in mid-November 2021. At that time, Bitcoin scored an all-time high record of $68,789 with an average cost of around $31,000. Not too shabby.

Now, compare that to our current situation. As of June 2023, 1 BTC is worth roughly 30,490 USD. Approximately, the average mining cost is 36,000 USD. It’s not really a profitable endeavor for new miners.

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Environmental Concerns

Crypto mining requires a lot of computing power, which means mining rigs draw a lot of electricity to operate. With a large portion of our electricity still generated using fossil fuels, it means crypto mining negatively impacts our struggle to combat global warming. If world governments don’t shift to a cleaner source of energy, what is mining in cryptocurrency will just mean a factor that accelerates our doom.