What is cryptocurrency mining


Last Updated: 17 February 2025

For many cryptocurrencies, this is the only way to issue new coins into circulation, as unlike traditional fiat money, they cannot be obtained from banks or other financial institutions. In this case, mining is a key component of the existence of cryptocurrency. It cannot be separated from the process of generating and processing data that ensure its operation. In simple terms, mining can be compared to gold mining, only instead of precious metal, digital assets with real value are obtained.

The first coin that could be mined was Bitcoin. Since 2009, the mining process has undergone numerous changes, becoming more complex, expensive, and highly competitive. Nowadays, this method is used to mine many different altcoins, such as:

  • Litecoin (LTC);
  • Ethereum Classic (ETC);
  • Kaspa (KAS);
  • Dogecoin (DOGE);
  • Monero (XMR);
  • Zcash (ZEC);
  • Ravencoin (RVN);
  • Flux (FLUX) — and others.

Each cryptocurrency has its own individual mining characteristics and equipment requirements to accomplish this task. But let's take it step by step: we will delve into the intricacies of mining itself and learn its features.

Basic terms for understanding the cryptocurrency mining process

To better navigate the topic, it is necessary to break down the basic concepts. Some definitions may be familiar, but in the context of mining, they can have an entirely different meaning. We have compiled a small glossary of terms that will be useful:

  • Blockchain is a decentralized database containing records of all transactions on the network where the cryptocurrency operates. The blockchain consists of a continuous chain of blocks that are immutable;
  • is a group of data that includes information about transactions in the cryptocurrency network that occurred within a certain period of time. Blocks are combined into a chain, where each new block refers to the previous one, thus creating a continuous sequence. This process helps ensure data integrity and the security of the blockchain;
  • Hash is the result of computations, represented as a string of letters and numbers. Miners use special algorithms to create this hash from the block data. The hash is necessary for the block to become part of the blockchain. It is difficult to guess, and this makes the system secure. Miners must find a hash that meets the conditions of the network in order to add the block to the chain;
  • Miner is a person who participates in the process of cryptocurrency mining. They are assisted by specialized computing equipment that solves complex mathematical problems, finds the correct hash, and adds a new block of transactions to the blockchain;
  • Heshreit is an indicator that measures the computational speed of mining equipment. It is expressed in the number of hashes that can be computed per second. The higher the hash rate, the greater the chances of the miner finding the correct hash and receiving a reward;

  • Consensus mechanism is a method by which all participants in the blockchain reach agreement on the validity of transactions and the addition of new blocks to the blockchain. It ensures data integrity and prevents the possibility of fraud by guaranteeing that any changes to the network will be confirmed and agreed upon by all participants.

Types of Cryptocurrency Mining Process Protection

To understand cryptocurrency mining, one must first grasp the differences in consensus mechanisms on which the transaction confirmation algorithm and the addition of new blocks to the chain are built.

Proof of Work — traditional mining

Proof of Work (PoW) — is a classic algorithm for mining crypto assets, such as Bitcoin. This process involves computing power solving complex cryptographic tasks. It is not known in advance who will add a new block to the blockchain. The one who succeeds receives a reward in the form of digital coins. This creates an element of competition among miners participating in maintaining the network.

For PoW, enormous energy resources are required. For example, the annual electricity consumption for mining Bitcoin can be compared to the consumption of a small country. However, the algorithm remains in demand due to its high resistance to attacks and security.

Proof of Stake — an analogue of traditional mining

Proof of Stake (PoS) is a more environmentally friendly and cost-effective method of transaction confirmation. Participants in a blockchain using this consensus mechanism are referred to as validators. They maintain operations by staking a certain amount of cryptocurrency in the network to gain the right to add a new block. The algorithm does not require complex calculations, so energy consumption is significantly lower. In 2022, Ethereum transitioned from PoW to PoS, which reduced the network load and increased its speed due to quicker and less costly transaction processing.

Другие алгоритмы

Besides the widely used PoS and PoW, there are other consensus mechanisms, for example:

  • Proof of Authority (PoA) — new blocks are added to the blockchain only by those participants who have been pre-approved or authorized. Trust in the participants is based on their reputation and authority, which makes the process quick and efficient. The algorithm is typically used in private or consortium blockchains where transaction speed and control over participants are important. It is suitable for business solutions, financial institutions, and other organizations that want to limit participation to trusted parties;
  • Proof of Space (PoS) — miners use free space on the hard drive to confirm transactions and add blocks to the blockchain. Miners "fill" this space with data and search for suitable hashes. The more disk space allocated, the higher the probability of finding the correct hash and receiving a reward. This requires fewer computational resources but more storage space.

Equipment for cryptocurrency mining

As we have already found out, cryptocurrency can only be mined with specialized equipment. Different devices are used for these purposes.

CPU — central processing unit of a PC

This mining tool was effective during the early stages of Bitcoin's development, but it is now considered outdated, as the processing power of the CPU is insufficient for productive work under current conditions. Nowadays, you can only mine little-known and unpopular coins this way, which is associated with high risks.

GPU — graphics card (graphics processor)

This tool is considered the most versatile and popular, as it is accessible to users of any experience and capability. Graphics cards have high processing power and are used to assemble mining rigs, as several can be placed on a single motherboard. They allow for the mining of multiple coins simultaneously.

ASIC

This is a specialized chip designed for mining only one specific cryptocurrency. Such devices have maximum performance as they are tailored for specific computations, allowing for faster mining. However, many of them generate a lot of noise and require powerful ventilation due to high heat, making them inconvenient for home use. They are most often used in specialized farms where optimal working conditions can be maintained.

HDD/SSD — hard drive of a PC

Mining on HDD/SDD is only possible for cryptocurrencies that operate on a blockchain with the Proof of Space consensus mechanism. In this case, a network participant only needs to allocate space on the hard drive: the larger the allocated space, the higher the reward will be. Although this type of mining is quite simple yet effective, it cannot boast a high level of profitability.

Ways of Cryptocurrency Mining

Cryptocurrency can be mined in several ways. The choice of which one to prefer depends on the capabilities and needs of the miner.

Соло майнинг

An individual approach to cryptocurrency mining places all duties and responsibilities on one person. This means that they must independently purchase all the equipment, understand the principles of crypto mining, install special software, and maintain a constant connection to the network.

With each passing year, independent mining is becoming increasingly difficult and expensive, as a single system cannot handle the current challenges. Therefore, nowadays, in most cases, miners come together in pools, combining their efforts.

Mining in a pool

A pool is a group of miners who combine their computing power to collaboratively solve tasks and mine cryptocurrency. All pool participants work on finding the solution to a block, and the reward obtained is shared among them proportionally to their contribution to the calculations. This reduces the waiting time for rewards and stabilizes income for each participant. The basis of the pool is a server that distributes simpler tasks to all participants.

This mining method is quite profitable and secure. Transactions are completely transparent and can be tracked by every participant. Only the information about the wallets of miners participating in the pool is not disclosed.

Cloud Mining

Miners resort to this method when they do not wish or are unable to purchase computing equipment. This approach allows them to rent the power of other individuals or companies. A certain amount of hash rate is reserved on a remote server. The miner earns income from the operation of the equipment that is rented for a specific period (the average rental duration is 1-3 years).

Cloud mining has a low entry threshold for beginners and more advanced crypto enthusiasts, but it doesn't eliminate risks. There are fraudulent companies that offer their equipment for rent and then deceive users. Therefore, interested individuals need to carefully approach the choice of service provider and rely on their authority in the crypto community.

Summarizing the Results

Mining continues to be an integral part of the cryptocurrency ecosystem, ensuring both the security of their functioning and the emergence of new digital coins. However, it is important to consider that the profitability of mining directly depends on a multitude of factors: from the choice of cryptocurrency to the equipment used and the mining method. In conditions of high competition and increasing task complexity, the success and profitability of mining increasingly rely on the ability to adapt to changes, as well as a well-informed approach to selecting technologies and strategies.