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What is cryptomining?. By KingsOfInvestment_eng on The Capital | by KingsOfInvestment_eng | The Capital | Aug, 2020

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Mining requires knowledge in the fields of IT and cryptocurrencies. It turns out, however, that knowledge is not everything, as there do exist factors unrelated to it. This article will tell you if it is worth investing in a cryptomining machine and how to minimize the costs.

Despite gaining more popularity, mining cryptocurrencies turns out to be quite difficult. This kind of passive source of income is reserved for people with above-average knowledge of IT. Luckily, you can get all the required information on your own — without the need of getting a college education in this field.

Due to the development of the cryptocurrency sector, more and more people are becoming interested in mining them. The prices of individual cryptocurrencies rise at a very fast rate, which makes this a market that is not only original and interesting but also profitable.

Before starting your adventure with mining, it is worth familiarizing yourself with the basic information about its technical aspects.

Mining cryptocurrencies is done with graphics cards, not processors. This is due to the fact that complicated mathematical calculations need to be done in order to mine any cryptocurrency. These kinds of tasks are best done by graphics cards. A mining machine is hardware, which possesses certain computing power. For simplification, it can be compared to household PCs.

The difference between a mining machine and a PC lies in its purpose. Graphics cards are usually used for video games, but in this field, their job is to use computing power to solve mathematical riddles. Complex equations are known as “hashes.” They are required to confirm the existence of an online transaction.

People who mine cryptocurrencies are called “miners.” By using the computing power of a cryptomining machine, they essentially issue new digital currencies. The entire mining process is based on distributed calculations.

Each cryptomining machine has a set efficiency, which defines the number of conducted mathematical calculations and computing power. Efficiency is measured in (H/s) units, where H — Hash, s — second.

Mining machines are constructed with graphics cards and dedicated chips, which conduct specific algorithmic calculations. They are also known as ASIC circuits. An example of a mining machine based on ASIC is the Antminer S17. It was created in order to make calculations in the SHA-256 algorithm.

In theory, one could say that a cryptomining machine is a modified computer. The work it does, however, is very specific. The design of such a machine is based on similar components, but they work with one another in such a way as to maximize the hash rate, while at the same time optimizing power consumption.

Mining machines can be connected together, which increases computing power. Currently, a standard computer cannot provide as much computing power as a typical cryptomining machine.

Mining cryptocurrencies is done by solving a cryptographic problem. The problem is different for each currency. The solution to the problem is achieved by deducing and breaking the protection protocols protecting a given cryptocurrency.

The most popular currency is Bitcoin. It is based on the SHA-256 function designed by the National Security Agency. SHA-2 is the successor of SH-1, and the number 256, in this case, means the 256-bit version. Mining this kind of block is possible when we find a string of symbols which will give us a specific equation.

Cryptocurrency protocols are open source, which means you can check which problem is solved. The data should be thoroughly analyzed by the miner and then compared with the transactions and symbols from the previous block. If the solution is found, the information is made public. If this happens, the rest of the miners check its validity.

If a miner solves the problem correctly, he receives a set number of cryptocurrency as a reward.

From the viewpoint of a person interested in the cryptocurrency market, a straightforward answer is not easy.

Buying cryptocurrencies and making money off of this kind of activity is limited to simply purchasing a digital currency and later selling it at a higher price. The achieved profit is the result of the price difference.

It is a very simple form of investment, which can prove disastrous if done without the proper knowledge (just like any other kind of investment).

Mining cryptocurrency is not particularly risky, however certain costs are involved with setting off on this venture. Moreover, it is worth having specialized knowledge in the fields of mining machines and IT, as it can make profiting in this area a lot easier.

A very important aspect regarding profiting from “mining” is making sure you have access to cheap energy, as power is a cyclical and costly requirement connected with this kind of activity. Based on our knowledge, the amount of funds we are willing to invest, and the price of electricity, we must make the decision regarding what we want to profit from.

The profitability of mining cryptocurrencies is not really obvious. The financial success of this field depends on several factors which we frequently have no control over.

The very definition of profit says that it is the income, minus the costs of achieving it.

The reward received by the miner for mining a block can be seen as the income. It is worth noting that it is not a constant amount, as it varies based on the amount of cryptocurrency mined up to this point.

If we were to use BTC as an example, then during the first four years after its debut the number of new coins issued after mining each block was 50 BTC. Afterward, every four years this number was lowered by half (halving). In 2012 this amount went from 50 to 25 BTC. In 2016 it went from 25 to 12.5 BTC. The next reward change will take place on the 23rd of May 2020 and will reduce the current 12.5 to 6.25 BTC.

Another factor which influences the profit from mining is the exchange rate of a given cryptocurrency. As is commonly known, it is highly dynamic, which may result in our profits rapidly rising or falling.

It turns that there are other costs related to acquiring the reward for mining a block. The basic factors that can affect cryptocurrency mining are:

the price of electricity,

the computing power of the mining machine,

network difficulty,

the price of the mining machine.

The price of a mining machine is quite steep. There is, however, the possibility of getting financial aid from the government in this respect. In order to find out more, you need to visit the proper Employment Office or analyze the programs related to financial aid for establishing and running business activities.

The Polish market is currently offering at least three types of crypto mining machines. Depending on which hardware we choose, we will get to know the advantages and disadvantages which result from its specs.

ASIC mining machines — these mining machines are very cost-efficient, due to their reduced power consumption. The H/W efficiency of ASIC’s is higher than GPU.

This hardware also enjoys high Hashrates for some cryptocurrencies. An example of this is one of the most popular currencies — Litecoin. Another one of their advantages is their size. They are smaller and lighter than standard mining machines.

The perfect hardware does not exist and this one is no exception. ASIC mining machines are characterized by significant ingression. Ingression is a point in the subprogram, from which the instructions contained in the subprogram block start being executed as a result of running said subprogram. In practice, this means that an ASIC created to mine Litecoin can only mine Litecoin. It is impossible to mine any other cryptocurrency with this kind of mining machine. It is a significant flaw, as the cryptocurrency sector is constantly evolving and dynamic, so limiting oneself to one digital currency seems to make little sense.

GPU mining machines — mining machines where the main processing unit is the GPU, located in graphics cards.

The main task of the GPU is to make calculations required to achieve 3D graphics. This is a huge advantage for the processor, which is spared the additional work. A GPU mining machine is a very universal device. The computing power of the GPU mining machines is sufficient to make complex calculations.

GPU allows you to mine every kind of cryptocurrency. When compared to ASIC machines, we can see the GPU’s huge advantage in this area. Unfortunately, ASIC machines have better capabilities for mining and an advantage in the H/s range over GPU’s.

FPGA mining machines — hardware based on logic gates. One of their advantages is power efficiency (the GPU’s require a lot of power). The difference in the electricity costs is significant, as it is around 1000%. By lowering the costs of mining, we increase our profits. Moreover, this kind of mining machine generates less heat and is less noisy than the above-mentioned hardware. The disadvantage here is the price, but it is worth noting that it provides you with hardware that is unlikely to break down and requires little maintenance.

Mining cryptocurrencies involves certain costs and making some ‘concessions’. A mining machine constantly uses electricity and generates heat. Currently, the prices of electricity are constantly rising in Poland. This means that many countries (even those in the EU) have better conditions for mining cryptocurrency.

The crypto mining machines can turn out to be a problem as well, as they are by no means cheap. A person well-versed in programming and IT can easily handle operating or servicing them. A different person, however, may end up having to pay a lot of money for such services.

Cryptomining machines cost several thousand zlotys. It would be wise to calculate whether such an investment and the electricity costs involved can potentially turn a profit for us.


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