The issues covering crypto mining affect a myriad of sectors, including finance, banking, lawmaking, environment and many more. Here we present an explainer of the basics of digital mining.
chevron_right What are cryptocurrencies?
Digital currencies, often referred to as cryptocurrencies, are a sort of virtual money, that can be traded directly between individuals over the internet, without involving a centralised system supervised by governments or banks. Many experts believe cryptocurrencies will one day replace the traditional monetary system, particularly since cash has largely been phased out in recent years.
There are many cryptocurrencies out there, the most famous being Bitcoin and Ethereum. You can pay for various goods and services using just a fraction of a coin’s value, which is important as some cryptocurrencies command high real-world value. Coins can be traded using cryptocurrency exchanges, P2P networks, and various other platforms, which also give you current values in relation to any traditional currency, most often the US dollar.
chevron_right What is the current value of cryptocurrencies?
You can check the value of Bitcoin, and other cryptocurrencies, in any of the exchanges which they are listed in, on the world’s most trusted & accurate source for crypto market capitalizations, pricing and information: www.coinmarketcap.com.
chevron_right How are cryptocurrencies mined?
Cryptocurrencies are mined using dedicated computers called “miners” to resolve complex mathematical problems in order to validate and secure transactions made with cryptocurrencies. Every time a problem is solved, a given amount of cryptocurrencies is mined and awarded to the owner of the miner that solved the given problem, securing and verifying a transaction. Digital mining has two functions:
- adding new verified transactions to a digital ledger, called Blockchain
- issuing new cryptocurrencies in reward for mining
Once the miner finds a hash, the output of a hash function, that is lower than the target defined by the blockchain protocol (we will explain blockchain later), the miner is entitled to receive the block reward. The block reward is a coin of the cryptocurrency being mined. As more miners join a network, the mining difficulty rises. This increase in complexity makes the process of mining time consuming and extremely energy intensive. Because of this, miners are always looking for the cheapest electricity rates and the most efficient mining hardware.
Under optimal conditions, given that a digital mining facility operates under a low tariff and with proper equipment, one should be able to pay electricity bills (and others alike) with the cryptocurrency that is being mined and still have some of said cryptocurrency left over to make this process profitable.
chevron_right Can digital mining be profitable?
Yes, but there are various factors to consider. Of course, equipment and energy prices are paramount. But it is also good to keep in mind location – not just because of prices of electricity, but also because of legal regulations regarding digital mining and cryptocurrencies. Proper legal regulations can help save money due to tax exemptions and lower costs of importing equipment. Simply put, with the right amount of time and effort, being smart about mining can most definitely result in profits.