December 2, 2021

Darko Simunovski content is written in English. Translations into other languages are automated and there may be minor text errors.

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Crypto mining is a process in which a machines performs certain tasks to obtain new cryptocurrencies in the blockchain, creating individual blocks which are added to the blockchain by solving complex mathematical problems. The purpose of mining is to verify cryptocurrency transactions, and show PoW (proof of work). The name blockchain comes from its structure, each block is connected to the last chain of blocks. Without the blockchain, mining, crypto ledgers, and transactions would not be possible. The blockchain is a decentralized and secure cryptographic system.
Nodes are connected to the blockchain network to mine cryptocurrency, and verify the blocks of transactions. There are three types of nodes: full nodes, lightweight nodes, and mining nodes. Mining creates new coins awarded to the miner who creates the block. Things that are needed to mine are Mining hardware – either GPU or ASIC, mining software (only needed for GPU mining) and crypto wallet in order to receive the mined Coins.

bitcoin miners

In Bitcoin PoW consensus new blocks are created every 10 minutes and each one distributes 6.25 BTC in block rewards. The network has four year cycle in which block rewards are periodically halved. Bitcoin’s last halving event occurred in May 2020 when rewards dropped from 12.5 BTC to 6.25 BTC. Next halving is estimated around May 2024 (Block #840,000) this halving event takes place to ensure its monetary policy. Bitcoin’s monetary policy helps to ensure a gradual distribution of 21 million bitcoins over time, unlike fiat currencies (issued by government) bitcoin supply cannot be inflated, because Bitcoin was designed to mimic the attributes of the gold.

Bitcoin halving

The halving event is one of the method that is used to replicate bitcoin’s scarcity, as such, bitcoin is a deflationary currency and is very important asset to hedge against inflation.

ASICs (Application-Specific Integrated Circuits) are special devices that are designed explicitly to perform crypto mining. ASICs are very well known because they produce vast amount of cryptocurrency when compared to its competitors’ GPU and CPU.

mining farm

There are three ways to mine :

CLOUD MINING is a mechanism to mine a cryptocurrency, using rented cloud computing power and without having to install and directly run the hardware and related software. Cloud mining firms allow people to open an account and remotely participate in the process of cryptocurrency mining. This makes it accessible to a wider number of people across the world. Since this form of mining is done via cloud, it reduces issues such as maintenance of equipment or direct energy costs. Profits of this process are transferred to the users cryptocurrency wallets. Top cloud mining services on the market are Genesis Mining, HashFlare, NiceHash, Hashgains and others. But you have to do some research on the specific coin to find which cloud mining service is supported.

SOLO MINING- miners are not dependent on other miners and get rewards each time they unlock a new coin. Although the rewards are promising, the competition is equally challenging for solo mining. The solo miners need to invest a considerable amount of money to purchase the equipment if they want to be the first ones to validate the transaction.

POOL MINING- this method facilitates the process of crypto mining and gets the rewards. To join this pool mining, the miner requires a server combining the computational power of all other miners who are in the pool. This method increases the possibility of earning handsome rewards by unlocking new coins. The profit depends on: coin’s actual price, your hash rate, mining difficulty, costs of electricity and cooling devices, investment in hardware and Cloud mining service.

When mining, there is always a chance you could lose money on your investment. Price volatility can be a factor, as well as the risk of burning out your equipment or losing precious information. Also obvious risk to mining is security. It isn’t uncommon in the cyber world for hackers to target crypto traders and miners. This might come in the form of a security breach where hackers download malware onto the mining device, usually through a unsecured wifi network. Crypto mining software tagged as malware can also be a problem.

Another attack that is used is phishing, where victims get tricked into clicking links that loads cryptocurrency mining code on their devices. They may also infect websites with malicious code. These attacks can happen without knowledge of the miner, who may see little or no difference. A common symptom that your device gets infected with malware is that its processing speed slows down, so that’s why you need to avoid public wifi networks, use a VPN and make sure you secure your devices.

The most popular mining than the PoW is PoS (prove of stake) system that uses a slightly different process to verify transactions and reach a consensus. Although the algorithm still uses cryptographic puzzle, the overall objective of the mechanism is quite different.

While PoW rewards miners for solving complex equations, PoS consensus selects the miner that creates the next block (depends on how many coins they have staked). For example, if one validator stakes ten coins and another stakes fifty coins, the one with a stake of fifty coins is five times more likely to validate the next block.

The main differences in this two consensuses are:
PoW mining capacity usually depends on computational power, while in the PoS algorithm, validating capacity depends on individual’s stake in the blockchain network.
To add a block to the chain, miners must compete against each other to solve a complex cryptographic puzzle, on the other hand in PoS mechanism, there isn’t any form of competition whatsoever, as the next block creator is automatically selected.
In PoW algorithm, the first miner to solve the puzzle is rewarded with coins for their good work, while in PoS there is no rewards in creating the next block. Instead, the block creator earns from transaction fees in the blockchain.
New coins are created through the process of mining in PoW mechanism, and on the other hand in PoS consensus, there are no new coins created during the validation of transactions. In a PoS system all coins are created at the start of the blockchain.

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