Thanks for your question, Jamie. As the demand for cryptocurrencies has grown, more people have become curious about crypto mining – the process of generating new coins and verifying transactions on cryptocurrency blockchains.
Cryptocurrencies use various “consensus mechanisms” to process transactions and add new blocks to their blockchains. Bitcoin and Ethereum, the two largest cryptocurrencies, both use the proof-of-work (PoW) protocol. This entails competing against other miners around the world to solve challenging cryptographic puzzles with your computer. In the early days of crypto, it was relatively easy to complete these puzzles and get rewards – not so much these days.
What is “difficulty” in crypto mining?
Which brings me to another interesting factor: cryptocode contains a statistic called ‘difficulty’, which indicates how difficult and time-consuming it will be to solve a puzzle. To stabilize the pace of mining new blocks, the difficulty increases or decreases depending on the collective “hash rate” of participating miners.
The hash rate describes the overall computing power of a decentralized network like that of bitcoin. The higher the hash rate, the greater the computing power and security of the overall network. The difficulty and hash rate work together to ensure that new bitcoin blocks are mined consistently every 10 minutes.
Why does the difficulty level exist? Simply put, when Satoshi Nakamoto was designing bitcoin, he or she (it’s not clear if Nakamoto is an individual or a group) wanted the mining process to be as wasteful and expensive as possible in order to reduce network spam. However, because of this design choice, the difficulty of mining bitcoin and ethereum is currently so high that it is unachievable for individual miners to succeed. You compete against sophisticated crypto mining companies with warehouses full of specially designed computers (application-specific integrated circuits or ASICs).
If you still love mining these coins, consider joining a mining pool. A pool is basically a bunch of miners pooling their hashing powers to increase their chances of mining successfully. You must purchase ASICs and purchase the appropriate software to participate.
Is Bitcoin Mining Profitable?
Let’s look at the statistics to decide if bitcoin mining is worth the cost. According to BitInfoCharts, bitcoin miners can earn about US$0.1732 per day with processing power of 1 terahash per second (THash/s). Do the math and see how much profit you can make, taking into account all the necessary hardware plus electricity bills. A single ASIC costs several thousand dollars. (CryptoCompare has a handy power cost calculator.) If you don’t plan to participate in a mining pool and/or electricity is expensive where you live, it might not make sense to start mining.
Now let’s talk about ethereum. You could start mining ETH if you have the right hardware, but it will likely be short-lived – the world’s second-largest cryptocurrency will soon switch protocols from PoW to proof-of-stake (PoS). When this happens, the mining process becomes completely virtual and your personal hash rate will depend on how much ETH you have locked up (or wagered) in the system rather than the quality of the hardware you own.
This post Should you mine cryptocurrency? – MoneySense
was original published at “https://www.moneysense.ca/columns/ask-a-crypto-expert/should-you-mine-cryptocurrency/”