Growing attention to cryptocurrencies and ways of earning them defines not only their value, but also the popularity of such activities as mining. However, until now not everyone understands what this term means and what its essence is.
Briefly about the blockchain technology and the importance of mining
The creation of decentralized systems was a real breakthrough, the first after the invention of the Internet. It is the blockchain that guides all cryptocurrencies. Bitcoin, as well as altcoins, are decentralized digital money.
Blockchain is a kind of “Internet diary”. It contains all the information about all transactions, transfers, senders and receivers. The network members keep a copy of the protocol with detailed entries for the entire time. It only records new blocks. Correct work of this system is guaranteed by mathematical laws, and not by the honesty of the holders.
However, the blocks must be created. This is what miners are doing. For each generated block they receive an appropriate reward in the form of digital money. This is the only possible method to issue cryptocurrency.
How the cryptocurrency was mined in the earliest days of the cryptocurrency and how it is today
With the advent of cryptocurrency (bitcoin, in particular), its mining was a simple thing. Just a few people knew about this digital asset: the creators and some enthusiasts. Therefore, it was possible to create a suitable block for a day and get your reward. At that time, in let’s say 2009, the rate of bitcoin was 5 cents per unit. However, by 2013, the quotations had risen to $ 100, and the number of people willing to start mining has also risen dramatically. In accordance with this, the mining procedure became more difficult.
Such “miners” began to unite in order to jointly create a block and receive a reward for it, which is then divided proportionally to the contribution made to the process. This phenomenon was called “cloud mining”.
If Bitcoin’s blocks could have been mined earlier at home, today it’s just inefficiency. This is due to the fact that enterprising miners are building entire farms that are located in special data-centers or mountain gorges (there is no need to install air conditioning equipment there). Often there are Hydroelectric Power Stations constructed nearby or farms located in regions with cheap electricity. Large companies with great financial and technical capabilities are behind these developments.
Equipment for mining and why graphics cards are still popular
The mining of treasured blocks, for which they get compensation, is carried out through complex mathematics. At the beginning of the development of cryptocurrency, ordinary computers could well cope. It was with their help that mining occurred and enterprising owners, in fact, simply provided computer’s opportunities for the implementation of mathematical operations.
With the growing demand for cryptocurrency, due to its high quotations, special devices appeared, called ASIC. These are special microcircuits, which are tailored directly to the most efficient creation of blockchain blocks. The power of such equipment is several times higher than conventional computers.
Mining farms are compiled from these microcircuits. Especially they are common in China, Singapore and Iceland. Ensuring their correct work requires significant resources. In particular, the equipment consumes a huge amount of electricity. In addition, it is highly heated and produces not very healthy substances. To ensure the safety of the mining farm, it requires the organization of good air circulation and continuous cooling.
Despite all this, home mining still exists as a phenomenon. Video cards fly off the shelves (it turned out that they became very suitable for mining). The popularity of home mining is due to the new altcoins.
Alternative cryptocurrency and the principle of its development
Bitcoin is the first cryptocurrency. With the growing popularity of blockchain and digital money, many competitors – altcoins – began to appear. These are all other types of cryptocurrency, other than bitcoin.
In order for a new kind of digital money to exist and its blocks to be produced, the creators extend the basic functionality by introducing something new into it. A shining example is Ethereum. This cryptocurrency quickly gained popularity, which means it became expensive due to the fact that it allows not only static information about the transfers made to the blockchain, but also other elements. So, on the basis of Ethereum, smart contracts have appeared, significantly enhancing the capabilities of the financial, industrial and even defense complex of any country.
When creating a new altcoin, the developers do not want to create a lot of difficulties at the initial stage. In this case, more people will generate them, main the new cryptocurrency. With their help, the system is strengthened and the total capacity of the network is increased. At the same time, the new elements of the created altcoin are designed in such a way that the development of special devices (ASIC) is delayed as much as possible.
Why mining is getting less necessary
Over time, the reward for creating a new block of the cryptocurrency asset is reduced. This underlays in its structure from the very beginning. So, in 2009-2010 the cost of the reward was 50 bitcoins, and in 2017 it was equal to 12.5. Such a restriction is not accidental. Over time, the mining of one or another type of tokens, even Bitcoin, will become impractical. The profit will stop paying back costs. Then the number of miners naturally decreases. With the decrease in their number, the simplicity of mining of one block will increase. Thus, the speed of creation is constant.
Even if we imagine that the miners completely stopped getting Bitcoin, the blockchain will not stop to function. In this case, the main profit will be the reward for processing transactions and writing them to a common protocol.