7. Cryptocurrency mining - everything you need to know
There's more than a million people in the world who earn money by mining cryptocurrency. Every month, thousands of new users join the mining market, hoping to repeat the success of Bitcoin mining millionaires like Dave Carlson.
True, mining can be a very profitable enterprise if you do it right. But you need to do some research first – or your risk losing your investment. In our beginner guide, you'll find all the info you need for profitable cloud mining.
1. What is mining – a very simple definition
Here's the most basic answer to the question 'What is crypto mining?'. Miners verify transactions, collect them into blocks, add these blocks to the blockchain, and get rewarded in cryptocurrency for their work.
Bitcoin users generate 280 thousand transactions each day. Most of these payments are fine, but some are fraudulent attempts to re-spend coins. Miners' task is to block such attempts. This system of community control keeps public blockchains decentralized.
Note that not all cryptocurrencies have mining. Many are pre-mined and then gradually released into circulation, like Stellar (XLM) and Ripple (XRP). However, pre-mined cryptocurrencies tend to be more centralized, because their issuers control the bulk of the coins.
What is cryptocurrency mining – a detailed look
All new transactions are collected in what is called a memory pool. A miner takes transactions out of the pool, checks them, and collects valid ones into a block. Every transaction gets assigned a hash, or unique alphanumeric code.
To add the ready block to the blockchain, the miner first needs to solve a cryptographic puzzle. Each block has its own hash – and it's that value that the miner needs to find. It's not an exact number, but it has to be smaller than a certain target value set by the system.
The puzzle is hard to solve, and all the miners are working on it at the same time. Every second, each miner proposes many possible solutions (hash values), and others verify them. Luckily, it's very easy to check if an answer is correct. Once the solution is found, the winning miner adds the block to the chain and gets the reward. This scheme is known as Proof-of-Work.
2. What is Bitcoin?
Bitcoin is the world's first and largest cryptocurrency. It's a form of digital money that can be used to make transfers, pay for goods and services, or as an investment. In fact, Bitcoin is the most profitable investment asset of the past 10 years. It's also notoriously volatile: in the past 12 months, the BTC price fluctuated between $5000 and $19,000.
What is Bitcoin and how does it work?
If you're completely new to crypto, your first question is probably 'what is that Bitcoin that everyone is talking about?'
Bitcoin was launched in 2009 by someone known as Satoshi Nakamoto. We don't know their real name or even if it's a single person. Bitcoin is a peer-to-peer electronic cash system, where you can send transactions directly to other users, without any middlemen like banks. Bitcoin exists only in virtual reality: it's not backed by any traditional currency or commodity.
To use Bitcoin, you need a blockchain wallet like Electrum, Coinbase, Exodus etc. In order to send Bitcoins, you'll need the address of your recipient (an alphanumeric string).
Bitcoin transaction fees and processing times change all the time depending on the network conditions. Generally the fee is less than $1, regardless of how much you send and where. Each payment takes from 10 minutes to 1 hour to confirm. If you pay a higher fee, your transaction will be processed faster.
What is Bitcoin mining?
Bitcoin uses the Proof-of-Work mining protocol that we've already described. But what is special about Bitcoin mining compared to other PoW coins? Here are some interesting facts:
- The maximum number of BTC that can ever be mined is 21 million;
- As of April 2020, 87 % of all Bitcoins(18.3m) have already been mined;
- The last BTC will be mined in 2140;
- A new block is mined every 10 minutes on average;
- The block reward is 12.5 BTC (almost $80, 000 at the current exchange rate) untilthe block number 180, 000, and 6.25 BTC after that;
- This decrease in block reward is known as halving, and it happens automatically every 4 years;
What is a Bitcoin miner? It can mean two things: 1) a person who does Bitcoin mining; 2) a device used for mining, also known as an ASIC. These devices differ by their hashrate (processing power) and energy consumption. A good ASIC costs thousands of dollars.
3. Cloud mining – an easier way to earn money through crypto mining
Cloud mining is an easy option for users who don't want to buy their own mining hardware. Unfortunately, the market is full of cloud crypto mining scams. Xive uses a P2P model that eliminates the risk of scams and offers a higher ROI than most platforms.
How does cloud mining work?
With cryptocurrency cloud mining, you rent mining power remotely from someone who owns it. It can be a big mining farm with a datacenter, or it can be an individual miner who has several ASICs. The hardware itself doesn't move anywhere, and you don't need to learn how to use it.
All you have to do is register an account with any mining pool, pay the 'rent' to the miner and tell them to point their device to your pool account. This way, they will mine for you, so that you'll get all the profit minus the fee you paid the miner.
Is cloud mining worth it?
Bitcoin cloud mining can yield a much better ROI than buying your own ASICs. But you have to follow these 3 rules:
1) Choose P2P contracts over large operations. A big cloud mining platform will charge a high administrative fee and offer only a small range of contracts. A P2P marketplace like Xive has dozens of contracts starting from 24 hours, and the fees are minimal, because you rent hashpower from independent miners.
2) Avoid Ponzi schemes. Most 'cloud mining platforms' are actually scams that only claim to have data centers. Always verify that the miner is really using their hash power to mine for you.
3) Start small. Try a 7-day contract for 10 Th/s or 25 Th/s before you sign up for a long-term contract.