Cryptocurrency mining and the blockchain
In order for you to understand how cryptocurrency mining works, you have to first understand the concept of the blockchain. The blockchain is the technology that underpins virtually every cryptocurrency, and it basically operates as a decentralised record (or public ledger) of all the transactions that have been conducted with a given cryptocurrency.
Transactions are collected into ‘blocks’, which are then authenticated (verifying that all the transactions are real and legitimate) by ‘miners’ and the next subsequent block of transactions is then linked to it. This forms the basis on which cryptocurrencies are built, but it’s also how new units of those currencies are generated.
Mining new blocks
Without a central authority, someone needs to collect all the transactions conducted with a cryptocurrency in order to form a new block. The network nodes that do this are referred to as ‘miners’. Each time a bundle of transactions are collected into a block, it is added to the blockchain, and whoever assembled the block is rewarded with units of the currency.
However, in order to prevent the currency being devalued by miners creating large volumes of new blocks, the task of creating a block is made artificially harder. This is done by requiring miners to solve a complex mathematical problem called a ‘proof of work’.
In order to successfully create a block, it must be accompanied by a cryptographic hash that fulfills certain requirements. The only feasible way to arrive at a hash matching the correct criteria is to simply calculate as many as possible and wait until you get a matching hash. When the right hash is found, a new block is formed and the miner that found it is awarded with units of cryptocurrency.
Think of it like one of those competitions where you have to guess the weight of the cake – only you get unlimited guesses, and the first one to submit a correct answer wins. Whoever can make guesses at the fastest rate has a higher chance of winning.
In practice, this means that miners are competing against each other to calculate as many hashes as possible, in the hopes of getting to be the first one to hit the correct one, form a block and get their cryptocurrency payout.
However, the difficulty of calculating the hashes also scales – every new block of bitcoins becomes harder to mine. In theory, this ensures that the rate at which new blocks are created remains steady. Many cryptocurrencies also have a finite limit on the amount of units that can ever be generated. For example, there will only ever be 21 million Bitcoins in the world. After that, mining a new block will not generate any bitcoins at all.
While it used to be possible to mine your own cryptocurrencies using a regular PC, for the most part that is no longer the case. As more people start mining, the hardware necessary to mine effectively increases; from a moderately-powerful processor, to a high-end GPU, to several GPUs working together, to specialised chips designed specifically for mining.
In order to successfully mine most modern cryptocurrencies, you’ll need to spend at least US$1,000 on hardware, as well as footing the substantial electricity bill that having it running 24/7 will generate. In fact, most miners spend the vast majority of their mining income on covering the costs of running their equipment.
Now that the Bitcoin boom is thoroughly underway, certain companies and groups have started putting serious money behind it, with large warehouses full of floor-to-ceiling racks of expensive graphics cards, doing nothing but trying to mine new units of Bitcoin, Litecoin, Ether and the like.
There are tons of websites offering mining opportunities, however most of them are scams and do not worth your investment. I always do my research before I send my money to them and I urge you to do the same. I always check whether: (1) the company is legitimate (actually sometimes whether there is a company at all 🙂 ), (2) whether there is a team of professionals behind that company, (3) whether their offered revenue/profit is reasonable (you can always go and check profitability in official website www.coinwarz.com and compare with revenue/profit suggested by that company), (4) I always look whether there are any statements/articles about that company in press i.e. Bloomberg, Bitcoin magazine etc. This research helps me to decide whether I can trust that particular website or better to stay away.
Based on my experience and recent research, I would like to talk more about four mining companies that are worth your attention:
Based on our review the above mining companies are legitimate and your investments are in good hands. Of course you can never be 100% sure in this life, but your risk is minimized with these companies. Each of them has its own advantages and disadvantages (as discussed in detailed analysis), however all of them are worth your investment. Additionally, your income potential is huge if you take into account affiliate earnings (as discussed in detailed analysis). All service providers have their own affiliate programs and this niche is relatively new, so with our marketing tools (more details) you will be able to boost your income. In case you are not the person who would like to deal with affiliate marketing, you can still earn sufficient income.
As of today my number 1 choice to invest is CCG mining for their customer support, long-term contracts and relatively low pricing. My number 2 is Genesis mining for their professionalism, transparency and brand name. My number 3 is Bitclub network for variety of mining options, 3rd party validation and potential earnings with their affiliate program and my number 4 is Hashflare mining for low pricing. All of them are worth your investment, however the final decision is yours and it should be based on your investment strategy and resources. My advise for you is – do not hold all “eggs in one basket”, diversify your investment portfolio. That is how you will reduce your risk of failure even further.
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Please note that I have not been given any free products, services or anything else by these companies in exchange for mentioning them on the site. The only consideration is in the form of affiliate commissions.
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Cheers and good luck!