The Role Of Cryptocurrency Mining In A Decentralized Currency World

Unlike fiat currencies, cryptocurrencies are decentralized in nature. This

means there is no central bank or database involved. Also there is no

central authority that manages the currency network. By comparison the

fiat currencies of the United States and other countries are managed by a

single central authority like the Federal Reserve. They are centralized. All

fiat currencies of the world have a centralized oversight organization.

Cryptocurrencies are diametrically opposed to the centralized fiat

currencies because of the nonexistence of a central authority. Instead, the

cryptocurrency community and cryptocurrency miners via the network

nodes manage the validation and generation of the newly mined (“newly

minted”) cryptocurrencies. Due to this unique management method,

cryptocurrencies are commonly referred to as TRUSTLESS because no

single individual controls how cryptocurrency is generated, issued, spent,

or accounted for. There is a definite advantage in not having the need to

trust a individual to perform the moving of asset, generating a transaction

record and storing it.

In this trustless cryptocurrency system, one can still trust the

cryptocurrency community and its means to certify that the blockchain

holds a very accurate and immutable (undisputable), unalterable, proof of

cryptocurrency transactions. Cryptocurrencies are founded using software

algorithms and in it are rules that guarantee that the system can be trusted.

The mining process is also a part of the verification mechanism that allows

everyone to trust the blockchain.

Note that “trustless” is slightly inaccurate because trust is already built into

the cryptocurrency eco system. Although there is no need to trust a single

entity or authority, your trust in the eco system and fully auditable codebase

is still important.

What Is Cryptocurrency Mining?

In a nut shell, cryptocurrency mining is a verification process. It is a

mathematical process in which transactions for many kinds

of cryptocurrency are VERIFIED and then added to the blockchain.

You may have already learned that the blockchain is a form of a “digital ledger”

sort of similar to an accounting ledger but implemented in a digital format

and accessible on a computer network.

The word “mining” in cryptocurrency mining becomes apparent when

compared to silver or gold mining. For example, in both methods of mining,

the miners put in the effort and are rewarded or paid with an asset. In gold

or silver mining, precious metal that was not part of the economy is

excavated and becomes part of the gold or silver moving within the economy.

In cryptocurrency mining, effort is also performed, and the process ends up

with the production of new cryptocurrency and added to the blockchain digital ledger.

Obviously the cryptocurrency miner’s effort is very much different from that

of a gold or silver miner but the outcome is much the same. They both sell

the asset and make money. All the hard work takes place in a specialized

computer hardware (a mining rig) for cryptocurrency mining and no horses,

donkeys, or gold/silver panning is required.

In both cases, after miners receiving their reward, the mined precious

metal or the newly produced cryptocurrency is usually sold to the public for

profit after recouping their mining (operating) costs placing the new

currency into circulation in the economy.

In the verification process, a cryptocurrency miner is responsible for

ensuring the accuracy or validity of a cryptocurrency transactional

information as well as updating the blockchain with that specific

transaction. To be exact, the miner’s specialized and powerful computers

are the ones performing that complicated and super-fast process taking

only milliseconds to accomplish.

TWO METHODS OF MINING

1. Proof of Stake (PoS) : In this method of mining, the software

chooses one of the cryptocurrency nodes to add the newest block.

However, to be considered in the process, nodes must have a stake,

which means they must own a defined amount of the cryptocurrency.

The miner who will add the next block to the blockchain is chosen by

the cryptocurrency network based on random choice and the amount

of stake. Similar to a lottery, the more you own or the more you

stake, the more likely you will win.

2. Proof of Work (PoW) : In this method of mining, the cryptocurrency

miner has to perform a task or work. The first miner to successfully

complete the work is given the authorization to add the latest block to

the blockchain and receives the block reward which consist of the

block subsidy and transaction fees. For example, Bitcoin, Ethereum,

and Litecoin use the Proof of Work method. There are a few

cryptocurrencies considering to switch to the Proof of Stake method.

Ethereum has been considering this option for some time now.

In the final analysis, Cryptocurrencies have no central bank printing or

producing new money. In its place, cryptocurrency miners unearth new

currency rendering to a predetermined number of coins to be issued based

on a schedule and release it into circulation in a verification process known

today as CRYPTOCURRENCY MINING or CRYPTOMINING.

To Mine Or Not To Mine

In order to participate in the cryptocurrency eco-system you must own a

cryptocurrency such as Bitcoin or any of the other alternative coins

(or ALT Coins) listed in www.coinmarketcap.com.

There are basically four ways you can acquire cryptocurrencies:

1. Buy crypto on an Exchange

2. Accept crypto as payment for goods and services

3. Accept free cryptos from someone

4. Mining new cryptos

You will learn in the preceding paragraphs that Mining is by far the

cheapest way to own cryptos!

Those new to cryptocurrency will most likely use an Exchange to buy their

first crypto coin. As of February 2021, there are 308 Exchanges for you to

buy and sell cryptos. The biggest and most popular is Binance where you

can trade over 330 cryptocurrencies. The widely known site, Coin Market

Cap has put together a comprehensive list of Exchanges.

You can find them on this link https://coinmarketcap.com/rankings/exchanges/ .

You can compare them and make a decision which to sign-up with based on the

ranking of this website or you can evaluate the individual Exchanges based

on its trade Volume, Average Liquidity, Number of Markets, Number of

Coins, and the supported Fiat currency.

The fast-growing trend of cryptocurrencies have sparked the idea of using

cryptos to pay for goods and services. For this to occur the supplier of the

goods and/or services must be willing to accept this form of payment and

have the phone or computer software app to facilitate the transfer and

storage of the cryptocurrency.

The technology of the blockchain or digital ledger has made the

cryptocurrency virtual transactions possible anywhere, any time, and any

place where there is a smart phone and internet connection! People living

remotely and great distances from banks, or those who don’t have a bank

account will naturally gravitate to the use of cryptocurrencies as a form of

payment with a click of a button on their phones.

The blockchain and cryptocurrencies has made it possible for the unbanked to participate in the financial world! It is very possible in the very near future that this digital

form of payment will be widely adopted and fiat currency could be a thing of

the past.

You don’t have to buy to own cryptocurrency. Instead, you can mine them.

But of course you need to know that some cryptos can’t be mined like

Ripple (XRP). On the other hand there are many mineable digital assets

out there including Bitcoin, Ethereum, Litecoin, Zcoin, Zcash, and many more.

Why mine cryptos instead of buyer them? There are very good reasons

why mining could be a better option for you. Let’s say you have $5,000

dollars to buy any one of the cryptocurrency listed on coinmarketcap.

Although it is unlikely to happen, let us assume that all the Exchanges and

the entire cryptocurrency ecosystem came crumbling down. Obviously this

event this will leave you with a worthless asset that you purchased online.

On the other hand, if you invested the $5,000 on mining rig hardware and

this unlikely event took place, you can recover all or a major portion of the

investment by simply selling the hardware. In particular, you can easily sell

the highly sought after Graphics Cards that many gamers use to build their

computers. Plus you still get to keep the worthless crypto coins which

someday may come back to life when the world is finally ready to accept them.

The other advantage of mining is that you can own cryptocurrency at a

major discount. After recouping the cost of mining rig hardware, the only

cost going forward is electricity. Let us look at an example.

A typical 12 GPU (grapics cards) mining rig using RX580 8GB Memory GPU cards will

consume about 1750 watts per hour. We will use 11.5 cents per kilowatt

for electricity which is the cost in Las Vegas. This mining rig operating

continuously for 30 days, 24 hours per day will consume about 1,260

kilowatt-hour or $145 dollars per month. With this type rig mining Ethereum

(ETH), you can mine or produce about .75 ETH per month. At the time of

writing February 2021, the price of one ETH got as high as $2,000. Using

$1500 as an average, the net profit is $1500 minus $145 is $1355. You

produced .75 ETH at a cost of $145 or $193 for a full ETH. Buying ETH

from the Binance exchange could have cost about $1500. In this example,

it only cost 1/8th of the Exchange price. As you can see, the price of ETH,

the cost of electricity , and the production rate of the rig can significantly

impact your ETH cost and profitability.

With proper guidance from our "Crypto Mining Made Easy" video course, you can

easily build a profitable mining rig without computer technical skills nor

understanding the complex Blockchain.