Mining 101: How exactly does crypto mining work?

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Cryptocurrency mining has been around for nearly a decade, but it’s only recently become a universally recognized term. Despite a dramatic rise in following, the actual understanding of what crypto miners do and how the mining process works remain somewhat veiled mysteries to the majority of the general public. Here’s a high-level breakdown of the cryptocurrency mining process to help you understand the complexities and how you might go about starting your own mining efforts.

What is crypto mining?

You can think of crypto mining as the process of “hidden” virtual currencies being discovered and turned into real money. In other words, when these virtual currencies are discovered and their existence is proven, the person or group who discovered them receives a reward. In this process, the transaction records are added to a public ledger known as a blockchain, which serves the purpose of confirming or validating these transactions to the rest of the network as having taken place. It’s a proof of completion and of the transaction being accurate and true. The main goal of this proven discovery is to ensure the same coin isn’t mined or spent twice. This is a broad explanation of the crypto mining concept, but how do miners go about finding these coins and turning a profit?

How mining works

Miners themselves compete with one another via high-powered computers in an attempt to be the first one to solve a complex math problem that corresponds with a group of transactions known as a block. The first miner to solve the problem – thus validating the accuracy of the block – receives a reward paid in digital coins of the mined currency. For example, if the current block reward for the cryptocurrency Litecoin is 25 coins, the first miner to validate a block would receive 25 Litecoins. And if Litecoin’s value were currently set at $35 per coin, the miner would receive a profit of $875 (25 coins x $35 = $875). The goal is to operate at the lowest cost and at the highest power to achieve the greatest profit margin.

Lower cost + more power = more blocks solved in less time and at less cost

What equipment is used to mine?

There are two main types of equipment miners use depending on the difficulty of the coin they’re trying to mine. For currencies of lesser difficulty, miners utilize GPUs – graphics processing units – to validate transactions. This allows miners to operate out of their own home while utilizing less power and spending less money. For more popular and difficult coins like bitcoin, a more high-powered method known as ASICs must be used to turn a profit. ASICs operate at a higher speed and have the capability to more effectively solve complex blocks. They do, however, use more power. This is why ASICs are often used at mining colocation centers where electricity costs are less and overall profit can be maximized.

The colocation advantage

Electricity costs can be high depending on mining location and can even outweigh the profit returned by solved blocks. Mining colocation centers are specifically set up in locations with low electricity costs to handle the tremendous computing power needed to process crypto transactions at an affordable rate. These centers allow miners to scale up their efforts to increase power, reduce cost, and ensure their operations are kept secure and functional.

Mining with Compute North

Compute North’s colocation facilities are strategically located to take advantage of reliable, cost-efficient power sources. We exist to offer miners cost-competitive opportunities with an added peace of mind. Contact us today to start utilizing our best-in-class colocation solutions and maximizing your mining efforts.

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