What is cryptocurrency mining and can you really make tons of money by mining for digital currencies?

By Tushar Kumar

Cryptocurrencies have increasingly become all the rage in digital currency market. Although blockchain’s decentralise and unregulated platform has resulted in the creation of hundreds of new cryptocurrencies, this has also led to the digital currency market becoming somewhat unstable. Over the past couple of years, popular cryptocurrencies such as Bitcoin, Ethereum, Monero, and ZCash, among others saw massive fluctuations in their value.

In 2017, Bitcoin’s value skyrocketed from $900 to a whopping $20,000. However, the price dropped unexpectedly earlier this year. Bitcoin however, is not the only cryptocurrency to experience such drastic fluctuations. However, despite such uncertainties in the digital currency market, the public’s interest remains highly invested.

This interest is what gave rise to cryptocurrency mining. However, to most of the public, cryptocurrency mining still remains a mystery. This article attempts to answer some of the fundamental questions about mining.

Bitcoin is a prime example of Blockchain’s innovation. Credit: Flickr Commons

Blockchain and cryptocurrency – how does it work?

Blockchain technology comprises a growing list of data (ledger), which gets distributed across a chain of computers across the globe. One of the most attractive features of blockchain is that it has no central storage and is not controlled or regulated by anyone. In fact, blockchain’s technology has been designed such that it makes it virtually impossible for one single operator to control it.

Cryptocurrency transactions get added to the chain block wise, after verifying whether the data or hash of a new block was earlier appended to the chain or not. Blockchain provides enhanced security with the chain becoming so complex and rooted that it is almost impossible to impair it as a whole. The data is transparent, and permanent.

Blockchain finds application in peer-to-peer trading, and smart contracts without intermediaries in sectors such as banking and government.  Decentralised currencies such as Bitcoin and Monero are created using this technology.

Bitcoin is a prime example of Blockchain’s innovation. It is one of the most popular decentralised and distributed digital currency to have gained traction over the past few years. As explained earlier, new blocks get added to its existing blockchain after being validated by the miners, who then get rewarded with bitcoin for this proof of work. New bitcoins generated are also stored offline.

The increasing number of miners enhance the popularity of the currency. However,  there is a limit to the numbers of bitcoins that are obtained by the miners, as the calculations for verification become more complex as bitcoins get mined further. At present, the limit for bitcoins has been set at 21 million.

The interest in Bitcoin has led to more and more miners flocking to it. However, there is only a limited set of bitcoins that can be generated after each new block’s addition— this causes an artificial scarcity, leading to a hike in prices. This has also led to the rise of alternate coins such as Ethereum, Ripple, Litecoin, and others. They are either derived from Bitcoin or have their own protocols. However, they all have different features, with their own strengths and weaknesses.

Cryptocurrency Mining

There are different methods of obtaining cryptocurrencies. You can either buy it or get it for services rendered from existing holders. However, mining has increasingly become one of the most popular ways to obtain any crypto coin.

When a computer connects to the blockchain of the currency, it becomes a node for it. The existing nodes (full nodes) are the miners who append the created blocks for which they get cryptocurrencies in kind. Miners are also required to verify whether all the rules of blockchain are being followed. This includes information that pertains to computational power devoted, checking for double spending, and other such requirements. Finally, after obtaining proof of work, the new block gets added to their own blockchain, and propagated.

One major issue however, is computational power. In order to solve the complex mathematical problems that are involved with mining, you need considerable computational power. Miners however have various methods to obtain computational power, such as using an mining app, using the cloud, or using a dedicated rig.

In case of mining apps, all you need to do is to download an application—it does everything for you. Mining in cloud entails you purchasing computational power from a third party over the cloud to do the mining for you. They handle all the hardware, software, power, bandwidth, and maintenance requirements. You are only an investor, who gets returns on his investments. However, in case of a dedicated rig, you are required to do all the above-mentioned things yourself, 24×7. Regardless of the method of mining however, to obtain more cryptocurrency, you need greater computational power. It is for this reason that miners sometimes band together to scale up.

Advantages and disadvantages of mining

Early adopters of mining tend to get a disproportionate advantage over latecomers in the game. In most cases, currencies at a nascent stage provide a greater cost benefit, since the mathematical problems that required to be solved need less time, and can be competed by fewer people.

Mining over cloud means that there is no need to bother about managing the process or deal with any issues arising from it. Moreover, there is no depreciating equipment to offload after use.

However, mining can also be disadvantageous in some cases. It is not profitable for small-scale miners using consumer hardware, and is not a reliable source of income. Small-time miners also cannot compete against companies and large groups that dedicate both time and equipment to generate massive amounts of cryptocurrency. There is also always the risk of fluctuations in the currency fluctuations, which can lead to lower profits.

As mining becomes increasingly mainstream, the prices of hardware required to mine, such as GPUs, have been soaring. Manufactures of GPUs are now voiding their warranties in case their products are used for mining purposes. The maintenance cost of GPUs also rises with non-stop usage. What is more, you need to spend time and effort to be up to date with changes in rules, legal compliances, changing hardware and software requirements.

You will not be able to use your computer for any other task while mining, as it alone takes up a huge amount of memory and processing power. While mining using the cloud, you don’t have control over the process. Chances of fraud arise, with the possibility of third-party provider not sharing adequate coins or at all. The contracts for mining over cloud are also locked for different durations, and it is not easy to get out of it without paying a specified amount.

Illegal mining and safeguards

With the soaring costs for mining, malicious elements are resorting to tricking general users into inadvertently further their mining efforts. Using extensions in browsers to surreptitiously execute scripts to mine for cryptocurrency has become commonplace. Mobile applications that have trivial use are being apprpriated to increase the amount of computational power for mining.

Android apps are especially susceptible because of a more relaxed ecosystem, in comparison to iOS. Crytocurrency malware targets people’s personal computers to mine for coins by advertising minor or misleading uses. In such cases, users’ permission is not obtained. What is more, given the ambiguous legal nature of mining, in some cases, apps freely mention mining cryptocurrency in their terms and conditions, which are hidden in plain sight, alongside long and tedious legal jargon of terms and conditions, which few read completely.

Google has been removing apps and extensions which don’t agree with their policy about notifying users  upfront of their aim to mine bitcoin. The tech giant is also removing malware and useless apps that indulge in such underhanded practices. What is more, popular browsers are developing features that can put a stop to malicious entities making use of people’s computers for mining.

It is essential that you use reputed antivirus and anti-malware software to identify offending programs. Users should also look for battery and CPU usage history to identify whether applications are using more CPU power than is normal or necessary. Some of the common indicators of the presence of such applications are quick battery drainage and heat generation in laptops and mobile devices, without any cause.

Any new technology can be used for proper purposes just as easily as it can be abused. The same can also be said of cryptocurrency mining—it is up to people to decide how best to make use of this technology.