Tech InDepth: Understanding Crypto Mining and Its Ups and Downs

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Crypto mining is a term that you may have come across in recent times. It is allegedly responsible for the rising prices of graphics chipsets (GPUs), but it also helps drive cryptocurrency gains. Oh, and it’s also the reason why laptops break badly all over the world. But what exactly is crypto mining and how does it work? Most importantly, why is mining so important right now? We take an in-depth look at crypto mining.

What is crypto mining?

Cryptocurrency mining, or cryptomining for short, may sound like it is a procedure where new cryptocurrency coins are created (or mined). But it is not that simple. First, let’s take a quick look at how cryptocurrency transactions work.

Cryptocurrency is completely digital with no records of possession and transactions in the physical world. It is also not centrally controlled or issued like, say, a nation’s currency like the Indian rupee or the US dollar. There is no physical ledger to keep track of who owns how much or details of transactions between cryptocurrency owners and/or businesses that accept cryptocurrencies. Instead, all cryptocurrency transactions are held through a blockchain network and added to digital ledgers.

These digital ledgers need to be kept to keep track of the various cryptocurrency transactions that take place around the world. These global ledgers simultaneously update crypto transactions for the respective cryptocurrencies on millions of computers powerful enough for the task. The idea is that because the network is decentralized, no one person or entity can control it and therefore modify it to their advantage. These millions of computers that keep track of these transactions are what you would call crypto mining systems or platforms.

Computers, platforms and crypto mining farms

In theory, anyone can make a crypto mining platform. The only requirements are a powerful computer, mining software, and a cryptocurrency wallet. Once set up, this computer will be connected to a global network, where it will become an addition to the many computers that already crunch numbers. This computer will then use its processing power to maintain the ledgers that we discussed earlier.

Mining for most cryptocurrencies works better with graphics processing units (GPUs) than central processing units (CPUs). This is why crypto mining is much more efficient and profitable on gaming computers. Modern GPUs like the Nvidia RTX 30 series or the newer AMD Radeon graphics cards are very popular options for crypto mining. This is also why the demand for these GPUs has skyrocketed in recent years, leading to increased prices.

Crypto mining requires more powerful settings for better profits. (Image source: Reuters)

On the other hand, mining with laptops is a horrible idea. These are not designed to deal with the heat that can be generated when your system has been mining for a while. This excess heat can cause permanent damage to your laptop or just kill it. Therefore, mining is more suitable for dedicated systems that can handle excessive power and heat.

Users who want more profit from their mining can configure more powerful computers with multiple graphics cards added. These computers are used solely for mining and can even have up to eight GPUs chained together. Some miners even have multiple such rigs set up to work simultaneously, in what is often referred to as a crypto mining farm.

crypto hash rate

Another term you should be familiar with is hashrate. A measure of the computational power that goes into mining, the hashrate represents the speed at which a given mining rig operates. The higher the hashrate, the faster the mining process for that particular cryptocurrency. A higher hash rate also translates to a higher chance of a miner finding the next block. This also means faster mining speed and higher profit margins.

cryptomining, cryptocurrency, crypt hashrate, What the hashrates look like for various cryptocurrencies. (Image source: Nicehash.com)

The advantages and disadvantages of crypto mining

It can cost a fortune to set up a powerful crypto mining platform or farm. The electricity bills that will follow when your PC is mining for long hours also add to the total cost. Crypto mining essentially uses your GPUs to their fullest potential as long as the mining software is running. This also reduces the overall lifespan of your graphics cards. But despite these tips, many people still want to mine cryptocurrencies. Strange? Not really.

When you “donate” your system for crypto mining for a particular coin, the software also rewards you with some of that coin. If you are mining Bitcoin, you get something as compensation for your troubles. This is how miners make money, and it’s also where the name ‘mining’ comes from.

Although the price of a cryptocurrency is high, mining it can be very profitable. People with powerful mining setups can earn much more money than they had initially invested in building their rig. However, mining also carries its risks.

The biggest risk is the fluctuation of cryptocurrency prices, which can change every hour. One can see sudden ups and downs as well. This makes it a somewhat risky venture for miners and investors alike. For example, if you have been mining Ethereum and the price of Ethereum suddenly drops, you may lose money instead of making a profit. The volatile nature of cryptocurrencies is why many people also look the other way from mining.

Crypto mining and the environment

Another negative impact of crypto mining is environmental. Cryptocurrency mining requires a lot of computing power and therefore a lot of electricity. Many consider that this type of energy consumption on a global scale is doing more harm than good.

According to some statistics from Digiconomist via Investopedia, Bitcoin mining generates around 96 million tons of carbon dioxide emissions each year. For context, this is equal to the carbon footprint of some smaller countries. Similarly, mining Ethereum (a newer and faster cryptocurrency) produces more than 47 million tons of carbon dioxide emissions a year.

But this topic is still debatable. People also argue that electricity is used in traditional banking and will one day come from more renewable sources. Regardless, cryptocurrency is rapidly evolving and we may soon have more efficient cryptocurrencies as well as ways to mine and hold them.

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