What is Crypto Mining? (Bitcoin, Ethereum, Monero)


Cryptocurrency mining. I get asked by a lot of people about what
this is about. Why do we need it? Why do we need to do it? Cryptocurrencies have evolved, there’s over
1,000 different cryptocurrencies on the market now. It’s still very high risk and very volatile,
something that you need to be very careful with, but from a mining aspect, there’s two
different paths you can take. Path number one is to go with the ASIC dedicated
miners to mine Bitcoin, because Bitcoin is kind of the gold standard of cryptocurrencies
and it’s something that a lot of people recognize. It’s got a lot of recognition since it first
started in 2009. Bitcoin mining uses a system called SHA256. This system is mining a cryptographic algorithm,
so what you’re doing is you’re contributing to the blockchain, and the blockchain is a
public ledger system. The problem is, even though we’ve already
mined over 80% of the Bitcoins right now, and they feel, “Well, what’s the point?” The point is that you will always need mining,
because you will always require people to contribute to the blockchain, because the
blockchain is what’s keeping track of any single time a transaction is performed when
it comes to Bitcoin transactions or any other cryptocurrency transaction. If you’re going to send money from one wallet
to another wallet, these are digital wallets online, you need to verify that information
and permanently write it in the public ledger system, which is the blockchain. Even after you’ve mined 100% of the cryptocurrency
and you’re not making anymore, which you were gaining from rewards, the system still needs
to be able to verify and record all of the transactions that occur. The second type of mining that you can do
is a system called ERC20 tokens, and the biggest one there that you’ve heard of the gold standard
on that side is Ethereum. We’ve got other coins like Litecoin, Ripple,
and Dash, and a whole bunch more. Literally, there’s over 1,000 different cryptocurrencies. Ethereum uses different processors, so it’s
not an ASIC-based, which is like a single purpose computer that all it can do is crunch
through Bitcoins. No in this case, you’re using high end graphics
cards, GPUs. This is the kind of stuff that gamers are
used to. That’s why right now, if you go into a lot
of hardware stores to go and buy computer parts, a lot of them are sold out of power
supplies and graphics cards. It’s because of all the people that have been
jumping on, going and doing mining, specifically for the Ethereum and other kinds of coins
and tokens based on that. Now, mining from that purpose is running again,
a lot of electricity, a lot of cooling, but I think the interesting part about this to
me, I think it’s kind of neat, is that you’re not using a single purpose computer, that
the only thing you can do is mine Bitcoins. You’re actually using computers parts, in
this case graphic cards, high end graphic cards, which are going to have a value at
some point. Now the interesting thing is you’re setting
up these computers to have multiple graphics cards. It’s not just each computer has one graphics
card and one power supply. No, actually quite the opposite. Mining specific motherboards that you can
get that have up to 13 or even 19 slots for graphics cards that can connect to it so that
you’re actually using 19 different GPUs at the same time on the same system for mining,
and they don’t even all need to match, you can use different programs out there like
one called Claymore, which can mine Ethereum and other coins. The interesting thing about that is that if
you ever decided, “You know what? This is just not profitable anymore. My electricity’s too expensive. The difficulty of mining has gone up too much,
and I just don’t want to do this anymore,” not all is lost. It’s not like you’ve invested a whole bunch
in hardware that is not recoverable. You can actually take those high end graphics
cards, these GPUs, and sell those afterwards to gamers or to auto-cad people or people
who need essentially high end graphics cards for the computers. Now, depending on the climate you live in
and the environment you’re in, you do have to consider that the power is going to be
a problem. Getting into it a little bit more, imagine
a computer that has multiple video cards. Well, most power supplies only can support
a certain number of six or eight pin power leads for feeding those high end graphics
cards, and because of that, you’re not only limited by the amount of power that the power
supply can put out, whether you can even plug it into a regular household 15 amp circuit,
but you’re also limited to the number of video cards that you can actually connect to each
power supply. For example, one mining rig that I have running
has 13 cards on it, but it’s split over four power supplies with roughly a balance of three
to four video cards per power supply, and then two of the power supplies are connected
to a regular household outlet, so you need two household outlets. Now power costs throughout the world are different
by country, and of course climates are different by country depending on whether you’re in
a cool climate or a warm climate, and then knowing that the byproduct of running this
all the time is heat because you’re putting off a huge amount of heat that needs to be
cooled off of these devices, you’re probably better off to do this in countries that have
lower power costs and that are generally cooler by nature on the average over throughout the
year. Mining in general is something that’s high
risk, highly volatile market, and you have to decide, do you really want to jump into
that space? What is your goal? In a lot of countries, they’re becoming regulated,
and you need to report for tax purposes the profit that you’re making and what you’re
mining from your rig. Then you have to decide, “How am I going to
convert that to FIAT currency?” How do you actually take something online,
unless you’re reinvesting it in something else, other cryptocurrencies or buying stuff
using cryptocurrencies, how are you converting that into actual money or taking it out, assuming
that you wanted to pay back your initial investment? The big calculation that a lot of people need
to do is understanding what is their hashing rate, how fast the cryptographic calculations
that your mining rig can do, and you total that up over all of your graphics cards or
your ASICs that you’re doing if you’re doing dedicated mining on the Bitcoin side, and
this is typically measured in terahashes or gigahashes. There’s calculators online that allow you
to put in what your power consumption is, your power costs are, your original hardware
investment, and what the current rate is. Being that it’s a highly volatile market,
what do you base the actual cryptocurrency that you’re earning? That could change and fluctuate within a day. There’s huge spikes, ups and downs, on the
cryptocurrencies themselves. The next problem is that because of all the
people who are mining, you’re going to have increased difficulty. That means that every two weeks on Bitcoin’s
side, the difficulty is adjusted and that’s based on how fast the prior two weeks was
achieved. The typical transaction to the blockchain
is supposed to take 10 minutes. If the average transaction over two weeks
takes less than 10 minutes, it’s going to make it more difficult for the next two week
period which means there’s more people who are mining, the total hashing rate globally
is very high, higher than the prior two weeks, and therefore the payout that you’re going
to get for your share, your contribution of your hashing rate, is going to be a lot lower. Now, where people are hoping is that over
time, the cryptocurrency itself is increasing in value, but this is just like a stock and
bad things can happen. You really have to take into play and account
for all of these different factors that come in, so it’s not just, I’ve got an initial
hardware investment. Can I even get the hardware because a lot
of it is sold out right now and you can’t even get your hands on it. Do you have the right power supply? Do you have the right adapters? Once you build it, are you monitoring this
thing? Unless you’re going with a single-purposed
one, which is for Bitcoin only, where are you going to place this thing? Is it too loud? Is it going to put off too much heat? Are you going to need special power for it? Can you afford the power that is going to
it? Is it going to go into some kind of different
digital wallet, and how are you going to convert that or use that and report that to the different
regulation and tax authorities that are applicable for your region? All of this needs to be investigated and decided
before you go and jump on the bandwagon. One of the easiest forms of mining right now,
and it’s not really profitable, but if you just want to have some fun, is something called
Monero. Interestingly, you’ve probably heard of a
new form of malware or spyware that’s infecting people’s computers called cryptojacking. Cryptojacking is where you’re being displayed
ads on YouTube or on a website popup or maybe it’s your running some kind of Chrome extension,
piece of software that you’ve installed on your computer, and you don’t realize it, but
all of a sudden your computer’s CPU, the main processing unit for your computer, so again,
not a graphics card, the computer itself is actually mining this Monero coin. Now, for cryptojacking, it’s going to somebody
else’s wallet. You’re not even making that. Somebody else is using your computer resources
nefariously to make themselves some money, but if you want to try it out yourself, you
could try out Monero, run it on your computer, see what you think, and experiment with the
thought of having a digital wallet, mining a cryptocurrency, seeing a taste of how much
the hashing rate for that is and how much you earn within a 24 hour period, and just
kind of dipping your feet just to see what is this mining thing about and what do I do
with it. Have another friend go and set up a digital
wallet as well and learn how to transfer money between each other, because now when you go
and transfer money between digital wallets, people don’t realize that you get charged
transaction fees. The transaction fees are a portion of the
cryptocurrency that’s going to be charged to you, shaved off the amount that you’re
transferring, in order for that transaction to be logged into the blockchain so that it’s
being basically written into the general ledger, which we call the blockchain technology. Another fascinating thing that I find, I think
it’s coming in the future, and why I kind of see a lot of sex appeal to the entire Ethereum
network, are the distributed application programs, the DApps, that people can go and basically
run on the Ethereum network. Think about this. You’ve got all these computers around the
world who are contributing and running, mining on Ethereum, so they’re contributing to this
cryptographic algorithm, but could you imagine having that and being able to run programs
on it? It’s kind of like a super computer at your
fingertips that you can rent time on. I think that has a lot of future potential. On that note, this is all to explain to you
that there are a lot of risks, a lot of costs, and a lot of factors involved in getting into
cryptocurrency mining, and it’s something that you should seriously investigate and
maybe just don’t jump in feet first by going out and investing a whole bunch into this. I think you need to investigate it, maybe
just try it out a little bit with something like the Monero coin or whatever it might
be. That’s some information for you on cryptocurrency
mining.

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