How Does Cryptocurrency Mining Work 2021 | Fully Explained

How Does Cryptocurrency Mining Work | Fully Explained

Cryptocurrency mining is the name given to the process in which new cryptocurrency coins are generated and entered into circulation. It is also a crucial part of maintaining and developing the public ledger of the particular digital currency that is being mined. In this artical i will explain How does cryptocurrency mining work? 

Essentially, cryptocurrency mining forms a self-rewarding cycle: “miners” maintain and secure the blockchain, the blockchain awards those miners with coins for their work, and those coins provide an incentive for more miners to contribute to maintaining the blockchain.

How Does Cryptocurrency Mining Work 2021

How Does Cryptocurrency Mining Work | Fully Explained

Cryptocurrency mining began in 2009, with your standard computer’s CPU being used to hash it, but as is the case with any new market, things moved particularly fast in the mining sector, with the mining industry taking over. Saw a change away from the standard CPU. Graphics processing units (GPUs), which were capable of hashing cryptographic puzzles at a much faster rate, refer to the rate at which the cryptographic puzzle is solved, as the hashrate.

With miners being equipped with the knowledge that hashrate is the key to income, the use of a single GPU shifted to miners connecting multiple GPUs, referred to as mini farms, with multiple GPU accelerators driving the hashrate north. are.

Miners using mini farms faced significant power consumption and, as always, were looking for solutions to this issue, resulting in a change to FPGAs (field-programmed gate arrays), which saw significant improvements in power consumption. This gave FPGA miners a physical edge over miners using a GPU, with any miners attempting to use a CPU with a CPU falling behind the pack.

With the cost of mining with FPGAs being significantly higher than mining with GPUs, it ultimately boiled down to cost.

For bitcoin miners, GPU and FPGA miners encountered a new miner, miners mining with application-specific integrated circuits (ASICs), ASICs developed solely to mine cryptocurrencies, ASIC miners using CPU and There is a significant power advantage over GPU users, which led to ASIC miners becoming mainstream in 2012.

As the number of miners increased, so did the complexity of crypto calculations, variable hashrate, which is the speed at which the crypto puzzle is calculated and provides income to the miner. The amount of profit for the miner depends on how much hashpower the miner has relative to the network.

As more miners migrated to the ASIC platform, the computation complexity also increased, adjusting the computation complexity every 2016 blocks. The complexity is adjusted according to the computational power used for mining, with the complexity increasing as the miners progress, with the aim of ensuring that the block rate discovered remains constant.

Obviously this means that it is a never-ending cycle of computational power advancement, followed by increased computational complexity required for mining, which also pushes miners, out of the picture, to move to more advanced platforms. hopeless at.

As computational complexity increased, miners moved from the use of mini farms to data centers, which are now widely used, with computational power provided by centers rather than individual miners. The additional benefit for miners who mine through a data center is economy of scale, reducing the cost of an individual miner.

While data centers are certainly of immense popularity, the market has also seen the growth of cloud mining, with cloud mining removing the need for miners to acquire expensive mining equipment or cover the cost of electricity resulting from the use of an ASIC platform However, there is a cost involved and will result in lower income.

Cloud mining, also known as cloud hashing, allows the user to purchase the output of cryptocurrency mining hardware, which are located in remote data centers, with all mining done remotely, using powerful platforms. Addresses the issues faced by miners, which largely include electricity access, heat, insulation and of course, maintenance.

There are some disadvantages to using cloud mining services, however those who want to become a miner should be aware of these and include:

  • Lower profits than having your own hashing systems.
  • Possible fraud, with cloud mining operators being unverifiable.
  • Inability to change mining software as the miner does not possess the hardware.
  • Contracts can be terminated with service providers able to shut shop should cryptocurrency prices be too low, which could result in nonpayment of income.

As a miner, the safest way to go about mining for cryptocurrency would be to acquire the necessary hardware as a starting point and build your own cryptocurrency hashing system, although there are obviously costs attached to it. There are set up and ongoing costs including large electricity bills and the need to update hardware and software, which will also need to be sold once the hardware is updated.

For the average Joe, cloud mining is probably one of the simplest ways to enter the world of mining, although as mentioned earlier, some care needs to be taken and some research needs to be done on which service. It is best to avoid the package meeting the needs of an individual. Over subscription, which will eat into potential earnings.

Cryptocurrency mining is of course different to the mining of commodities like gold and silver, in that cryptocurrency mining does not provide a physical asset and can be compared more closely to the physical in the commodity futures market.

Mining processes differ from the world, where mining for commodities involves the discovery and extraction of a physical product, whereas cryptocurrency mining is electronic, the cryptocurrency wallet is also electronic and not physical.

Cryptocurrency mining, whether through data centers, cloud mining service providers, own mining hardware or others, is the generation of new units of a particular cryptocurrency, depending on the exchange on which the mining is done.

The mining process is a computational process and has advanced from its early days into a more complex crypto puzzle solving process that requires significant processing power.

Miners are rewarded for solving complex crypto puzzles through the mining platform.

It’s important to note that if you’re using your standard desktop or laptop at home, with low running costs like successful miners using specialized hardware, and cheap electricity bills, the processing power is profitable enough to mine. is not.

For this reason, subscribing to mining programs that use your home computer or laptop is unlikely to generate profit for you, but for program providers, who are taking advantage of using your hardware but at additional costs. Without end and of course they receive a fee for the program.

Also read👉 How to Mine Cryptocurrency on Pc

5 Cryptocurrency mining software

Cryptocurrency mining software is a method used to create new cryptocurrencies and add components to an existing blockchain. Once mined, the new cryptocurrency becomes valid and belongs to the mining party as a reward for contributing to the blockchain. Cryptocurrency mining technology uses the processing power of a computer’s graphics processing unit (GPU) to aid in finding blocks. Most mining today is done through a mining pool, which shares resources and distributes rewards over a network.

Cryptocurrency mining software uses the processing power of site visitors or application users. Other tools dedicate local server resources to mining pools. Companies can use these tools to generate their own cryptocurrency.

To qualify to be included in the cryptocurrency mining software category, a product must:

  1. Allocate resources to cryptocurrency mining
  2. Utilize GPU or CPU for mining
  3. Connect mining hardware to the blockchain or pool


NiceHash is based on the concept of a sharing economy by connecting sellers and buyers of computing power from all over the world.


Salad activates the idle compute resources of the world’s gaming PCs. Our users (or “cooks”) turn a wealth of idle processing power into the rewards they want on the web’s most trusted “AFK-for-pay” Steam games, digital memberships, in-game loot, gift cards and more “Market. We leverage the Ethereum blockchain to help you get the most out of your PC. To date, our users have redeemed over 60,000 digital and real-world items, and in organizations around the world Thousands have made charitable contributions. More than 400 million gaming PCs sit idle for 22 hours a day. With a salad, that’s 11 minutes of pay for every minute of play.


MinerGate is a mining pool created by a group of cryptocoin enthusiasts. It is the first pool that provides service for merged mining. This means that you can mine different coins simultaneously without a decrease in hashrate for the major coins when mining on our pool

4.Genesis Mining

Genesis Mining is a technology company and the world’s leading provider of cloud mining for bitcoin and altcoins. We provide our clients with easy access to small, medium and large mining contracts. Multipool technologies are used to automatically convert altcoins into bitcoins, which are transferred to the customer’s wallet on a daily basis. Mining begins immediately after the signing of the contract.


This is a multi-threaded multi-pool FPGA and ASIC miner for bitcoin.

Also Read👉 how to mine Cryptocurrency on mobile

Different Methods of Cryptocurrency mining

Cryptocurrency mining can be done by just about anyone, but it requires a strong computer (almost all laptops will struggle to deal with the massive amount of data) and a large power supply.

However, there are many different methods for cryptocurrency mining, and each has its own advantages and disadvantages. Below, we walk you through the basics of each mining process, and explain the pros and cons of each.

Cloud mining

Cloud Mining

Cloud mining is one of the most popular methods of cryptocurrency mining. It can work in one of two ways. One way involves paying a specific amount of money to someone (usually a large corporation) to “rent” their miner – called a “rig” – so that the miner can use it. You are then responsible for the machine and its performance. This may involve a costly upfront outlay.

Alternatively and more generally, cloud mining services allow you to rent their computing power from their mining farm. These mining farms are huge reserves of advanced computers located around the world. You then share in the rewards the farm generates from mining in proportion to the computer power (called hash power) you rent. In fact, you are contributing to a huge mining operation.

The rental period for cloud mining is agreed upon between the miner and the tenant, and your share of the farm’s earnings is transferred directly to your cryptocurrency wallet.

Different corporations offer different cloud mining rent plans according to the services available to the miner, but most rent plans come in between £350 to £3,500, and miners typically sign up for anywhere from 2 years to a lifetime. can.

There are also free versions of cloud mining, but the service tends to be much slower and therefore less likely to be the first to guess that all-important 64-digit hash.

Cloud mining has proven to be so popular in recent years because it enables miners who usually do not have access to computers that can mine cryptocurrency, which includes most ordinary members of the public, to rent to someone else. The technology to buy your own insanely expensive piece without having to pick up.

GPU Mining

What is Gpu Mining
Gpu Mining

GPU mining uses a computer’s in-built graphics processing unit to perform the complex mathematical operations required for a cryptocurrency reward. This is probably the most widespread and well-known method of cryptocurrency mining. Cloud miners already use GPU rigs, except they use rented ones instead of their own.

Although building the rig itself tends to be expensive, it may end up paying for itself due to the speed of generating the hash, making a miner with a GPU rig significantly faster in generating new blocks and thus earning cryptocurrency coins. does.

A standard GPU rig is composed of a processor, a motherboard, a cooling system, the rig frame, and a number (usually 2 – 8) of advanced graphics cards.

A typical market price for a GPU mining rig is around the £2,000 mark. This may sound like a daunting investment, but in theory, it will pay off much faster than some of the slower options.

CPU Mining

Cpu mining
CPU mining

CPU Mining uses advanced computer processors to mine cryptocurrencies. This used to be a popular choice during the first few years after the inception of the cryptocurrency, but fewer miners currently choose this method due to significant disadvantages compared to more efficient methods now available such as cloud or GPU mining.

On top of all that, CPU mining is extremely slow, and you can find yourself mining for months without getting any revenue. The fact that it’s such a long process often uses more electricity over a period of time, which can rack up huge bills unless you have access to cheap electricity and a cooling system (so much on cryptocurrency mining computers). taxing that it can cause them to overheat without adequate cooling equipment).

The reason CPU mining became popular was that it only required a computer and a few software programs. In the early days of cryptocurrency, it was even possible for a simple laptop to compute some mining processes, but the sheer processing power required to handle current blockchain data – which grows even more with each block contributed – is almost certainly not the case. A high-spec laptop today.

However, the ease of CPU mining continues to attract thousands of new miners every year, but usually only in places where electricity is a comparatively cheap commodity.

Asic mining


ASICs (Application-Specific Integrated Circuits) are devices that are explicitly designed to perform a task, in this case cryptocurrency mining, and are known to be able to generate significantly more cryptocurrency than alternative mining methods. because they are perfectly adapted for this purpose.

However, they are controversial in the cryptocurrency community. Some have even demanded a complete ban on ASIC machines. Their sheer computing power means they essentially have a monopoly on hashes, with miners limited to GPU or CPU rigs typically unable to keep up with the speed and efficiency of ASICs.

In some cases, ASICs have completely monopolized the economy of a certain cryptocurrency – such as Zcoin – with most of the new coins assigned to miners with access to ASIC farms. This gives them almost unquestionable control over most currency.

How does Bitcoin mining work?

In the case of bitcoin mining, transactions are hashed and packaged to be included in a block. They are arranged in a Merkle tree. All mining starts with the blockchain. It is an online decentralized ledger that records transactions across the network. A group of accepted transactions is called a “block”. These blocks are tied together to form a “chain”, hence, the term “blockchain”.

In the bitcoin network, the goal of a miner is to add individual blocks to the blockchain by solving sophisticated mathematical problems. This requires immense computational and electrical power. While multiple miners compete to add each block, the miner who solves the problem will actually add blocks—along with their accepted transactions—to the blockchain. This miner receives a reward of 6.25 bitcoins (as of Nov 2020)

Bitcoin mining meaning

Bitcoin mining is the process of creating new bitcoin by solving a computational puzzle.