What is virtual currency, who are miners, and why do they buy video cards?
Cryptocurrency earnings due to equipment capacities. People who are engaged in this activity are called miners, they use the power of personal computers or specialized farms to earn money.
The equipment works with hashing, selecting it for transactions that are in the system. Hashing means entering information of any length and size in the original string and returning a fixed length result given by the hash function algorithm.
In the context of cryptocurrencies such as Bitcoin, transactions after hashing at the output look like a set of characters of a length determined by the algorithm.
History of cryptocurrency mining
The first miner was the creator of bitcoin, Satoshi Nakamoto. Information is circulating on the Web that before the launch, he secretly managed to mine a large fortune. However, these are just rumors.
According to official information, Satoshi was able to mine only 750 coins. The pioneers mined “crypto” using the central processor of a computer. This method turned out to be ineffective, since large capacities were required.
So the era of video cards and ASIC boards began. As for the latter, entire companies have been opened in the USA that specialize in the production of this equipment. In particular, we are talking about ASICminer, Avalon and Butterfly Labs.
Every year they update the lineup to keep up with the development of technology. Mining equipment has come a long way and continues to develop and improve to this day.
Today, most professional miners invest heavily in GPU and ASIC farms, as well as in mining conditions, cooling system and uninterruptible power supply. Technology does not stand still and history is being written every day.
How cryptocurrency mining works
The process of mining cryptocurrency is quite entertaining. The equipment of the participants in the “digital race” searches for a certain number from a huge array of information.
These are not some abstract tasks, but in particular confirmation of transactions (transfers) of funds within the system. These tasks are formed into blocks.
Decryption of information in the block is carried out by the selection method – for this, the system needs such gigantic computing power. The miner himself, even if he has large hardware capacities, cannot find such a number.
That is why single systems are combined into pools (mining pool), which is a server that distributes the tasks of finding the number among all participants.
In this system, everything is very transparent and understandable. You can track absolutely any transaction. The only information that remains hidden from prying eyes is the data of wallet owners.
What does it take to successfully mine cryptocurrencies?
To begin with, you should draw up a detailed business plan, the key point of which will be electricity. This resource largely determines the economic benefits of the process.
Also, if you want to install a whole farm, then you need to solve the issue of soundproofing and cooling, because without this the equipment will quickly become unusable. Accordingly, there must be a large area.
This is true if you want to start mining immediately in large volumes. At home, a video card is enough. However, the choice must be approached with all seriousness and awareness.
You will need to buy exactly the equipment that will guarantee the greatest efficiency with the lowest maintenance costs. It is also worth choosing equipment that will be technically “too tough” – after all, it must be regularly monitored for smooth operation.
This category includes ASIC miners (they are ASICs). The principle of operation of these devices is to optimize calculations according to a special algorithm. Devices have a huge hashrate.
Their appearance completely replaced the miners on video cards from the SHA-256, Scrypt, X11, Qubit and Quark algorithms. Other benefits of ASICs include fast startup, increased reliability, and no need for constant updates.
As for the shortcomings, then they should write down the problems with the repair and the limitedness of the supported algorithms. In addition, the noise level from the ASIC is quite high. This means that it is better to place it in a separate room.
What cryptocurrencies exist
There are four popular types of cryptocurrencies:
Proof of Work (PoW). This type is based on the concept that the unit must have proof of completion of a predetermined task. This concept is based on Blockchain technology. This type includes Bitcoin and Ethereum.
Proof of Stake (PoS). These cryptocurrencies are based on the concept of providing proof that legitimizes a unit of cryptocurrency. The process is fundamentally different from PoW. This type includes Dash, Eos and Tron.
Tokens. These digital tools are for certain limited purposes. For example, they are used to buy digital assets.
Stablecoins. They function as assets that store value. Their value does not change. Tether is considered the largest stablecoin today. Next on the list are Gemini, Paxos and TrueUSD.
In addition to the above assets, there are also central bank digital currencies, governance tokens, and privacy coins. The former are digital versions of the USD and EUR currencies, the latter are designed to give users a say in decision-making, and the third are to ensure the anonymity of transactions.
As for “altcoins”, they are not a special type of cryptocurrency. It is simply an alternative name for all coins except Bitcoin.