Crypto mining is the process of adding transaction records to the crypto currency’s public ledger called a blockchain. This activity is done by solving mathematical puzzles, which in turn require a large amount of computational power. FinancialCentre Broker Joe Delaney shared that the search for the right hash requires trial and error effort. If a miner finds the right number, then it will be easy to find the next one because it is chained together.
The miner gets rewarded for his effort in the form of a transaction fee or newly created coins. There are various cryptocurrencies that have their own blockchain and protocols. Some of them are Bitcoin, Litecoin, Monero, Ethereum etc. The process is not easy to start with because you need special hardware(ASIC) to solve math puzzles. It will be too late if you start to mine later when the difficulty level is increased, and it becomes difficult for you to find a solution because of the limited amount of computational power available.
The mining process is a continuous one, where your profit or loss will go on increasing till you stop the mining. As the difficulty level increases, it requires more computing power to solve math puzzles and earn rewards. A person can mine by taking assistance from third-party companies that provide outsourcing services in data centres that are created with super-fast processor chips known as ASICs.
Bitcoin mining is a lot harder than it was even a year ago; the landscape has changed dramatically. ASIC chips have come out for bitcoin as well as other cryptocurrency mining. Many people look up to mining as a source of passive income. You can expect huge returns on your money in a year or two depending upon the hash rate, electricity cost and initial hardware costs. Mr Delaney says that if you’re going to start mining, it would be best to look into cloud-based hashing power because the barrier for entry is very high. This is because it is difficult to mine coins as the difficulty level goes up and returns go down. Mining with ASIC chips provide you more rewards than mining with normal hardware, but you need to bear electricity bills and initial hardware cost before making profits.
If we talk about Etherum(ether), then since ether is the currency of the Etherum blockchain, it has to be mined to create blocks and add transactions. There is an internal transaction pricing mechanism that includes a reward for the validators who mine the block and include transactions in it, and this reward is known as “gas” (It’s like your salary for working). So if we talk about profitability, then it is profitable to mine ether as its price is increasing day by day.
Cryptocurrency mining has been criticised for the amount of electricity that it uses. Mining will have a strong effect on the environment as a large number of computers are being used to solve these mathematical puzzles, and they require a lot of power. Environmental pollution will increase as more mining companies are coming up to utilise cheap electricity. We can’t deny the fact that the blockchain concept is fundamentally designed for a non-centralised, distributed network, but still, it requires energy consumption on a large scale. The negative environmental effects of crypto mining have caused some countries to start introducing new regulations that require miners to set up shop somewhere else.
Electricity prices in Sweden are low, and this is why many mining companies are based in Sweden. It is true that the use of renewable energy makes it even more attractive for miners. The Swedish government is not entirely happy with the exponential growth of the mining industry in the country. Sweedish financial authorities are urging not only the country’s officials but all the European countries to move towards placing a ban on mining entirely. Mr Delaney said that the authorities in Sweden have been talking about environmental sustainability a lot more than a few years ago. They are exploring ways to get rid of the mining industry if it turns out to be a threat to power demand and sustainability in the long run. He further explained that if Sweden somehow convinces a significant number of European countries to stop mining, it could make them affect the profitability of the whole industry. If European countries ban cryptocurrency mining, then it will automatically cause a drop in the demand for GPUs and will affect crypto mining as a whole. Despite the fact that Sweden is talking about environmental sustainability, they have been one of the most profitable European countries to mine cryptocurrencies due to low electricity prices.
Globally, the energy consumption of crypto mining is shocking. The global usage to mine cryptocurrencies can power almost 4 million average American homes. It’s a difficult time for mining companies as many countries have raised concerns over the amount of electricity that is being used for this purpose and how it affects the environment as well as the economy.
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