It is a well-known fact that cryptocurrencies are decentralized in nature. This means that there is no central authority that issues or administers the circulation of the cryptocurrency. So if there is no central authority that is in charge of the administration of a cryptocurrency, how does that cryptocurrency first come into existence? How does one go about acquiring the cryptocurrency? This is where cryptocurrency mining comes into the picture. Cryptocurrency mining is the process by which transactions that use the cryptocurrency is verified and then added to the blockchain the forms the basis of a public ledger. It is also the very method with which new crypto coins are created.
The Mining Process
In theory, anyone with a computer and internet access will be able to mine cryptocurrencies. The process itself requires the use of computing power to verify and compile all the recent cryptocurrency transactions into blocks. Once the transactions have been verified and compiled into blocks, they have to be added to the blockchain. In order for the new blocks to be added to the chain, it requires the solving of a difficult mathematical puzzle. The person, who succeeds in solving the puzzle and adding the new blocks to the chain, will then be rewarded with the crypto coin.
The amount of crypto-coins that are released when each block is successfully added to the blockchain is known as the “block reward”. To control the number of crypto- coins that get released, there is usually a mechanism that diminishes the block reward after a certain period. For example with Bitcoin mining, the block reward is halved after every 210,000 blocks. This time-frame is roughly equivalent to every 4 years. With Bitcoin, the difficulty of mining the crypto-coin is automatically adjusted to ensure that the supply and demand of the cryptocurrency remain relatively constant. In the earlier days, cryptocurrency mining could easily be accomplished with normal desktop computers. However as more and more people got involved with cryptocurrency mining, more computing power became necessary to mine cryptocurrency effectively.
Mining Cryptocurrency for Profits
Given the fact that nearly everyone can take up cryptocurrency mining, the question remains as to whether it is profitable for one to venture into cryptocurrency mining on a full-time basis. Frankly, cryptocurrency today has become so competitive that it is no longer viable for an individual to generate a profit out of cryptocurrency mining. Nevertheless, as a hobby, a home-based cryptocurrency miner can still generate a small income out of his spare computing power. However, this still depends on the type of cryptocurrency that you are mining for. For newer coins such as Litecoin or Monero, it is still possible to mine a small profit on a daily basis, as the competition is not as intense as mining for Bitcoin.
But practically for the individual, cryptocurrency mining is not a feasible venture for the long term. Instead, it would be better for an individual to purchase crypto coins, or its derivative instrument and ride on the price movements to make a profit.