Crypto mining computers work around the clock and around the world. They help to build and secure the worldwide network that supports digital transactions.
The rewards are in the form of new cryptocurrency and transaction fees. However, the upfront costs of equipment and ongoing electricity rates (mining farms use as much power as several homes) can make it difficult to break even.
What is crypto mining?
Cryptocurrency, blockchain, and crypto mining are all part of an industry that is both exciting and mysterious. While it has created a monetary system that circumvents today’s financial institutions, it also creates challenges with its cost, volatility, and energy consumption.
Mining is a crucial aspect of cryptocurrency, as it helps verify transactions and secure the blockchain network. It is also how new coins are released into circulation. At its peak, mining was an arms race that drove demand for graphics processing units (GPUs).
There are different ways miners dig up cryptocurrencies, but most often it’s done through malware. Cybercriminals smuggle the malware into computers, usually through infected websites and pirated software, and then use them to mine for crypto. The mining process drains the computer’s CPU resources, allowing it to dig up coins faster.
The value of a coin depends on its supply and demand, and it’s up to the miners to decide whether to sell or keep what they earn. It’s also important to have a wallet, which is an encrypted online account that stores the coin or token you mine.
Professional mining companies often have their data centers with high-powered hardware that is used to validate transactions and mine for crypto. The equipment uses a lot of energy, so mining operations are usually located in areas with cheap electricity. Fluctuating energy prices cut or increase profit margins, and it can be hard to predict how much a mining operation is earning.
How does crypto mining work?
Crypto mining is the crucial action that verifies and secures transactions on Bitcoin and other blockchain-based currencies. This allows cryptocurrencies to function as a peer-to-peer decentralized network without oversight from a central authority like a bank. It also provides the mechanism for new coins to be circulated into the market.
When a crypto miner solves a computational puzzle, it is added to the blockchain as a verified transaction. These pending transactions are then combined into blocks and attached to the previous block, creating an unbroken chain of verification. For their work, crypto miners are rewarded with coins and/or transaction fees.
At its peak, crypto mining was an arms race that drove demand for graphics processing units (GPUs). Today, it is not as profitable given the increased difficulty level of solving equations on the blockchain. In some cases, however, cryptocurrency miners earn a reward from the blockchain’s creator simply for their participation in maintaining and validating the chain.
Most professional crypto-mining operations run high-powered GPUs on dedicated servers that require significant cooling and electrical resources. As a result, the industry is largely powered by fossil fuels and uses an average of 120-240 billion kilowatt-hours per year. Because of this, there is a push to make the industry greener.
What motivates miners?
Cryptocurrency mining is crucial to the security of Bitcoin and other cryptocurrencies. As the name suggests, it involves vast, decentralized networks of computers that verify and secure transactions on a cryptocurrency’s blockchain. In return for their work, miners are rewarded with new coins. The more computing power they contribute, the higher their reward. It’s a virtuous circle that ensures the cryptocurrency’s blockchain is verified and secure.
In the early days of Bitcoin, the earliest cryptocurrency, mining could be done on an ordinary computer using basic CPU hardware. But mining is now a more sophisticated undertaking, with advanced GPU hardware used for processing power. To be profitable, the value of a mined coin has to exceed the cost of purchasing and operating the hardware and electricity required to run it.
As Bitcoin mining is so energy-intensive, its emissions have become a major source of concern among climate change advocates. To cut down on the need for electricity, some miners are switching to renewables, and some are even joining forces with other miners to share their computing power and profits in so-called mining pools. This trend towards decentralization and environmental sustainability is expected to accelerate, especially as the Bitcoin network approaches its so-called halvings, where the amount of time it takes to generate a single unit of currency will double.
What are the risks of crypto mining?
Cryptocurrency mining consumes massive amounts of energy, threatening global efforts to reduce dependence on climate-warming fossil fuels. Mining operations rely on specialized mining hardware that can last only two or three years before needing to be replaced, creating vast quantities of electronic waste. They also use enormous amounts of water to power and cool their operations, often discharging the hot water into local bodies of water, harming aquatic life.
Mining operations are at risk of business interruption from both natural disasters and attacks from hackers. Modular data centers, which are often constructed from fabricated containers, can be susceptible to flood and earthquake damage, and the equipment inside them is at high risk of overheating. The cost of resolving these problems can be prohibitive.
Hackers use cryptocurrency-mining malware to hijack computers and repurpose their processing power for mining without the victims’ knowledge or consent. This malware, known as cryptojacking, is most commonly used to mine bitcoin but has been deployed against a wide range of Internet of Things (IoT) devices, including digital video recorders/surveillance cameras and home routers.
Many utility companies are implementing programs to help miners shift away from fossil fuels and toward renewable sources of electricity, including using energy from flared natural gas at oil fields or excess wind or solar power that can’t be stored. However, the proof-of-work mining model prioritizes the short-term need for large amounts of electricity over a long-term shift to cleaner energy sources. This inherent arms race drives up electricity costs for communities and ratepayers across the country.