If you've ever heard of cryptocurrencies, you're probably familiar with the word "miner". Often misunderstood by the general public, few people know its true meaning. As crypto-currencies are generally only presented on the surface (price fluctuations), few know what lies beneath the surface (blockchain technology). This being the case, to understand what "mining" is, you need to go beyond the simple evolution of a price. And that's exactly what we're going to do in this article.
What is mining?
Mining" is a technical term introduced with the creation of Bitcoin in 2009. It refers to the monetary creation of a cryptocurrency, enabled by the validation of a transaction carried out on the blockchain. When a user of the Bitcoin blockchain wishes to carry out a transaction with another user of the same blockchain, known as a peer-to-peer(2P2) transaction, a complex mathematical problem is imposed.
This mathematical problem is imposed whenever a user wishes to carry out a transaction, with the sole aim of guaranteeing the security of the Bitcoin blockchain. To enable the transaction to take place, the computers on the network (the network referring to the Bitcoin blockchain) will then use their computing power to solve this mathematical problem.
Once one of the network members has succeeded in solving this problem, the user in question can then carry out his transaction on the Bitcoin network. The member who has enabled the transaction to be validated, thanks to his or her computing power, will then be rewarded with cryptocurrencies. Operating on the Bitcoin network, he or she will only be paid in Bitcoin.
So that's what mining is all about. This term represents the entire process we saw above. It's this same process that leads to the monetary creation of a cryptocurrency, through the remuneration granted to miners. This is where the fees come from when a transaction is carried out on a blockchain.
These fees are actually paid to the miners of the blockchain. To maximize their chances of validating transactions and therefore making money. Miners build up a veritable army of super-powered computers. We call this a "mining farm".
Why the term "mining"?
As stated earlier in this article, it was following the birth of Bitcoin that the term "mining" appeared in the crypto world. Why did you specifically choose the word "mining"? This is because Bitcoin has a limited monetary mass of 21 million units. What's the difference? You'll soon understand.
Every four years, the difficulty of the mathematical problem imposed on each transaction is doubled. The amount of the reward paid to the miners is halved. This event, known as "halving", makes it increasingly difficult to obtain bitcoins by validating a transaction. As a result, every four years, the chances of finding Bitcoin decrease drastically.
Given that Bitcoin has a limited money supply of 21 million, this inevitably creates a scarcity effect. Driving up the value of Bitcoin. This scarcity effect being similar to that of a rare metal, many associate Bitcoin withGold 2.0.
This association with gold explains why members of the Bitcoin network who validate a transaction are called miners. Because when they use their computing power, they are said to be "mining", by analogy with gold mining.
The different types of mining
Proof of work
The mining process we saw earlier with Bitcoin is called "proof-of-work". Other cryptocurrencies, such as Litecoin or Bitcoin Cash, use the same process. Although used, this process does have one disadvantage.
As we've seen, to maximize their chances of making a profit, miners don't hesitate to equip themselves with an army of super-powered computers. But powering this army requires an enormous amount of energy.
Knowing that every four years, the difficulty of validating a transaction doubles, and the payout halves, miners will be increasingly encouraged to consume more and more energy to power their computers.
This problem also explains the criticism levelled at cryptocurrencies in terms of their environmental impact. But this is changing. Not least with the "Crypto Climate Accord", which aims to make the crypto industry 100% renewable.
Proof of stake
Proof-of-stake is a mining method based on the degree of commitment of certain individuals to a blockchain network. In other words, the more a person has stored and locked a cryptocurrency on a blockchain, the more likely they are to be selected to win a reward, following the validation of a transaction. This is known as "staking".
Here, it's no longer the computing power of your computer that counts. It's the number of tokens blocked in your virtual wallet. So there's no need to build up an army of computers working at full capacity.
So, instead of someone investing, say, €2,000 in a mining computer, they can invest their €2,000 by buying the cryptocurrency they want to mine. He or she will then put it into a deposit using the proof-of-stake mechanism, in order to earn rewards.
Is it profitable to mine?
Proof-of-work mining
Today, mining has evolved so much that using your personal computer to mine, even if technically possible, no longer makes any economic sense. Since 2009, the Gold Rush 2.0 (Bitcoin) has greatly intensified competition between miners.
This competition has created a veritable mining business, with professional miners using hundreds, if not thousands, of highly powerful computers.
To mine Bitcoins, the best-known computer is theASIC. It's a computer designed to perform just one task: mining cryptocurrencies. As such, it's renowned for excellence in this field.
But as you'd expect, it's an extremely expensive machine. In addition to rapidly becoming obsolete, it requires regular maintenance.
Purchased mainly on the Internet, it's not uncommon for ASIC computers to be out of stock, due to excessive demand.
Today, most individual miners have been replaced by mining farms. Located for the most part in countries where electricity prices are particularly attractive, mining is now carried out on an industrial scale.
Mining, as a proof of work, implies a very high financial cost and a success rate too low for such an investment to be lucrative for an individual. Consequently, embarking on such a venture is not to be taken lightly.
Proof-of-stake mining
As we saw earlier, mining through the proof-of-stake mechanism is tantamount to "staking". As a reminder, the idea behind proof-of-stake is that participants must lock their cryptocurrencies, so that the blockchain can randomly assign them a reward.
Obviously, the probability of being selected is generally linked to the number of cryptocurrencies locked. Staking therefore consists in locking your funds in a crypto wallet, in order to secure the operations of a blockchain and, in exchange, receive remuneration in the form of interest.
There is a whole range of platforms offering staking, with more or less attractive interest rates. These include Nexo, Compund, Binance, AAVE, You holder, Juste Mining and Media Invest.
Cloud mining
For those not wishing to invest in mining computers, the cloud mining service seems to be the ideal solution. This new concept works as follows: companies invest in the equipment needed for efficient mining, and then offer contracts to individuals to "rent" their computing power. The best-known cloud mining sites are : Feel Mining, Shamining, Genesis Mining, Gminers and Trust Cloud Mining.
But beware. The cloud mining market is dominated by fraudulent services, and some companies have seen the opportunity to extract money from profit-hungry individuals by promising attractive returns without guaranteeing results. As a result, you need to choose your cloud mining platform carefully, when embarking on this activity.
