Crypto Mining: Definition and Detailed Guide on How Cryptocurrency Mining Works

Crypto Mining

Nowadays Cryptocurrency mining or crypto mining is a hot topic in online forums. The cryptocurrency, digital currency is a medium of exchange over the computer network and is not maintained by any central authority such as the Government or by Bank.

Mining is the process that Bitcoin and other cryptocurrencies use to generate new coins ad also verify new transactions. Simply, crypto mining brings new coins into circulation and endorses ongoing transactions.

As cryptocurrencies are not controlled by any central authority, does not have any tangible form. Individual currency ownership histories are kept in a digital ledger, a computerized database. The digital ledger uses strong encryption to secure the owner’s transaction records, and control coin creation. That is why cryptocurrencies often use decentralized control.

How do Cryptocurrency works?

Cryptocurrencies are digital assets that can circulate without any authorization of a central monetary authority such as govt. or Bank. Most cryptocurrencies are supported by blockchain technology, which keeps all the records of the transactions and who owns what.

Blockchain is a record of all transactions of the currency owners updated and held by them. Individual units of cryptocurrencies are said to be coins or tokens. Some cryptocurrencies intend to be used as units in exchange for goods and services, others are stores values and some are used in specific software programs such as games and financial products.

What is Crypto Mining?

Crypto mining refers to obtaining cryptocurrencies by solving cryptographic equations using a computer. This includes validating data blocks, and also adding the transaction records of the crypto owners to a distributed ledger known as a blockchain.

Most importantly, crypto mining prevents the double spending of digital currency over a distributed network. Like trading with physical currency, while one member spends cryptocurrency, the digital ledger will immediately be updated by debiting one account and crediting another.

The virtual ledgers that keep records of the cryptocurrency transactions, in return for contributing their processing power, computers are rewarded with new coins. It is a worthy circle; the miners secure the blockchain; the blockchain awards a coin; the coin provides an incentive to miners for maintaining the blockchain.

How can you start Crypto Mining?

Learn how to get started with mining your preferred cryptocurrency. 

  • At first, become familiar with the mining process 
  • Then you have to create a wallet for Bitcoin or other cryptocurrencies.
  • Once that is completed, join a mining pool to maximize profitability because they share the workload and their resources to increase their mining power.
  • Then the profit generated by the mining pool will be distributed uniformly among all the members of the pool.
  • Mining pools allow individuals to work together and compete efficiently.

Different Methods of Mining Cryptocurrencies

There are a few ways to mine cryptocurrency. I will define the main ones here:

Method 1:: Cloud mining- 

If you are looking for various ways to mine cryptocurrency, then cloud mining is one of the most popular methods to mine cryptocurrency.

Cloud mining is the process of paying a company to mine crypto on behalf of you with its specific mining machine called a “rig”. Here you have to pay some money to the company you hired.

A contract will be there between you and the company but in most cases, the terms favor the company, not the miner.

Method 2: ASIC Mining: 

This is another way to mine cryptos using an application-specific integrated circuit. This type of device is specially built to mine cryptocurrencies. It provides more mining power compared to others.

ASIC is very well-known as it produces an insane amount of cryptocurrencies and they are so powerful that they produce the highest hash rates.

Method 3: CPU Mining: 

This is a way to mine cryptocurrencies by using a computer’s central processing unit. Though it is the most accessible method to mine crypto it has not have so much mining power as ASIC has.

CPU mining is very slow and usually not so much worth it. In this method, you just need a computer and some specific programs as well. But your computer may be overheated during this process

Method 4: GPU Mining:  

This is another way to mine cryptocurrencies using one or more advanced graphics processing units, commonly known as a graphic card. It is efficient as well as relatively cheap.

Special rigs are constructed, with one rig constructed out of a processor, motherboard, cooling system, rig frame, and several graphics cards. 

Difficulties with the Mining of Cryptocurrency

  • Cryptocurrency difficulty is a measure of how it is difficult to mine a block in a blockchain for any particular crypto.
  • A high cryptocurrency difficulty means the process is taking additional computing power to check the transactions coming into the blockchain.
  • The higher difficulty needed to create the blocks improves the network’s security since attackers need more resources to control.
Cryptocurrency Mining

Requirements for Mining Cryptocurrencies

As you mine cryptocurrency, the following are required:

  • Cryptocurrency Wallet: The cryptocurrency’s website probably has some recommendations about compatible wallets. There are plenty of wallets available for most of the cryptocurrencies free of charge. You need crypto wallets to receive your rewards.
  • Mining software: most mining software is free to download and also available for different operating systems. 
  • Mining hardware: Mining hardware is the most expensive component in the mining set-up process. You will need a very powerful computer for this process, which may be specifically designed for this purpose.

Is Crypto Mining worth it?

For a typical crypto investor, crypto mining isn’t worth it because it’s too difficult to make a profit. But for crypto enthusiasts, it may be worth a way to earn some extra money.

ASIC or GPU is needed for making extra money from crypto mining, but it takes cost $1,000 or more to make these choices. But it may take 6months, a year, or longer to make this extra profit depending upon the cryptocurrency you mine and how its price changes.

There is another part for consideration is electricity. You need more power as crypto mining is generally energy intensive. However, most investors find that mining just isn’t worth the hassle. 

The Taxes to pay for Crypto Mining

Crypto miners usually face tax consequences when they are rewarded by cryptocurrencies for performing crypto mining and when they sell or exchange the rewarded tokens.

In the first case, the IRS has directly addressed the tax implications of crypto mining. If you earn cryptocurrency by mining it or earning it as a payment for goods or services, then it would be counted as regular taxable income. You have to pay tax on the entire fair market value of the cryptocurrency on the day you get it, at the regular income tax rate.

Is Crypto Mining legal?

Not all countries have a regulation regarding this. In the US, considered the largest crypto market, crypto mining is legal. The US is considering cryptocurrency as a digital asset.  Different states of the US have different guidelines and laws regarding buying, trading, and using these digital assets. All states permit mining crypto.

Maximum countries allow crypto mining but they don’t allow crypto distribution and commercial use. Russia, Canada, Nigeria, and Saudi Arabia allow the legal mine of bitcoins but illegal to use them.

The Sustainability of Crypto Mining

Crypto mining technology is constantly changing as new technologies come. The professional miners who have gained profit still studying and optimizing new mining strategies to improve their performance.

On the other hand, as more and more fuels are burnt in this process, some investors have become increasingly concerned about crypto mining.

How do I effectively secure myself from illegal crypto mining?

There is no such protection against illegal crypto mining rather there is some combination of security solutions that can combat unwanted mining. As protection, an effective anti-virus program can be installed on your computer. This program is always kept up-to-date and this also applies to all other programs as well as the operating system.

If you download software from the internet you should do this from trustworthy sources. Well-known download portals also offer downloads of software. In the process of downloading additional programs are also downloaded. It may contain malware such as a crypto mining dropper. 

Spam e-mails also have some links that lead to websites contaminated with crypto mining droppers. As these spam e-mails just look like normal e-mails, it is advisable to keep patience while surfing the internetwork.


Beyond releasing new coins, mining is important for cryptocurrency’s security. Mining verifies and protects the blockchain, which allows cryptocurrencies to function in a decentralized network without any need for oversight by a third party. It also provides an incentive to potential miners to contribute their computational power to the network.

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