Cryptocurrency Mining – A Detailed Guide!
A cryptocurrency is a digital currency that functions as a medium of exchange over a computer network and is not supported or maintained by any central authority, such as a government or bank. Cryptocurrency is not issued by a central authority and does not exist in tangible form (like paper money). Individual currency ownership records are kept in a digital ledger, a computerized database that uses strong encryption to secure transaction records, control coin creation, and verify ownership transfers. In contrast to a central bank digital money (CBDC), cryptocurrencies often use decentralized control.
What is Cryptocurrency Mining?
Crypto mining is the process of validating transactions in cryptocurrency networks. Successful miners are rewarded with new cryptocurrency in exchange for their efforts. The reward lowers transaction fees by providing a second incentive to contribute to the network's processing capacity. The usage of specialised devices such as FPGAs and ASICs running complex hashing algorithms like SHA-256 and scrypt has enhanced the rate of creating hashes, which validate any transaction. Since the introduction of Bitcoin in 2009, there has been an arms race for less expensive but more efficient processors.
Mining is popular in areas with cheap electricity, a cold temperature, and governments with clear and favourable legislation. As more people enter the virtual currency world, producing hashes for validation has become more complicated, causing miners to invest increasingly huge sums of money to boost computational efficiency. As a result, the reward for discovering a hash has decreased. It frequently does not justify the investment in equipment, cooling facilities (to limit the heat generated by the equipment), and the electricity required to run them. Bitcoin's power use, as of July 2019, was expected to be around 7 gigawatts, or 0.2 percent of the global total, or around the same as Switzerland.
Some miners pool their resources, pooling their processing power over a network in order to distribute the reward evenly based on the amount of labour they put in to increase the likelihood of finding a block. Members of the mining pool who produce a valid partial proof-of-work receive a "share”. The city of Plattsburgh in upstate New York imposed an 18-month embargo on all cryptocurrency mining in March 2018 in order to protect natural resources and the city's "character and direction." Kazakhstan became the second-largest crypto-currency mining country in February 2022, with 18.1 percent of the worldwide hash rate. Near Ekibastuz, the country has constructed a facility with 50,000 computers.
Blockchain & Cryptocurrency - Laws and Regulations in the USA
The federal and state governments, both in the United States, have been paying close attention to cryptocurrencies. The Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CTFC), the Federal Trade Commission, and the Department of the Treasury, through the Internal Revenue Service (IRS), the Office of the Comptroller of the Currency (OCC), and the Financial Crimes Enforcement Network, have all focused their efforts at the federal level (FinCEN). While these agencies have been actively involved, there has been little official rulemaking. Several state governments have proposed and/or passed legislation involving cryptocurrencies and blockchain technology, with the legislative branch doing the majority of the work.
At the state level, there have traditionally been two ways to regulate. Some states have attempted to promote cryptocurrency by enacting legislation that exempts cryptocurrencies from state securities and/or money transfer rules. These states want to use technology investment to boost local economies and improve public services. Wyoming, for example, has been highlighted as a state wanting a greater economic influence. Wyoming passed legislation enabling the creation of a new type of bank or special purpose depository institution in order to achieve this goal. These crypto-focused banks can operate as both a custodian and a fiduciary, allowing businesses to safely and legally store digital assets. The state has been lauded for becoming the country's most crypto-friendly jurisdiction. Colorado is another state where a bipartisan bill exempting cryptocurrency from state securities restrictions was enacted. Ohio has become the first state in the United States to accept cryptocurrencies as payment for taxes. Oklahoma has introduced legislation allowing cryptocurrencies to be used, offered, sold, swapped, and accepted as a monetary value instrument by state entities. At least ten other jurisdictions, including Maryland and Hawaii, have issued cautionary statements about investing in cryptocurrencies. New York has reduced the requirements for obtaining a BitLicense in the hopes of enticing back bitcoin companies that had previously left the New York market.
When it comes to Bitcoin mining, the general rule of thumb remains simple. If a person possesses and utilises cryptocurrencies in his or her home country, he or she should be able to mine cryptocurrency there as well. If possessing bitcoin is prohibited where a person resides, mining is almost certainly prohibited as well. In the United States, just a few, if any, jurisdictions make cryptocurrency possession unlawful. However, Plattsburgh, New York, is likely to be the first city in the United States to put a (temporary) ban on cryptocurrency mining. Crypto mining apps are also prohibited on any government-issued mobile devices, according to the US Marine Corps.
Current Market of Cryptocurrency Mining
The cryptocurrency mining market was valued at USD 2285.4 million in 2021 and is predicted to grow at a CAGR of 28.5 percent to USD 5293.9 million by 2028. One of the main elements driving the global expansion of the cryptocurrency mining business is the massive demand for cryptocurrencies. For example, as of January 2022, the total worldwide market capitalization of all cryptocurrencies is about USD 2.05 trillion, making it the world's eighth largest economy in terms of gross domestic product. By the day, cryptocurrency is becoming a more widely recognised asset. Mining, on the other hand, is critical to cryptocurrencies since it legitimises and monitors transactions. Mining appeals to a number of investors who are concerned about bitcoin and, as a result, stimulates interest in it. As a result, the rising demand for cryptocurrencies is accelerating the expansion of the cryptocurrency mining sector around the world.
Type of Cryptocurrency Mining
Following are the types of crypto mining:
GPU mining, i.e., video cards-based mining: To mine cryptocurrency, GPU mining employs one or more graphics cards. A computer with one or more high-end graphics cards is referred to as a "mining rig." This type of mining is initially expensive due to the requirement to purchase graphics cards. It's popular for mining other types of cryptocurrencies, but because of the lack of power compared to ASICs, it doesn't perform well for Bitcoin.
CPU mining, i.e., processor-based mining: The central processor unit of a computer is used in CPU mining. Since all you need is a computer, this is the most accessible technique to mine cryptocurrency, and it worked in the early days of Bitcoin. Because CPUs lack the processing capacity to compete with ASICs, it is no longer recommended for Bitcoin mining.
ASIC-based mining on special equipment intended to mine cryptocurrencies that work on certain algorithms: ASIC miners are customized devices designed for mining a specific cryptocurrency. An application-specific integrated circuit (ASIC) is a specialized device built for one purpose. These are the most powerful Bitcoin mining options. New ASICs can cost thousands of dollars, yet they're the only way to make money from Bitcoin mining.
Cloud mining: Cloud mining entails paying a business to mine cryptocurrency on your behalf. You're effectively renting a mining gear and receiving the revenues once maintenance and electricity costs are deducted. While it may appear to be a good deal at first glance, cloud mining usually necessitates signing a contract, and you're unlikely to break even if crypto values plummet.
Mining pools: A mining pool is a collection of cryptocurrency miners who pool their resources and split the profits. Each mining pool has its unique set of hardware requirements, with the majority requiring either an ASIC miner or a GPU to participate. Miners who collaborate are considerably more likely to be given the opportunity to mine new blocks. If you're mining Bitcoin alone, it's really difficult to mine blocks.
Top 10 Cryptocurrency to Mine in 2022
Following are the top 10 cryptocurrencies to mine in 2022 as per moneymint.com, based on the return of investment (ROI) since launch:
1) RavenCoin (ROI (in 1hr): +0.51%)
2) Monero (ROI (in 1hr): +1.45%)
3) Litecoin (ROI (in 1hr): +0.69%)
4) Ethereum Classic (ROI (in 1hr): +1.06%)
5) Zcash (ROI (in 1hr): +1.93%)
6) DigiByte (ROI (in 1hr): +0.97%)
7) Metaverse Index (ROI (in 1hr): +1.93%)
8) Bitcoin Gold (ROI (in 1hr): +1.02%)
9) Dogecoin (ROI (in 1hr): +1.46%)
10) Dash (ROI (in 1hr): +0.78%)
The Architecture of Double SHA-256 Hardware in Bitcoin Mining
Bitcoin is the most well-known cryptocurrency, having been created in 2008 by Satoshi Nakamoto. Bitcoin, which is based on blockchain technology, employs a distributed public ledger to record all transactions without the involvement of a third party. A 1024-bit message including a version number, a hash of the previous block, a hash of the Merkle root, timestamp, target value, and a nonce is hashed to generate each block published to the public distributed ledger. To construct a hashing output less than the provided target value in the 1024-bit message, then once must be valid. As a result, when creating new blocks, miners are always looking for valid nonces (A nonce is an abbreviation for "number only used once," and it's a number that's appended to a hashed—or encrypted—block in a blockchain that meets the difficulty level limitations when rehashed. In order to receive cryptocurrency, blockchain miners must solve for a nonce). Bitcoin mining is the process of determining a valid nonce.
The hash value of the bitcoin block header, which is a 1024-bit string, is computed using the double SHA-256 algorithm in Bitcoin mining. The length extension attack is prevented by using double SHA-256. SHA-256 is made up of two parts: a message expander (ME) and a message compressor (MC) (MC). The ME divides the 512-bit input message into 64 chunks of 32-bit data during the SHA-256 operation. These 64 32-bit data chunks are compressed by the MC into a 256-bit hashed output.
A 1024-bit message with a 32-bit version, a 256-bit hash of the preceding block, a 256-bit hash of the Merkle root, a 32-bit timestamp, a 32-bit target, a 32-bit nonce, and 384 bits of padding is fed into the double SHA-256 procedure. The 1024-bit message is split into two 512-bit message sections, with SHA-2561 computing the first 512-bit message's hash value and SHA-2562 computing the last 512-bit message's hash value. The 256-bit hash output from SHA-2562 must be compressed into the final 256-bit hash using SHA-2563 due to the double SHA-256 requirement. The final 256-bit hash output from SHA-2563 is compared to the target value in the Bitcoin mining process. The valid 32-bit nonce is specified if the final hash is smaller than the goal value, and a new Bitcoin block is successfully formed. Otherwise, the 32-bit nonce is raised by one, and the double SHA-256 circuit is recalculated to get a new hash value. This is performed until the SHA-2563 256-bit hash fulfills the desired criterion.
The SHA-256 algorithm is used to compute inside all three blocks (SHA-2561, SHA-2562, and SHA-2563), which has two processes: a message expander (ME) and a message compressor (MC) (MC). The ME process, shown in Algorithm 1, divides the 512-bit input message into 64 chunks of 32-bit data. The ME divides the 512-bit message into 16 32-bit data chunks in the first 16 rounds. The ME calculates 48 chunks of 32-bit data in the final 48 rounds. The MC process compresses the 64 chunks of data into a 256-bit hash value, as shown in Algorithm 2. Initialization, looping, and adding are the three basic processes in the process. Eight internal hash values are assigned to eight initial hashes defined by the SHA-256 algorithm during the initialization process.
Future Scope of Cryptocurrency Mining
As of April 2021, the United States is the world's second-largest mining destination, accounting for almost 17% of all bitcoin miners. In 2021, the cryptocurrency mining industry was valued at USD 2285.4 million, with a CAGR of 28.5 percent expected to reach USD 5293.9 million by 2028.
There is a lot of work and research going on to make the bitcoin mining environment friendly as well as easier. Quantum computing, for example, has been hailed as the next big thing after bitcoin. Quantum computing has been shown to have the ability to crack Bitcoin's security, effectively undercutting one of its fundamental value propositions. However, given that today's ASICs (Application Specific Integrated Circuits) have a 10-year speed advantage over quantum computers, it may be some time before quantum computing takes hold. Finally, whether it's through the next breakthrough chip innovation or totally new technology, the mining industry has a few years to wait for the next bitcoin mining revolution. However, as the mining industry continues to grow, the rising demand for bitcoin mining will fuel more technological advancements.
The number of IBM blockchain patents tops the list. It has spent a lot of its resources on developing a blockchain department. By concentrating on the benefits blockchain offers enterprise users in 2020, IBM made significant progress toward introducing blockchain into the mainstream. Contributing to Hyperledger, the Linux Foundation's open-source program for developing blockchain expressly for enterprise users is IBM's most fundamental blockchain activity. The organization was founded in 2016, and IBM is one of the 30 original corporate members. According to the most recent Hyperledger annual report, which was released in early December, there are now 67 companies and organizations developing blockchain projects. IBM has become the program's top contributor, with 3,631 commits, more than three times the number of the second-highest contributor.
Patent Filing Trend Over Last 10 Years
The number of new patent applications filed for blockchain and cryptocurrency technology domains has skyrocketed in recent years. The number of patent applications filed in 2019 is approximately tenfold higher than it was in 2016, with commensurate increases in patent issuances. The year 2019 saw the largest number of patent applications in this area, with 2,647.
Other cryptocurrencies, such as Ethereum, Ripple, and Dogecoin, to mention a few, have developed as a result of Bitcoin's popularity and have enjoyed tremendous development and expansion. The operation of these decentralized virtual currencies requires mining. The necessary computer equipment consumes a significant amount of energy to accomplish this. Therefore, awareness campaigns are especially important in nations where electricity is less expensive and law is less stringent. All of this is being done to raise awareness about the potential environmental harm that bitcoin mining might create.