For those not in the know, crypto mining is a labor intensive, energy-intensive and only sporadically rewarding activity. It’s the way that Bitcoin and other cryptocurrencies validate transactions and add them to a public ledger known as a blockchain. It’s also the way that new Bitcoin is created. Bitcoin and other cryptocurrencies like it run on a distributed ledger system (DLT) that is immutable, and in which no central authority has control or oversight. To ensure the DLT functions properly, it relies on a set of rules to verify and approve transactions that occur on the network. These rules are embedded in the code that runs a cryptocurrency and they’re enforced by a peer-to-peer network of computers called miners. Miners use their computers to solve complex math puzzles, verify and confirm blocks of transaction data, and update the blockchain. In return for this service, they are rewarded with new coins.
Mining requires expensive, specialized computer hardware. This equipment is often housed in massive warehouses and is used to perform millions of calculations per second to change inputs into outputs that match the requirements of a cryptographic hash function. The first miner to find the correct solution wins the reward and gets to add the latest block of transactions to the blockchain. The blockchain’s distributed nature and the proof of work verification systems are designed to deter bad actors from manipulating the cryptocurrency. The rewards can be substantial for miners, and the competition is fierce. Many individuals choose to pool their computing resources with other miners in mining pools. This is more cost-effective than purchasing and operating their own mining rigs. The risk is that if you’re not careful, someone might hack into your computer to steal the computational power it uses for mining and make you part of their mining pool without your knowledge.
There are several other risks associated with cryptocurrency mining. For example, Bitcoin’s price has been volatile since it was introduced, and even if you mine at scale you could lose money if the price of Bitcoin plummets. Furthermore, there’s a risk that governments might outlaw cryptocurrency mining entirely as they did in China in 2021.
For these reasons, it’s important to understand the complexities and ramifications of cryptocurrency mining before you start trying to do it yourself. If you’re serious about cryptocurrency, you’ll want to seek out professional advice before investing in any equipment or joining a mining pool. You’ll also need to weigh the benefits versus the costs of the technology, including its environmental and social impact, before deciding if it’s right for you.
