take the keys
- The messy world of crypto mining is all about computers, electricity and equations
- Hash speed and mining difficulty can indicate whether a market is weak or strong.
- Despite falling cryptocurrencies and high energy prices, there are early signs that the market is recovering from the record mining difficulty set earlier this month.
Have you ever wondered about the mechanisms behind cryptography? Learn about cryptomining, the complex system that works with hashrates, the race to crack the code, and math. Yes, indeed.
If you are considering a traditional mine, stop here. Although cryptocurrency mining is reminiscent of the gold rush of the 1800s, the comparison ends there. Crypto mining farms are similar to large computer hardware spaces in data centers.
But how does it all work? Prepare your crash course in cryptocurrency mining. We'll tell you what it is, how it works and what's happening in the market.
And don't forget, if you're looking for an easy way to invest in crypto and want to take advantage of AI, download the Q.ai app and check out our crypto portfolio.
What is cryptomining?
Cryptomining is the process of validating and adding new cryptocurrencies to the blockchain. To verify a transaction, you must first solve an incredibly complex mathematical equation. All crypto miners are vying for the chance to be the first to solve the puzzle.
The miner who solves the first equation receives a prize: a piece of the digital currency pie. Then the process starts again. The more miners you have, the higher the profit.
It is a smart system because it ensures the safety and security of the blockchain and miners are rewarded in the form of newly mined cryptocurrency.
as it is
Basically, cryptocurrency mining depends on good computer hardware and lots of electricity. After that, it's more difficult.
Many ordinary people are fascinated by how difficult cryptography is to understand, and cryptomining is unfortunately no different. We've put the most common jargon into simple words to help you become a mining enthusiast.
Hardware
Since anyone can start mining cryptocurrencies, you can use a regular computer to get the job done. Unfortunately, with so much competition in the market, you are unlikely to win.
For bitcoins
Electricity
Fluctuations in energy prices reduce or increase the amount of profit crypto-miners make. Computer equipment usually runs on fossil fuels. Professional mining companies may have their own wind or solar farms to support their production.
There has been a big push to make the crypto industry greener in terms of the amount of energy it uses from fossil fuels. The White House recently released a report that estimated global electricity consumption for cryptocurrency mining at 120 to 240 billion kilowatt-hours per year, more than all of Argentina or Australia.
cryptographic complexity
This shows how difficult it is to solve the mathematical problem required to add a transaction to the blockchain. The difficulty level is also determined by the energy or hash rate used in the network.
A higher level of complexity means more competition and less profit. However, the advantage of high mining difficulty is a sign that the market is optimistic.
hash rates
Every time a miner tries to solve a code, a hash code is generated. The higher the hashrate of a miner, the more times he can perform calculations per second and earn a reward. The better the hardware, the higher your hashrate will be.
The total hashrate of all miners is used as another measure of overall network performance.
How profitable is it?
For crypto mining to be profitable, the profit must exceed the cost of electricity and equipment. This pushed miners' margins to the brink as high gas prices led to high electricity prices around the world.
Some cryptominers join forces to create mining pools in which processing power and profits are shared. Having ASIC equipment also makes life easier for professional miners.
What's going on lately?
As with the rest of the cryptocurrency market, cryptocurrency mining is all over the place and shows no clear direction as to what might happen next. So we'll take a look at what's been happening over the last few months and you can decide for yourself.
The Ethereum Merger
Last September, Ethereum completed the long-awaited merger and switched the system to a proof-of-concept mechanism. With this move, miners were replaced by verifiers. By placing your bid as collateral, you trust them to verify transactions.
The merger, although planned for some time, has raised concerns among cryptocurrency enthusiasts that the network will be insecure when new transactions are verified.
Positive? 99% reduction in energy consumption for the entire Ethereum network. Given the strange image of cryptocurrencies for environmental accreditations, this was a great move for the industry and the planet.
winter cellar
Unless you've been living under a rock, you'll be aware of the falling prices of cryptocurrencies. Bitcoin, the world's most popular cryptocurrency, rose from $68,000 in November 2021 to around $16,000 in early January this year.
This is the tip of the iceberg. The fallout from the FTX debacle is still unfolding, with the SEC suing Genesis and Gemini over questionable unregistered securities. By December of last year, Bitcoin mining profits had fallen by 70%. Everyone looked lost.
There was no great slaughter yet.
Mining for all time
By the way, Bitcoin has been rising for the past two weeks and now the price of Bitcoin is trading around $23,000.
Rising prices forced miners back online. This resulted in mining difficulty hitting a record high on January 15th, rising 10.26% to 37.73 trillion. of hashes.
Are we expecting a bullfight? It's hard to say, especially given the recent cryptocurrency market lows. With two new records already set, 2023 is sure to be an interesting year for Bitcoin miners.
end
The crypt may not exist now, but many believe it definitely doesn't. If you fall into this camp, it's important to learn how things work. You want to make sure you have the knowledge and understanding to make the right financial decision, especially given how volatile cryptocurrency can be.
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