The Pros and Cons of Mining Coin
Cryptocurrency mining is what keeps proof-of-work cryptocurrencies like Bitcoin up and running. It involves using computing power to solve complex cryptographic puzzles that verify blocks of transactions on the decentralized blockchain ledger. Miners are rewarded with newly minted Bitcoins for their efforts. As a result, mining is extraordinarily energy-intensive and has a significant environmental impact.
Despite its immense environmental footprint, crypto mining is still very profitable. However, prospective miners must carefully weigh the upfront and ongoing costs before committing to the effort. They must determine whether they have access to the necessary cash, equipment, and affordable electricity capability to make the venture a success. They also need to consider the potential legal, regulatory, and financial risks of their investment.
To mine Bitcoin, you must own a mining rig and have an affordable electricity supply. A mining rig is a computer built specifically for the purpose, typically containing multiple GPUs (graphics processing units) to process the enormous amounts of data involved in solving a cryptographic puzzle. Most miners operate as part of a mining pool, where they share their computing resources with other members of the pool. This increases the chances of them discovering a solution to the puzzle and receiving the associated rewards.
The cost of electricity is a major concern for cryptocurrency miners, especially in states like Texas that are becoming a hotbed for the industry. In fact, rising electricity prices have pushed many mining operations into bankruptcy. The industry is responding by attempting to become more efficient and shifting to renewable sources of power. For example, some companies are utilizing flared natural gas at oil fields or excess solar and wind power that can’t be stored.
Aside from its use as a currency, Bitcoin is a digital medium of exchange that allows peer-to-peer transfers worldwide without the involvement of banks, governments, or other third parties. The Bitcoin network is maintained by a global community of miners, who validate and confirm transactions using complex cryptographic hash puzzles that are updated on the blockchain ledger. Mining these puzzles is extremely expensive and resource-intensive, thereby making it much more difficult for bad actors to copy or counterfeit coins or otherwise undermine the integrity of the network.
Aside from the long-term payoff of newly minted Bitcoins, being a coin miner has another perk: It gives you “voting power” when proposed changes to the Bitcoin protocol are debated. The more hash power you have, the higher your stake in these decisions.