A Simple Guide to the Mining Ecosystem — GPU, Pool, and Merge Mining
Blockchain Technical Series (5 part series — PART 1)
Crypto mining has grown in popularity just as the use of cryptocurrency itself has increased exponentially over the last few years. You see, the production of crypto as a digital asset is very different from how fiat currencies are produced. Since they are decentralized, there is no central authority to issue new currency; instead, they are produced through ‘mining’.
So, what is crypto mining?
Mining is the process of discovering new virtual coins and adding secure and verifiable transactions on a blockchain public ledger. To mine, you will need a powerful computer equipped with special mining hardware devices and software programs.
For each cryptocurrency transaction made, a miner ensures the authenticity of the information and updates the Blockchain with the transaction. In other words, all individual blocks that miners add to the ledger are required to have a proof-of-work to define the mining process. And once the transaction is in the public ledger, you are assured of total security as well as lack of interference from any third party.
There is a reward incentive for every block mined. Since only the first miner to crack the code is rewarded, crypto mining has become very competitive among miners. Also, the mining process is open source; therefore, anybody can confirm the transactions, and this ensures transparency.
Now that you have understood the basics, let’s dive deeper and explore various methods you can use for crypto mining:
GPU Mining
Most savvy miners would consider GPU (Graphic Processing Unit) mining especially when getting started on a new coin. GPU is a processing device in a computer that specializes in handling display functions. GPUs are well equipped with Arithmetic Logic Units (ALU) that is responsible for performing mathematical computations. By design, ALU enables GPU to perform more calculations leading to better results in the cryptocurrency mining process.
There are several GPUs available in the market. Some mine certain coins better than others. For example, NVIDIA GPUs are better at mining Zcash while AMD GPUs are better at mining Ethereum. However, a more powerful GPU does not necessarily guarantee the best results. It is crucial to consider what you are going to mine before sourcing out or buying GPUs.
When looking for a GPU to use, always consider checking the memory features, power needs as well as other general costs associated with it. This will help you in gauging your electricity supply and other resources. Evaluating the GPU’s value is important because you are not assured of large returns the moment you start mining. Therefore to maximize your returns you should try to mitigate your initial costs as much as you can.
GPUs stand out among their peers because they can mine any algorithms. However, should you discover being an individual mine is a costly venture, there are mining pools you can join where you pool your hashing power and automatically switch to more profitable coins? So, what is a mining pool?
Mining Pool
A mining pool is a collection of miners who combine their processing power over a network and together try to mine crypto-coins with the aim of sharing the reward ( in case they get it) according to each miner’s contribution to the process.
Why a mining pool? While mining can be a lucrative venture, the process is complicated and consumes a lot of resources. A mining pool reduces the high costs that an individual miner faces. Also, the probability of being successful is higher in a mining pool than as a solo miner.
For example, as a miner, you possess the 1TH machine, while the total hash power of the Bitcoin Network is 1 PetaHash making your probability of solving the block 1 in 1000 and that’s for every ten minutes or maybe even more. But if you form a mining pool, by joining together with other miners, you can agree to share the returns according to each miner’s percentage of hash power contributed to the pool. Therefore a 10 TH of a 100 TH mining pool that wins a block reward of 25 Bitcoins assures you of 2.5 BTC reward.
As you can see, since returns are shared among miners in a mining pool, they are lower than an individual miner’s returns. But the probability of winning a reward in a mining pool is higher when compared to a solo miner.
Merge Mining
Just as the name suggest, merge mining is a process that allows for the simultaneous mining of two different cryptocurrencies with a similar algorithm. For example, it is possible to mine Bitcoin and Namecoin with the SHA-256 algorithm. The process is appealing because it does not slow down the mining of the primary crypto coin. It is a process that also allows low hash powered crypto coins to increase their hashing power behind their network by bootstrapping onto popular crypto coins
For instance, to merge mine both Bitcoin and Namecoin, miners will have to build a suitable block for both chains. Why? Because both chains have different difficulty levels with Bitcoins difficulty level being much higher than Namecoins. A block solved at the Bitcoin difficulty level can be re-assembled and placed into both blockchains because Namecoin accepts AuxPoW. But a block solved at the Namecoin difficulty level only works in a Namecoin Blockchain because Bitcoin does not accept AuxPoW. Therefore a block solved at the parent chain difficulty level can be produced at the same time on both chains.
Note that the merge mining process causes minimal bloating on both chains. For the parent chain, the Merkle tree will have additional hash without any side-effects. For the auxiliary chain, the bloat will be more because the extra hash and header from the parent chain will be added to it. However, the protocol will ignore the bloating and only use it as proof-of-work.
Final word
Cryptocurrency mining is a profitable venture considering the reward incentive put for every first miner to mine a block. The reward incentive makes the whole process very competitive, and because the mining process requires a lot of resources, it gives birth to easier ways of conducting the mining process.
Faster and power efficient processing machines are now in high demand among miners. Mining pools are also increasing since they reduce mining costs as well as improve the probability of winning the reward.
Have you tried any of the above mining methods? Share with us your experience in the comments section below.
