Analyses
15
Mar
crypto news

This website has affiliate links. We may receive compensation if you visit partners we recommend. Read more about our advertising principles from the About Us page.

Crypto mining explained

This article gives you an overview of crypto mining. We’ll go through the basics of the mining process and energy consumption. This article also covers the Ethereum mining situation, which has changed in September 2022 due to The Merge update.

What is crypto mining?

Crypto mining is the maintenance work of the blockchain of a cryptocurrency. Miners are the entities that build blocks of the blockchain. Each block consists of new transactions sent to the network. Some cryptos might also store additional information, but mainly we are talking about transaction data.

Crypto mining has been popularized by Bitcoin. It is the first cryptocurrency in the market and uses a Proof of Work consensus algorithm. A PoW network requires physical mining machines (computers) in order to build the blockchain.

Mining is dominated by large mining farms which can have thousands or tens of thousands of machines. They require tens or hundreds of millions of dollars to be built. See the video below for more information. It shows one of the largest mining farms in the US.

 

An individual can still mine Bitcoin profitably if cheap electricity is available. If you want to learn more about setting up your own mining farm, read our Bitcoin mining beginner’s guide.

The alternative solution is called Proof of Stake. In a PoS network, miners are replaced by validators. These are standard servers instead of high-performance ASIC machines. The major difference comes from energy consumption. However, a PoS network can also lose decentralization and security compared to a similar PoW network.

Nowadays there are only a handful of coins that need crypto mining. Most notably Bitcoin and currencies like Litecoin and Bitcoin Cash. Ethereum was the second major mineable coin before it changed to PoS in September 2022.

Cryptocurrency energy consumption

Cryptocurrency energy consumption is a topic often discussed when it comes to mining. This refers to Bitcoin mining in practice because the energy consumption of all mineable cryptos is so small. Especially after Ethereum has moved to Proof of Stake as well.

The argument you often read states that Bitcoin simply consumes too much energy and therefore should be banned. But this argument alone doesn’t really mean anything. Too much energy compared to what?

Everything we do in our daily lives consumes energy. When we take a shower, cook a meal, when we watch Netflix, drive a car, sit on a bus, etc. Every house is full of devices that need electricity: washing machines, ovens, tv, computers, mobile phones, and so on.

The real question is: what energy consumption is useful and what isn’t? Is cryptocurrency energy consumption needed or not?

Even Christmas lights consume massive amounts of electricity each year. Many people could argue it’s completely useless, but there are certainly millions of people who’d rather have them than the Bitcoin miners running.

Hence, the question of “useful” energy consumption is completely subjective. This is exactly what free markets are for. People are free to invest in businesses they feel are useful. If crypto mining would be a complete waste of resources, not a single mining farm would get funding.

The free market proves that there are hundreds of millions of people who see technology like Bitcoin as very useful despite the energy consumption. Even if you’d disagree, Bitcoin only consumes 0,5 % of the world’s energy. It’s hardly a major issue on a global scale.

Ethereum mining has ended

Ethereum mining has officially ended! This event took place on the 15th of September 2022. The reason was The Merge update, which transformed Ethereum from a Proof of Work to a Proof of Stake cryptocurrency.

Until The Merge, Ethereum has been the most popular crypto to mine after Bitcoin. It is also the second-largest cryptocurrency by market cap. But, even if Ethereum mining has officially ended, miners haven’t stopped working. They are finding new homes.

One way to continue Ethereum mining is to join the Ethereum PoW network. This is a cryptocurrency that is launched by a group of people who want to preserve the PoW Ethereum. It sounds great in theory, but it’s unlikely that this project would ever get any real traction.

The major reason is that there is also a PoW Ethereum which is called Ethereum Classic. It is actually the original branch of the Ethereum blockchain which split in two after the infamous The Dao hack event in 2016. Many Ethereum miners have already switched to Ethereum Classic.

There are also other mineable cryptocurrencies than Bitcoin. For some, you need to own ASIC miners, which means GPU rigs used for Ethereum are not going to work. But there are multiple coins that can be mined with GPU rigs. Ravencoin is one example.

crypto mining rig

Ethereum mining might have officially ended, but Ethereum miners haven’t stopped working. They are simply moving to other Proof of Work currencies. Time will tell how much of the hash power changes place and how much will be permanently turned off.

Crypto mining rig is not difficult to build

We mentioned GPU rigs in the previous chapter. These are the device set-ups that were used to mine Ethereum and are now used to mine other cryptos. What are GPU rigs exactly and is it easy to build one?

As you can see from the image above, a GPU rig is a set-up where several graphics cards are connected to one motherboard. We are usually talking about 6-12 graphics cards per set-up. The typical way is to build a metal frame where you can mount the cards easily.

The amount of graphic cards you can mount to each rig depends on the motherboard you are using. A standard motherboard might not have enough slots for all the connectors. There are special motherboards designed for mining purposes that you can buy.

See the video below for a set-up guide.

A mining rig is not difficult to buy if you are used to working with hardware. It could be a bit of a stretch for a newbie who has never installed any hardware before.

The availability of GPUs has been a big issue in recent years. COVID lockdowns have caused big supply chain issues at the same time when mining has become more popular.

Crypto mining in Norway

Crypto mining in Norway is more popular than you might think. Norway is generally known for its high prices and high living costs. However, it’s a perfect place to set up crypto-mining facilities. This is because there is lots of cheap electricity available in North Norway.

World-famous investor Kevin O’Leary has recently said that he is building a mining farm in Northern Norway instead of the state of New York. Many other investors might follow suit. In fact, Norway has quite a lot of Bitcoin hash power compared to the size of its population.

One advantage Norway has is that it’s not part of the EU. So far, the EU has been quite negative towards Proof of Work mining. It even tried to ban crypto mining earlier this year but luckily the representatives voted against the proposal. Norway can decide its own approach which has so far been quite positive.

It looks like the future is bright for crypto mining in Norway. There is plenty of cheap energy available, interest from large investors, supportive legislation, and no burden of any upcoming EU regulations.

Image by Лечение Наркомании from Pixabay