In the world of cryptocurrencies, you may have come across the term ‘Digital Asset Mining.’ Perhaps you’ve just heard of mining Bitcoin or Ethereum. Maybe you’ve heard of how much profit is being generated by such operations. Let’s break down what you need to know about it.
Whether it’s Bitcoin, Ethereum, Dogecoin, Render, Filecoin, or any other cryptocurrency, at its core, digital asset mining is the act of being rewarded for expending computational resources. You can see a fairly comprehensive list of mineable assets here. Those resources can come in pretty much any form of computational work: we’ve seen uses from processing power and file storage to broadband network provision and air quality monitoring. While some of these mining protocols require specialist hardware, others can be performed by anyone on a decent home computer, and a couple of others allow for mining with smartphones. Each day a new mining protocol emerges from the blockchain ecosystem, many trying to tap into the latent computational power sitting in average modern devices and computers. However, the profitability of some of these mining operations is so rewarding that larger entities have taken to gathering computational hardware en masse.
Usually, the process of beginning mining one of these assets is not prohibitively difficult. After acquiring the appropriate hardware, one can usually access the requisite software from the protocol’s website or code repository, and often after powering up you can start mining straight away. So what are the different types of mining?
The original and most common form of mining is mining Proof of Work coins like Bitcoin. Some of the world’s largest cryptocurrencies can be mined: Bitcoin, Ethereum, Litecoin and Dogecoin. For a bit of context, blockchains keep their ledgers secure and immutable using consensus algorithms: systems that ensure that the majority of the network agrees on a list of transactions/events. Proof of Work is one of those consensus algorithms. By expending a large amount of processing power guessing the solution to a difficult cryptography problem, miners that correctly guess the answer first can earn the right to add a new block to the chain. A correct guess and a valid block added to the chain rewards miners with a certain amount of cryptocurrency. At the time of writing (December 2021), Bitcoin miners are rewarded with 6.25 BTC for adding a block. Since the global computational effort being spent on Proof of Work mining is so great, it is common for smaller miners to join others in pools, where their combined effort is more likely to yield more consistent rewards that they can share.
Some of the largest Proof of Work algorithms (you may hear names such as SHA-256 and Scrypt), require specific hardware known as ASICs (Application-Specific Integrated Circuits) to mine efficiently. The price of these machines fluctuates as much as the value of their respective cryptocurrencies; they’re power hungry and loud, but the latest models are incredibly efficient at mining these coins. If you’re thinking of getting into Proof of Work mining, investing in specialised hardware is more or less mandatory to do so effectively. With that in mind, it is always important to remember that cryptocurrencies are a volatile investment and that this doesn't constitute financial advice.
Proof of Work algorithms are themselves diverse, and thus between different coins mining will often require different hardware. For example, the machines that mine SHA-256 based coins like Bitcoin won’t be able to mine Scrypt or Blake based coins like Litecoin or Kadena, respectively. Ethereum, secured by the Ethash algorithm, is designed to be resistant to ASICs, and is predominantly mined using rigs filled with GPUs. Most industrial sized facilities tend to focus osenn Bitcoin, being the largest cryptocurrency, but there are a plethora of options that you can choose from. At Ashur Digital, we mine several different digital assets and can help you get started on your journey into the industry. If you’re an investor or energy provider interested in entering the digital asset space, be sure to get in contact with us.
The next largest sector of digital asset mining outside of Proof of Work mining (at least by market cap) is distributed computing. One might argue that Proof of Work is a form of distributed computing, but for the purpose of this article we will define distributed computing as computational work for the internet spread across a network with utility beyond securing a blockchain’s transaction data and adding blocks to a blockchain. This field of digital asset mining is in itself diverse: Distributed file storage is a hotly contested market; distributed app hosting/ content serving has its own sector of cryptocurrencies; and distributed rendering is emerging with potential for growth to serve alongside the expanding metaverse. For these digital assets, rewards are provided for storing files, hosting and serving apps and content, and rendering visual material. Usually, users will pay for subscriptions or services with the native cryptocurrency of the blockchain, and after work is completed and delivered, miners or ‘nodes’ are paid for that work. Sometimes, being part of one of these networks is as simple as having spare storage space on your computer/ server and active internet connection.
Some notable distributed computing tokens which can be mined:
With a world growing around the new financial architecture of blockchain technology, many industries outside of finance and computing have taken to incorporating distributed and contract based (read: automated code based) payments for computational work. There are instances of this where consumers can be paid for air quality monitoring, only having to buy a small hardware device and have it sense for particles in the air. The Helium blockchain allows users to simply provide broadband to their network and be rewarded with their native tokens. Primecoin is a Proof of Work coin which secures its network by having miners find new chains of prime numbers with scientific utility. There is no shortage of new mining opportunities across many different industries, and given the rapidly increasing market cap of the cryptocurrency markets, it’s likely that those use cases will continue to grow.
A final note relating to the implications of digital asset mining. While a good portion of resources will be dedicated to the production and operation of ASIC miners, as seen above, new chains are finding ways to tap into the commonplace appearance of Internet of Things goods in people’s homes. In the near future you might find yourself ‘mining’ just by using the web, driving your car, and earning money off your own personal data. The benefit of such a system is that it establishes a precedent for companies to distribute their technology and build up a network of customers who are not only personally invested in the progress of the company, but also being rewarded for their support automatically.
