By Ibrahim Alkurd, CEO of New Mine, a blockchain mining hardware & software company, and a partner at Lavaliere Capital, a digital asset hedge fund
A blockchain is a decentralized database of transactions that everyone on the network can see. The network consists of many computers that verify transactions and add them to the blockchain ledger; this process is known as blockchain mining. The computers that conduct blockchain mining are rewarded with cryptocurrency, a digital form of currency designed to work as a medium of exchange.
I covered what makes the blockchain revolutionary in a previous Forbes article. In this piece, I will share an in-depth look at the blockchain mining process.
Proof Of Work (PoW) Versus Proof Of Stake (PoS)
Blockchains fall into two categories, PoW and PoS. Bitcoin, the first ever cryptocurrency, runs on a PoW consensus mechanism. This is a form of mathematics known as cryptography. Cryptography uses very difficult mathematical equations that can only be solved by computers. PoS, the other consensus mechanism, was first adopted by a blockchain project known as Peercoin. In PoS blockchains, no blockchain mining is done.
In this article, I will be focusing on the PoW blockchains because these are the ones that require blockchain mining. A range of computer equipment can be used for blockchain mining, but it generally falls into three categories: CPU, GPU and ASIC. The type of computer equipment that you can use is determined by the blockchain that you want to mine.
CPU stands for central processing unit. It is considered the brain of a computer because it controls the operations of all parts. CPUs perform all types of data processing operations; without one, a computer cannot work properly. In the early days of Bitcoin, you could mine it on your CPU. As mining became more competitive, this was no longer feasible. However, there are still other blockchains that can be mined using a CPU today, such as Loki and Nimiq.
(Full disclosure: My company holds Bitcoin, Ethereum, XRP and other cryptocurrencies.)
GPU stands for graphics processing unit. GPUs are more powerful than CPUs in executing some very specific functions. GPUs are meant to be effective at doing massive amounts of calculations. This feature makes them well suited for mining certain blockchains, such as Ethereum. Although it’s technically possible to mine Ethereum using a CPU, it is discouraged. GPUs are far more effective for mining Ethereum and other cryptocurrencies such as Ravencoin and Beam.
There are different models of GPUs. Websites such as WhatToMine allow you to input different GPU models and estimate which will be the most profitable cryptocurrencies for you to mine.
An ASIC is an application-specific integrated circuit. An ASIC is a chip that can be used for one purpose only. It used to be possible to mine bitcoin using a CPU/GPU. But this changed as it got more competitive. Today, Bitcoin is mined using ASIC chips. Litecoin is another popular cryptocurrency that is mined using ASIC chips.
The majority of large-scale blockchain mines are running ASIC machines. Because these machines are purpose built, they prove to be more effective and reliable at mining.
The blockchain mining landscape has changed drastically over the last few years. Today, there are thousands of blockchains that can be mined using a CPU, GPU or ASIC. This can be a complex field to navigate, especially for beginners. When considering blockchain mining for yourself or your company, do your due diligence and consult with experts in the field in order to avoid common pitfalls.
Blockchain mining has grown to become a multibillion-dollar industry, and it’s only continuing to grow. More companies are entering the space and innovating in this exciting field.