What is Cryptocurrency?
Cryptocurrency is a type of digital currency which is designed to work as a medium of exchange through the use of any computer network. The currency is not monitored by any central authority in any of the nations. In our country, recently the tax rate has been imposed on the usage of cryptocurrency, as people have earned a good amount of money and did not pay any taxes to the nation, but the tax is going to be charged on these transactions from now on. The tax rate is fixed at 30%. The tax is to be completely charged out of the profits and not on the amount invested in the cryptocurrency.
How does Cryptocurrency Mining work?
The generation of these cryptocurrencies is done by the way of mining. It is a process in which using the networks of specialized computers generate and release new cryptocurrencies using these networks. As some of the cryptocurrencies are decentralized like Ethereum, the mining involves, the decentralized network of computers around the world that verify and secure the blockchains (these are the ledgers) which keep a record of all the transactions.
The people who are doing the mining of these currencies are rewarded for completing the blocks of verified transactions. The rewards of the creation of these currencies are the coins of the crypto’s generated, and the coins can be used in making the transactions so that the work they have done in the mining of these currencies. The reward in the case of Bitcoin for every mining is 6.25 bitcoin, which is going to be reduced by 2024 and to be going to half of what is current Bitcoin given, and every 4 years, the reward of the mining is going to go down.
As the difficulty level is increasing in mining, the rewards keep on going down and down year on year passing. As the rewards are decreasing, the coins mined are also decreasing and the time is near, that there will be a time when there is no coin can be founded or the coin getting finished which is especially in the case of Bitcoin, as it is the oldest crypto currently present in the world.
Ways to Cryptocurrency Mining:
There are different ways to mining a cryptocurrency, which are –
- Cloud Mining
- CPU Mining
- GPU Mining
- ASIC Mining
- Cloud Mining – It is the most famous process of mining without a person needing to work himself. This process is generally done by a third party as the people are paid to do these works. This process is generally is used by huge corporations. The corporations just do not pay the money for doing the work but also provide the machines to do the mining. The machine to do the mining is called a rig. The parties make an agreement for a specific period, but the agreement lasts only till the time, the rig makes the earnings and the coins are transferred into the cryptocurrency wallets. It is also an option for the people who don’t have enough money to buy their own rigs.
- CPU Mining – It is one of the processes of mining. It utilizes the processors to do the mining. It was one of the viable options of the mining used at the beginning of the mining but in the current time, this process the people prefer not to use it, as the time consumed in this method is very huge. The generation of income through this method is much less than the expenditure incurred on electricity and cooling the systems.
- GPU Mining – It is a well-known and most popular way of mining. This method is generally used by professionals as this method requires the GPU rigs to do the mining. The method is most popular due to the fact that this process is relatively cheap to other processes and is also efficient. For the starting of this process, the installation of the rigs is costly, but when the time comes for the hash speed and general workforce of the rig, the mining is done by this is great. These rigs are generally made up of a processor, motherboard, cooling, rig frame, and a few graphic cards used in a laptop or computer.
- ASIC Mining – The full form of ASIC is Application-Specific Integrated Circuits. These are special devices that are made to perform a single task which is generally mining of crypto. These devices are treasured as the amount of crypto’s produced by them is much more than using other techniques which us GPU or CPU method. Though the ASIC’s devices are so much power there are flaws in the system as well. As the mining in these devices is so much powerful that it leads to robbing the other miners who are using the other mining ways like CPU or GPU rigs due to the possibility of keeping both the hash speed and the earnings as well.
Generally, if a person wants to get his own rig, GPU mining is the way to go. People generally love is the GPU mining and Cloud mining which is less costly as the equipment does not cost too much in these two types of mining. If you don’t want to spend a rupee then go for the CPU mining and ASICs can be a great bet if you are willing to take the risk and are not afraid of any controversy arising out of it. ASIC can get very unpredictable over the course of time.
There are downsides to mining as well. The risks it carries with them are not easy to tackle as they are regulatory and financial risks included with them. These risks change from one geographical location to another. The financial risk includes the equipment used for the mining, which may cost hundreds or thousands of dollars for a miner, but there are chances of not getting any return from the investment. The joining of mining pools is one way to mitigate these risks. Another risk which can be said caused due to these minings is the increase in usage of energy used by the computer systems required to do the mining. The concern is the mining’s environmental impact and carbon footprint.