Types of Cryptocurrency Mining

What types of cryptocurrency mining is there? How to mine crypto? Is mining cryptocurrency still possible? These are three questions which many people are wanting to find answers to. In fact, mining digital currencies has never been more relevant than today. This article will show just some of the most popular methods of cryptocurrency mining out there. We will look at Proof of Work, Proof of Stake, Proof of Coverage and lastly we will look at the future of cryptocurrency mining, so keep on reading.

Proof of Work

Proof of work (PoW) is a form of cryptographic zero-knowledge proof in which one party (the prover) proves to others (the verifiers) that a certain amount of a specific computational effort has been expended. Verifiers can subsequently confirm this expenditure with minimal effort on their part. PoW is the classic consensus protocol used for crypto networks such as Bitcoin and Ethereum. The protocol hopes to achieve both consensus and security while using miners to simplify complex cryptographic algorithms. However, the Proof of Work protocol has a major drawback. It is for the most part very slow and requires a lot resources to be sustained.

The main goal of the PoW concept is to prevent users from printing extra coins which they did not, or double-spending. If users spend their coins more than once, it would effectively make the currency worthless.

How to mine Bitcoin?

Bitcoin mining is the process of earning bitcoin in exchange for running the verification process to validate bitcoin transactions. These transactions provide security for the Bitcoin network which in turn compensates miners by giving them currency- Bitcoin.

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Essentially, miners can profit if the price of bitcoins exceeds the cost to mine. Bitcoin mining is the backbone of all proof-of-work blockchains and involves few main concepts:

First, verification and addition of transactions to a decentralized public ledger. Every transaction can be viewed here.

Second, PoW calculations of the puzzle are solved averagely every 10 minutes. A new block is added to a blockchain by the miner who first completes the puzzle of the transaction in question. Puzzle difficulty is also changed occasionally, which is also named the Network Difficulty and is changed after every 2016thblock (this happens roughly every 16-days). The computational power of the miner amount contributing to the Bitcoin network is known as the network difficulty. As a result, a block reward is given to that first miner who solved the Bitcoin puzzle first.

Regardless of how many miners, it still takes 10 minutes to mine one bitcoin. At 600 seconds, it will require 72,000 GW (or 72 Terawatts) of power to mine a single bitcoin using the average power usage provided by ASIC miners.

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Proof of Stake

The Proof of Stake (PoS) concept is another method which we have already reviewed in our article about Layer 1 solutions. Head on to our Blog where you can learn more about it.

In general, the concept states that a person can mine or validate block transactions according to how many coins they hold. Consequently, the more coins owned by a miner, the more mining power they have. Proof-of-stake has been the long awaited addition to Ethereum and Vitalik Buterin has even proposed it in the whitepapers since 2013.

The PoS instrument offers a distributed consensus over the blockchain network. As a result, users can authenticate block transactions on the basis of their stake. Therefore, Proof of Stake appears to be the favorable option as opposed to Proof of Work since transaction speed is better, however this comes at cost – reduced security. Initially Ethereum had debated whether or not to transition to it, however this is more likely to happen in the near future. Transitioning from PoW to PoS can even be even be reviewed on Ethereum's website where all the pros and cons are listed.

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Proof of Coverage

Proof of coverage (PoC) is the method used on the Helium blockchain ($HNT). The algorithm uses radio waves to validate hotspots which are providing legitimate wireless coverage. The validation works by adding new blocks, performing new tasks and rewarding miners for witnessing their peers with rewards. The Helium team’s vision is one of the most ambitious ones in the blockchain space since the advent of smart contracts on Ethereum. Helium represents an entirely new approach — one which has a dramatically reduced cost structure which allows for the deployment and managing of wireless networks at scale.

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Helium LongFi is an open wireless protocol optimized for miles of range and maximum battery life for low-bandwidth IoT devices or in other words – miners. LongFi combines the LoRaWAN wireless protocol with Helium blockchain so any LoRaWAN device can transfer data on the Helium Network. LongFi delivers roaming capabilities and supports micropayment transactions. As such, customers only pay based on network usage without needing to deploy gateways or network servers.

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How are HNT Earned?

The number of $HNT tokens distributed to Hotspots depends on the type of “work” they perform based on the value to the network. This validation of network contribution is accomplished by a new work algorithm called Proof-of-Coverage (PoC). For example, miners can be installed indifferent locations within a city or country. Based on their signal strength and activity, they can witness or validate other devices owned by different users.

To participate in PoC, hotspots receive instructions (called - ‘challenges’) to transmit payloads to any nearby Hotspots to witness and verify. The challenges are also known as ‘beacons’. Hotspots in a hexagon without neighboring devices earn less as they can only issue challenges, and are unable to have their beacons verified by other users.

Hotspots are chosen by an algorithm from the network to issue challenges and encrypted messages over the Internet. After that, the challenges are used by Proof-of-Coverage to validate wireless coverage. Additionally, Hotspots can issue challenges from any location, not just to local hotspots. Earnings from hotspots are based on PoC and validation coverage. The amount each hotspot earns depends on how many times the device is involved in PoC activity. Respectively, less engaged devices will see fewer earnings. Moreover, hotspots that monitor and report Proof-of-Coverage activity (beacons) of other Hotspots receive a portion of HNT depending on how much activity they have witnessed. Helium has also created a map with all devices which can viewed both on mobile and desktop. There is information based on location and earnings. As a result, new users can review existing miners and their earnings before setting up a miner.

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The Future of Cryptocurrency Mining

Mobile Mining

Mining with your mobile phone? Yes, it is actually possible. Pi Network (PI) has gained a lot of attention since it was introduced back in 2019. The team behind Pi Network features Stanford graduates who wish to bring the decentralization concept back to life by creating a mining process which is available to everyday people or basically anyone who can download the Pi Network application on their mobile phone. This involves users to mine by logging in every 24-hours and clicking on the ‘Mine’ button which is within the app itself. The project is still in its early stages of development and is definitely a look into the future similar to the early Bitcoin ($BTC) adoption.

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Unfortunately, since the project is taking a lot of time to go to Mainnet stages, there have been rumors that this could be a scam. As of 10th of December 2021,the project has yet to release a cryptocurrency or token. As such, users are beginning to doubt the credibility of the project. On the other hand, anyone who has subscribed to Pi Network and downloaded their app, has most likely lost only a bit of phone batter and screen time – nothing else as no prior investment is needed.

What is Pi Network?

Pi Network is a digital currency project that aims to keep cryptocurrency mining accessible as the centralisation of first generation currencies like bitcoin has put them beyond the reach of everyday users. The Pi Network’s aim is to be validating transactions on a distributed record. Different to nodes on networks such as Bitcoin that use proof-of-work (PoW) protocols, Pi nodes use an algorithm based on the Stellar Consensus Protocol (SCP). From a technical point of view, Pi Nodes validate transactions on a distributed ledger and reach a consensus on the order of new transactions that the ledger records.

Branding evolves around number π and Phase 1 of the project launched in 2019 on Pi Day, 14 March with the free Pi mining app. By June 2019, the network had more than 100,000 active users. Currently, Pi features more the 29 million active users.

Conclusion

To summarize, we have looked at the Proof of Work, Proof of Stake, Proof of Coverage and the future of cryptocurrency mining in this article. Looking back on the questions at the beginning, we would like to reflect that mining crypto is still possible and available to anyone. Mining resources on the other hand are the pitfall as barriers to enter these processes are very high and involve a considerable investment. The best method is always the one which suits you best and that can be decided upon mindful research and a selection process. If you are looking to start mining now, then factors such as the currency itself, the market cap, the scalability of the project, the price of mining equipment are only some factors which should be taken into account. On a positive note, it is still not too late to start mining now, however dedication must be present at all times and returns will be minimal for the first few months. Until then, why not start your own NFT Marketplace or Decentralized Exchange and list NFTs? At DCVX, we can help you achieve great results, so definitely get in touch with our elite team of developers. If you would like to learn more, please visit our Use Cases page.