A Walkthrough for Cryptocurrency Mining

“Supply creates its own demand.” This can be held true for the current scenario in the crypto-currency industry for the ‘phenomenon’ called mining. Newly resurgent cryptocurrency markets are driving demands for graphics cards so much so that there’s a global shortage of AMD GPUs that has led to the graphics cards being sold for almost thrice its retail value.

“Supply creates its own demand.” This can be held true for the current scenario in the crypto-currency industry for the ‘phenomenon’ called mining. Newly resurgent cryptocurrency markets are driving demands for graphics cards so much so that there’s a global shortage of AMD GPUs that has led to the graphics cards being sold for almost thrice its retail value.

Why are graphics cards in such high demand, an average Joe would wonder?  Well, graphics cards can be used to ‘mine’ cryptocurrencies or digital cash in layman’s terms.

In simpler terms, Mining is the process of confirming transactions and inserting them to your public ledger. To be able to bring a transaction to the ledger, the “miner” has to address an increasingly-complex computational problem. Mining is open source, therefore anyone can confirm the transaction. The way in which trades, blocks, and the public block-chain ledger work together ensures that no one individual may easily add or alter a block at will. After a block is added to the ledger, all correlating transactions are permanent and a small transaction fee will be added to this miner’s wallet (along with newly created coins). The mining process is what gives value to the ball and is known as being a proof-of-work process.

If at this point, you find this confusing, don’t worry and don’t give up! Getting around the foundational and fundamental concepts of cryptocurrency can be an uphill task. In this article, as you might have figured out, we are going to cover the basics of mining.

WHAT IS PROOF OF WORK?

 Proof of work is a requirement to define an expensive computer calculation, also called mining, that needs to be performed in order to create a new group of trust-less transactions (blocks) on a distributed ledger called blockchain.

 Mining serves two major purposes:

 To verify the legitimacy/legality of a transaction and confirming it.

– To create new coins by rewarding miners for performing the required task at hand.

When you want to send a transaction this is what happens on the blockchain:

– Transactions are bundled together into what we call a block.

– Miners verify that transactions within each block are legitimate.

– A reward is given to the first miner who solves each blocks problem.

– Verified transactions are stored in the public blockchain.

The Blockchain has an integral feature: asymmetry. The work, in fact, must be moderately hard on the requester side but easy to check for the network. This idea is also known as a CPU cost function, client puzzle, computational puzzle or CPU pricing function.All the network miners compete to be the first to find a solution for the mathematical problem that concerns the candidate block, a problem that cannot be solved in other ways than through brute computational force.When a worker finally finds the correct solution, they declare it to the entire network at the same time, receiving a reward provided by the protocol. From a technical standpoint, mining process is an operation of inverse hashing: it determines a number (nonce), so the cryptographic hash algorithm of block data results in less than a given threshold. This threshold, called difficulty, is what determines the competitive nature of mining: as more computing power is added to the network, the number of calculations required in finding the block increases and it gets more difficult to earn rewards. This method also increases the cost of the block creation, pushing miners to improve the efficiency of their mining rigs to maintain profitability.

TYPES OF PROTOCOLS

“Innovation is taking two things that already exist and putting together in a different way.”

-Tom Freston

After the initial success of proof of work algorithm in bitcoin and Litecoin, more and more mining equipment were added to mine these coins and subsequently led to high difficulty levels and to maintain a positive economic balance, miners had to upgrade their equipment.

Developers soon realized the need for inexpensive, less energy consuming algorithms or protocols. The other types of protocols are:

– Proof of Stake (PoS): In the truest sense of the word, this isn’t actually “mining” per se. In this method you are required to hold/store coins in a staking wallet or client and the rewards are earned as an interest per year basis. Your earnings are based upon the number of coins, or “stake,” you hold. The more you invest, the more you are likely to earn. Some of the currencies that use this protocol are: Peercoin, Nxt, Blackcoin, Bitshares etc.

– Proof of burn: Proof of Burn is a protocol used by various altcoins to reduce the current available supply, whereby a specific portion of coins in circulation is sent to a burn address.  This effectively removes these coins from being used or rather it takes them off the market. Proof of Burn transactions are also recorded on that cryptocurrency’s blockchain, providing inevitable proof that the coins would never be used to transact again.

– It is important to keep in mind burning coins is an expensive process. Some of the currencies that use this protocol are: Counterparty, Gambit, APX ventures etc.

– Proof of Activity = PoW + PoS : A hybrid system combining Proof of Work and Proof of Stake is practically implemented both in many clones of PeerCoin and in PeerCoin itself. The Proof-of-Work blocks are searched at the same time with the Proof-of-Stake blocks, i.e. blockchain includes both types of blocks.

– Proof of Capacity: Proof of Capacity is an implementation of a popular idea of “megabytes as resources”. In this method you have to allocate significant volume of the hard drive space to start mining. Besides being energy efficient, this approach also provides botnet protection. Burst coin uses this algorithm.

– Proof of Human: An innovative system has been placed in XRB , Raiblocks. The existing coins have all been pre-mined and the distribution of these coins is through a system called Proof of Human where users have to solve ‘captchas’ to earn rewards.

THE MINING ECOSYSTEM

1) HARDWARE

  • CPU Mining

Early Bitcoin client versions allowed users to use their CPUs to mine. The innovation of GPU mining made CPU mining highly unprofitable and unwise as the hashrate of the network grew to such an extent that the amount of bitcoins produced by CPU mining became lower than the cost of power to operate a CPU. The option was therefore removed from the core Bitcoin client’s user interface.

(A CPU mining rig consisting of a number of processor units)

  • GPU Mining

GPU Mining is drastically faster and more efficient than CPU mining. GPU’s have large numbers of ALU’s, more so than CPU’s. As a result, they can complete large amounts of bulky mathematical labour in a greater quantity than CPU’s.

(A small GPU mining farm)

  • FPGA Mining

FPGA mining is a very efficient and fast way to mine, comparable to GPU mining and drastically outperforming CPU mining. FPGAs typically consume very small amounts of power with relatively high hash ratings, making them more viable and efficient than GPU mining.

(An 8 core FPGA bitcoin mining unit)

  • ASIC Mining

An application-specific integrated circuit, or ASIC, is a microchip designed and manufactured for a very specific purpose. ASICs designed for Bitcoin mining were first released in 2013. As they are highly efficient and low power consuming, ASIC’s have rendered GPU mining financially unwise in some countries and setups.

(An internal view of an ASIC miner for bitcoin)

  • Mining services (Cloud mining)

Mining contractors provide mining services with performance specified by contract, often referred to as a “Mining Contract”. They may, for example, rent out a specific level of mining capacity for a set price for a specific duration. Cloud mining services are most usually scammy and prior research and due diligence is advised.

2)POOLS:  a mining pool is the pooling of resources by miners who share their processing power over a network to split the reward equally, according to the amount of work they contributed to solving a block. The concept of pools was found necessary as with time, the difficulty for finding the reward increased and it would take months before any miner could earn any reward.

  • Mining Pool Rewards

A Mining pools’ main objective is to combine computing power from a number of miners into one big pool. In doing so the miners chance to win a block reward increases dramatically. When the block reward is won it is to be divided fairly among the miners, based on each miner’s computing power contribution or shares.

Mining Pool Reward Types

 CPPSRB – Capped Pay Per Share with Recent Backpay.

 DGM – Double Geometric Method. A hybrid between PPLNS and Geometric reward types that enables to operator to absorb some of the variance risk. Operator receives portion of payout on short rounds and returns it on longer rounds to normalize payments.

 ESMPPS – Equalized Shared Maximum Pay Per Share. Like SMPPS, but equalizes payments fairly among all those who are owed.

 POT – Pay On Target. A high variance PPS variant that pays on the difficulty of work returned to pool rather than the difficulty of work served by pool.

 PPLNS – Pay Per Last N Shares. Similar to proportional, but instead of looking at the number of shares in the round, instead looks at the last N shares, regardless of round boundaries.

 PPLNSG – Pay Per Last N Groups (or shifts). Similar to PPLNS, but shares are grouped into “shifts” which are paid as a whole.

 PPS – Pay Per Share. Each submitted share is worth certain amount of BC. Since finding a block requires shares on average, a PPS method with 0% fee would be 25 BTC divided by. It is risky for pool operators; hence the fee is highest.

 PROP – Proportional. When block is found, the reward is distributed among all workers proportionally to how much shares each of them has found.

 RSMPPS – Recent Shared Maximum Pay Per Share. Like SMPPS, but system aims to prioritize the most recent miners first.

 SCORE – Score based system: a proportional reward, but weighed by time submitted. Each submitted share is worth more in the function of time t since start of current round. For each share score is updated by: score += exp(t/C). This makes later shares worth much more than earlier shares, thus the miner’s score quickly diminishes when they stop mining on the pool. Rewards are calculated proportionally to scores (and not to shares).

 SMPPS – Shared Maximum Pay Per Share. Like Pay Per Share, but never pays more than the pool earns.

GPU MINING LANDSCAPE

GPU mining rigs are multipurpose, self-assembled mining rigs which can be used to mine a variety of cryptocurrencies and along with ASIC miners, are the most profitable to mine with. GPU mining rigs can be used as a powerful day to day computers and can be used to multi-task. The astronomical price rise of cryptocurrencies has led to an increase in mining profitability and soaring increase in demand of graphics cards. Depending on a variety of factors, the components of a GPU mining rig vary. For discussion, we are going to select Ethereum, currently the most profitable coin to mine with GPUs. The profitability can be checked on a number of sites/tools like www.cryptocompare.com, www.whattomine.com, www.coinwarz.com. A mining rig is more profitable and efficient when the number of GPUs it consists is high, but depending on the miners’ initial investment, a GPU mining rig can consist of 1 to n number of GPUs. The most common setup involves 5 or 6 graphics card.

Here’s quick build list for a 6 GPU Ethereum mining rig:

 1x 1200 Watt or higher Power Supply – An efficient 1200 watt or higher modular power supply preferably a Gold 80+ or platinum of EVGA, Seasonic, Corsair brand.

 1x 6 PCI-e slot Motherboard – a 6 PCI-e slot motherboard to run 6 gpus is necessary. There is a wide variety of options to choose from and Msi Z97 gaming 5, ASrock H97 anniversary edition have been tried and tested.

 1x Skylake Dual Core CPU- Major mining work or computing is to be done by the gpus so any cheap skylake dual core processor should suffice.

 1x 8 GB RAM

 6x GPU’s – For ethereum mining, Rx 470/570 or Rx 480/580 in the AMD series and GTX 1060 and 1070 for Nvidia.

 1x 6 USB Riser Cables- these cables connect your motherboard and gpus.

 1x Solid State Drive

 1x Open Air 6 GPU Mining Case – a lot of open air mining cases are available in the market and to go for a much cheaper option, it can be built and assembled on your own.

 Windows 10 or Linux (depending on your preference and setup)

 Monitor, Mouse and Keyboard.

After you have ordered and received your parts, following the steps listed below is essential in assembling your mining rig.

  1. Un-package all products and safely keep the receipts/bills/warranty cards for future requirement.
  2. Build / assemble Open Air 6 GPU Mining Case.
  3. Install CPU and RAM and SSD on motherboard.
  4. Plug in all riser cables.
  5. Place motherboard in mining rig case and connect motherboard PSU connector.
  6. Connect all GPUs to riser cables and fasten them to the frame/case.
  7. Plug in all power supply connections.
  8. Connect mouse, monitor and keyboard and an internet connection i.e Ethernet cable or wifi adapter.
  9. Switch on the mining rig and install the OS.
  10.  Install the necessary drivers for your devices including the Graphics card.
  11.  Register to a pool of your choice, Ethermine.org is one of the many you can try for ethereum mining.
  12.  Download the necessary mining software and input your details in the config.txt file.

(For Ethereum, Claymore’s dual miner v9.5 is the latest.)

VOILA!! You are now ready to foray into the world of cryptocurrency mining.

Cryptocurrency market is highly volatile and fluctuating, the profitability of mining varies adversely from time to time. It is advised to do your own research and invest wisely in cryptocurrency or its mining equipment. That being said, it also stands true that the potential of growth in prices is directly proportional to mass cryptocurrency adoption and going by the statistics, only 1% of the entire population of the world use cryptocurrency. It can be fairly stated that with time this number will only increase and so will the profitability.

Hope this article guides all the readers in the correct direction and stay tuned for more information about mining in the following issues. For suggestions regarding the topics you would want us to cover you can contact the undersigned and we would be happy to oblige.