HOW TO MINE CRYPTOCOINS?

Cryptocurrency mining depends on the mining system that uses the block chain of the digital currency to be mined: Proof-of-Work system, Proof-of-Stake system or other. For all these mining systems, equipment, hardware, and commercial mining schemes have been created that facilitate the incorporation of new miners into the network.

PROOF-OF-WORK
In the Work Test System (PoW) , miners use processors, commercial or specialized, to solve the hash riddles. Depending on the current processing power of the cryptocurrency network, the difficulty in finding the nonce will determine the amount of computing power needed, as well as the type of chip to be used.

Bitcoin mining, for example, has used computer chip processors (CPU), video cards (GPU), programmable chips (FPGA) and, currently, uses specialized chips (ASIC).

For mining with CPU, GPU and FPGA, miners must make special configurations of these chips in their computers that provide them with a competitive computing power in relation to the total processing power of the cryptocurrency network they mine.
In addition to this, they need to use software that allows them to interact with the cryptocurrency network in order to obtain the jobs of the blocks to consolidate and send the solutions they obtain.
Mining with ASICs is much simpler. Specific Application Integrated Circuits (ASICs) are grouped into electronic cards that, in turn, are connected to a control card containing the mining software to give life to a modular miner.
This miner should only be powered by a power source of, generally, 600 to 2000 watts and configured his software to start working in the cryptocurrency network for which they were created.

A large percentage of the cryptocurrencies in the market use the PoW mining system with different encryption algorithms. Bitcoin, for example, uses SHA256; Litecoin, Scrypt; Ethereum, Ethash; Dash, X11; among many others.

PROOF-OF-STAKE
The Participation Test (PoS) is an alternative mining system to the PoW in which an equity value is assigned to each currency that corresponds to the amount of coins that the holder will receive when a certain amount of time has elapsed without using said currency.

In this system, the value obtained grows as long as the currency is not used. If the currency is used, the stock value restarts.

The first cryptocurrency to use this algorithm is Peercoin, which uses a hybrid between PoW and PoS. Other cryptocurrencies are: Qubits, Novacoin, Diamond, Nxt and many others. In addition, Ethereum plans to make a change from PoW to PoS by December 2016.

MINING GROUPS (MINING POOLS)
The mining groups (mining pools) are a way miners pool their resources and share their computing power while reward divided equally, depending on the amount of work which contributed in obtaining a block.

Bitcoin mining in groups began when the mining difficulty increased to the point where it could take years for the slowest miners to generate a block. The miners' solution to this problem was to pool their resources so they could generate blocks faster and thus receive a portion of the Bitcoin reward block on a constant basis, rather than at random once every few years.

The mining group works together to get the same block, using the cryptocurrency address of the group manager as the recipient of the reward. The manager is in charge of publishing the blocks to work and then distributing the profits per block obtained to the members, based on the amount of work that each one did, which is proportional to the processing power that each member controls.

By doing this work, the group manager keeps a percentage of the profits called the group fee (pool fee) . The group fee is usually around 0-4% of the profits.

Slushpool, the first mining group created, was launched on November 27, 2010. Since then, group mining has become a common practice, predominating almost entirely over mining alone. Also, it has extended to the mining of many of the best-known cryptocurrencies: Bitcoin, Litecoin, Dash and Ethereum, among others.

Advantage

They reduce the uncertainty of mining a block and with it, the economic risk; they allow small miners to participate profitably and keep the validation software of the miners updated.

Disadvantages

They encourage the centralization of the network, discourage miners from running complete nodes, and make it more cumbersome (in some cases impossible) to exercise the will of the miners to vote on changes in the network.

MINING IN THE CLOUD (CLOUD MINING)
The mining cloud (cloud mining) or hashing cloud allows users to buy hardware mining capacity in remote data centers, for an agreed set time. Actually, it is a rental or lease of computing capacity that prevents the acquisition of hardware and software for mining, power consumption and bandwidth, among other requirements to own a mining center.

The advantages of this mining scheme are related to not having to deal with the disadvantages that the mining equipment generates: heat and excessive noise, installation of ventilation systems, electricity consumption, equipment purchase and repair, etc.

The main disadvantages lie in the high probability of fraud due to not being able to verify the existence or operation of the data center and lower profitability due to the cost of the mining service; In addition, the cloud mining contracts contemplate the cessation of operations or payments if the price of the cryptocurrency is too low to cover operating costs, among others.

Currently, there are companies that offer cloud mining services for several of the best known cryptocurrencies: Bitcoin, Litecoin, Dash and Ethereum, among others.

CEXio, the first cloud mining company, was established in October 2013. Today there are many others, the most famous being Genesis Mining .

Due to the high degree of trust that must exist between who contracts the service and who offers it, this system has been used to carry out multiple scams over the years, so caution should be used when investing in mining in Cloud.