What are Cryptocurrencies?, Part 2: Introduction to Mining

What is Mining?

As stated in the previous part of this guide, when someone sends someone a Bitcoin (or other currency) the transaction is verified many times over. The entire list of past transactions is called the block chain, which is made up of a string of blocks. The act of verifying transactions is called mining. Mining is performed by both CPUs and GPUs. Most CPUs are very fast and have two to four cores. GPUs on the other hand, since they are designed to render lots of 3D images very quickly are build with thousands of cores, thus being faster. The mining community measures how fast a CPU or GPU is at mining in hashes per second. A typical decent CPU will probably get around fifty kilohashes per second (50,000 hashes in one second). A decent GPU for around the same price will get around five hundred kilohashes per second (500,000 hashes in one second).

More About Blocks

Each block contains a mathematical puzzle that needs to be solved for the block to be completed. There are more than one answer to each block “puzzle”. A block is never almost solved; it is like an on-off switch: it is either solved or it isn’t. It is impossible to “make progress” on solving a block. When computers mine, they submit “shares” which is what they think the answer to the puzzle might be. Whenever a computer solves a block, their is a “reward” consisting of Bitcoins. Right now the reward for solving a block is twenty-five Bitcoins. A few years ago the reward was fifty. In a few more years the reward will be twelve and a half. This is because Bitcoins are designed so that about every ten minutes, one block is solved. If you do the math, you can figure out that the reward for solving a block is halved ever 210,000 blocks, or every four years. Since the number of computers mining Bitcoins fluctuates, you might wonder how the system keeps maintains having one block solved every ten minutes. The difficulty is how hard it is to solve a block. The more people mining means the difficulty rises. This same idea applies to all other cryptocurrencies. Since cryptocurrencies are becoming a lot more difficult in general, the difficulty is now continually rising.

So Why Mine Litecoins Instead of Bitcoins?

Good question! Although Litecoins and Bitcoins both are based on the same idea, they have a few differences. Litecoins are designed so that one block is solved every two and a half minutes. But the big difference is the way they are designed. Bitcoins have a “flaw” where an “ASIC” (Application-specific integrated circuit), something specially built to mine Bitcoins, can be built to ming many, many times faster at a fraction of the cost of a GPU. Since the introduction of these, the Bitcoin network has been flooded with ASIC, defeating the efficiency of mining with a GPU or CPU. Litecoins however are designed so that they have to be mined with either GPUs or CPUs.

How Can I Mine Litecoins?

To start off with, you need a computer with a decent AMD graphics card. The build featured here is great to start off with. The “standard” mining program for AMD GPUs is called cgminer. A great way to learn about this is simply looking at the configuration file:

cgminer –scrypt -o stratum+tcp://ltc.give-me-coins.com:3333 -u xxxx -p xxxxx –lookup-gap 2 –thread-concurrency 11200 -g 2 -I 13 -w 256 –auto-fan –gpu-fan 30-75,30-75 –temp-cutoff 90,90 –temp-overheat 85.85 –temp-target 72,72 –gpu-memclock 1500,1500 –gpu-engine 1080,1080 –gpu-powertune -20,-20

You can probably get an idea just by reading it. Let’s like at the first part: “cgminer –scrypt”. Cgminer of course the name of the program. “Scrypt” is the name of the algorithm used for mining. Moving on:

o stratum+tcp://ltc.give-me-coins.com:3333 -u xxxx -p xxxxx

Here it appears that cgminer is connecting to something. Specifically, it is connecting to the LTC give-me-coins server. Give-me-coins is a mining pool. Mining Pools are groups of people mining together. Since someone with one computer has a very small chance of solving a block (thus getting a reward), people team up and split the reward whenever someone solves the block, which ends up being much more profitable. -u xxxx and -p xxxxx is where you enter the worker username and password for a mining pool account. The purpose of individual accounts being divided up into workers allows people to track their separate miners easier. A list of Litecoin mining pools can be found here. The rest of the config file is:

–lookup-gap 2 –thread-concurrency 11200 -g 2 -I 13 -w 256 –auto-fan –gpu-fan 30-75,30-75 –temp-cutoff 90,90 –temp-overheat 85.85 –temp-target 72,72 –gpu-memclock 1500,1500 –gpu-engine 1080,1080 –gpu-powertune -20,-20

This is simply the settings that tell cgminer how much work to give the GPU. Each GPU mines faster at different settings. Part of the trick to mining is figuring out what settings work best for your card. If you can find the optimal settings, all you have to do is sit back and watch the $$ to come in.

Conclusion

Hopefully this guide has explained to you the basic concept of cryptocurrencies and what “mining” them is. If mining sounds like something you want to get into and experiment with (and even make some money!), check out our next guide, which explains how you can build one for fairly cheap.

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