Cryptocurrency mining is an integral part of the functioning of decentralized networks. However, what exactly do we need miners, cryptocurrency excavators and mining mines for? In today’s publication we will look for answers to these very questions.
What tasks do miners face?
Cryptocurrencies as a highly decentralized creation and with strong self-regulation abilities do not need a central supervisor to supervise and control the network. Cryptocurrencies through a protocol in which immanent (impossible to change) features and basic parameters are recorded have rigidly defined properties.
In this way, everyone can check the maximum number of coins, the annual issue of new coins and whether the issue will be infinite or time-limited. In everyday life, miners and their machine parks commonly known as cryptocurrency excavators are responsible for the safe and effective operation of the network. Thanks to their work, each user can feel confident that all transactions in the network are checked by the computing power of excavators and are added to the cryptocurrency block chain. The main task facing miners is to add new blocks with transactions to the network, thanks to the computing power, miners are able to validate (confirm) the correctness of these transactions.
Miners receive remuneration in the form of newly generated coins for their work, which is also an incentive to keep working for a given network. At a later stage of development, along with a progressive decline in cryptocurrency emissions, remuneration for miners will be replaced by commissions attached to each transaction. Currently, the share of commissions is insignificant, however, as the number of transactions increases, this should change.
When does a miner receive a salary?
We already know the tasks carried out by miners, it’s time to discuss the available methods of remuneration for their work. Basically, any miner can work in solo mode or by joining a selected mining mine. A detailed discussion of this issue can be found here. For large cryptocurrencies such as Bitcoin and Ethereum, digging alone (solo) becomes a very risky undertaking because the expected time to find a block can be very long. Simply put, the time required to find a block can be calculated using the following formula:
What for the Ethereum network and a typical excavator based on six graphics cards with a power of 180Mh / s gives the following result:
This means that we will have to maintain and power the excavator for nearly half a year before we receive payment. And in an ideal case, i.e. not taking into account the variance, which can range from a few to several hundred percent.
Thus, the expected time can be extended several times in the case of bad luck, or in the case of luck shortened several times. That is why the vast majority choose practical solutions and merge into larger clusters of computing power within mining mines. In this way, we reduce the waiting time for receiving remuneration while increasing financial liquidity, receiving smaller amounts of remuneration, but at much more predictable intervals.
What are cryptocurrency mines (platforms)?
The mining mine can be defined as a protocol for a group of miners that enables joint work to increase the frequency and predictability of remuneration for work performed. The mining platform server assigns tasks to each of the miners that can be solved and sent back to the mine for validation and ultimately to generate a new block in the network.
After generating a new block, the mine server orders the payment of coins to miners according to the number of solved tasks, i.e. in proportion to the amount of power made available when calculating the tasks. If a miner holds 1% of shares, he will receive 1% of the remuneration found. On the market of mining platforms there are at least several ways to convert shares for miners, the most common ones are described here.
Variance – a key factor in determining remuneration
The most enigmatic and at the same time one of the most complex elements in the miner’s life is variance. Variance plays a key role in the mining process because it depends on it when the miner’s work is rewarded. Cryptocurrency excavators at work solve the cryptographic puzzles asked by the cryptocurrency algorithm.
Miner does not know the correct answer. The result is in a sense guessed, as in the case of the dice roll – the chance to throw a six in the ideal case is 1/6 – 16.67%, but it happens that the six will fall with fewer or more throws. Similarly in the case of mining cryptocurrencies, if the excavators connected to the mine “guess” the solution incorrectly too many times then the variance (luck) increases until the correct solution is found and the block is generated. In the opposite case, when the excavators generate and send the correct solution faster than expected by the average, the obtained variance (luck) is below 100%. This means that the miners put less effort and received a solution and reward faster than expected by the average.
The average is a differently expected time that we can calculate based on the formula given earlier. Network participants have no influence over the entire process. This is one of the more interesting features of the block chain – the ability to self-regulate. Every miner can assume that the variance will tend to 100% on a longer sample, so referring to the example presented, with one typical excavator in the Ethereum network we will find a block on average every 166 days. At the same time, finding a block after 30 days as well as after 400 days is likely. Therefore, it is easy to get a measurement error due to the very large resolution in unit measurements. In order to obtain reliable measurements, it is recommended to compare performance on a sample of at least 50-100 blocks. Thanks to such mechanics, a miner who extracts cryptocurrencies over a longer time can be calm that his work will be reliably rewarded, adequate to the amount of computing power contributed.
In practice, this means that the salaries of miners are characterized by seasonality, which is supported by favorable or unfavorable variance. Typical situations include the receipt of irregular days by miners: one day it can be 47 USD, another 62 USD. An experienced miner checks the phase of variance of his mining platform. If in the history of the last blocks there are several longer blocks, it is highly likely that such a miner faces a return of good variance, and therefore a very good dayday, and he should especially take care that his machine park is 100% efficient – it would be a shame to lose the best in mining .
It is a common mistake to compare mining platforms based on a short measurement – miners connect two identical excavators to two different mines for a period of 24 hours. Then they read the calculated remuneration and compare them with each other. This is a classic mistake of too short a sample, if we do not include variance in the measurement, it is difficult to predict a better mine in this way. Paradoxically, you can even choose the worse one, which simply had more luck in the test. And in the long run, it will get worse results, for example because its servers are located in another part of the world (longer delay) or the mine operator gets a higher commission. It is worth reading the data from mining platforms carefully, most professional mines publish the history of finding blocks on their pages – this is good practice, such data should, as a rule, be publicly available. If you are unable to find such data on your mine – maybe this is the best sign to wonder why the mine does not publish such information? After all, who of us would like to entrust their savings to a bank that does not specify the interest rate on deposits?
Author: Marcin Żywica from ŻET Technologies