Bitcoin uses SHA cryptographic hash function to secure the blocks and create the hash for each block.
This encryption is what protects the transactions in the block from being altered. Several manufacturers produce their own ASIC chips and miners. For this part of the Bitcoin mining guide we will use the current top miner on the market the Bitmain AntMiner S9. Bitcoin mining has gotten so high powered with the race to be the winner to solve a block that it has evolved into pooled mining where a group of miners want to have as much hash power as possible to get a share of the Bitcoin block reward.
By combining your hash rate with that of many others you have a better chance of solving blocks creating a block and getting the block reward. If you are able to use v power and have the correct outlets or PDU Power Distribution Unit you can use special PSUs that are either made specifically for Bitcoin mining or even those made for servers.
Once connected you will connect an ethernet cable to the miner itself. The next step is to turn on your PSU and the miner will power up from there. Next get on a computer or mobile device that is connected to the same network as the miner. You will need to enter in the miner's IP address.
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Since most miners now come with DHCP enabled you do not have to manually set the IP address, you just need to look at the IP table on your router or use a scanning tool. When you run the scan you will see AntMiner as one of the devices. From there in your browser window you type in the miners address. This will take you to the first screen to login to the miner. In the case of the S9 the login box that comes up the username is root and the password is root. Once you have logged in you will see the system overview.
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Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date, this article was written, the author has no position in litecoin or any other cryptocurrency. Skip to top. In proof-of-work cryptocurrencies like bitcoin and litecoin, mining is the process by which the blockchain — a distributed ledger of all transactions ever made on the network — is maintained.
Miners receive transaction data broadcast by the various participants in the network since the last block was found, they assemble those transactions into structures called Merkle trees , and they work to find an acceptable hash. A hash is a result of running a one-way cryptographic algorithm on a chunk of data: a given dataset will only ever return one hash, but the hash cannot be used to recreate the data. Instead, it serves the purpose of efficiently ensuring that the data has not been tampered with.
Change even one number in an arbitrarily long string of transactions, and the hash will come out unrecognizably different. Since every block contains the previous block's hash, the network can know instantly if someone has tried to insert a bogus transaction anywhere into the ledger, without having to comb through it in its entirety every 2. The mining process illustrated. This image comes from our bitcoin infographic, but litecoin miners follow the same process.
Why must miners run these hash functions over and over again, if doing it once — a near-instantaneous process for a modern computer — would do the trick? The reason is that, by harnessing a lot of hash power, an attacker could spend some coins, then pile a huge number of spam transactions on top of it — ones that do not reference the attacker's original spend. In this way they could spend their coins and have them too; this is known as a double-spend attack. By requiring the network to plug through millions or billions of hash functions, the blockchain generates so much "work" that undoing it or overwhelming it would be too expensive.
Since a given set of data only generates one hash output, miners must append meaningless numbers known as nonces to the end and run the function again. Mining is competitive. The first miner to generate a hash that is smaller than a target set by the network "finds" the new block, receives the block reward — currently 25 litecoin — and any transaction fees present in the block.
Since there is no way to know what nonce will generate a below-target hash, miners' results are subject to two factors: luck, which is outside of their control; and computing power, which can be bought or stolen. To maximize their computing power, miners have developed specialized gear to plow through hash functions as fast as possible. They have assembled enormous collections of these machines, pooled their resources, and concentrated in places where electricity is cheap, so as to maximize profits. These trends have led to the increasing centralization and professionalization of mining.
Miners profitability
In October Charlie Lee, then a software engineer at Google, announced the creation of litecoin, a clone of bitcoin with modifications intended to help it scale more effectively. A little over seven years later, the cryptocurrency has demonstrated the kind of staying power other early bitcoin alternatives couldn't.
Remember SolidCoin? With a new block mined every 2. Litecoin can hardly claim to have scaled the way that centralized payment systems like Visa have, but Lee's claim to have created the "silver to Bitcoin's gold" has some merit to it. See also, Bitcoin vs. Litecoin: What's the Difference? One of Lee's initial claims has not held up, however: the ability to mine litecoin using a computer's central processing unit CPU.
Lee adopted the Scrypt hash function from Tenebrix, an early altcoin, instead of using bitcoin's SHA function. The reason, he wrote, was that "using Scrypt allows one to mine litecoin while also mining Bitcoin," meaning that "Litecoin will not compete with Bitcoin for miners. In the early days, even bitcoin could be mined using a CPU. By , the competition had ramped up, and the only way to mine bitcoin profitably was using a graphics processing unit GPU. Soon GPUs were being used to mine litecoin as well. Older ASICs may not be competitive, making it hard to turn a profit.
Note that Scrypt ASICs can also be used to mine other coins based on the same algorithm; you can choose the most profitable coin to mine based on relative price and difficulty a parameter the network sets to make sure a new block is mined every 2. It's a way to get exposure to the process, to familiarize yourself with the vocabulary and concepts, and to avoid dropping thousands of dollars on a pursuit you find out doesn't interested you.
And if you're an altruist, offering your tiny sliver of hash-power to the network is a way to reduce its centralization. If you are ASIC mining, your hardware likely comes pre-installed with mining software. A software package could contain malware.
How to set up a bitcoin ASIC miner
You should also watch out for other tricky, if not outright malicious, behavior. It's easy enough to find yourself accidentally mining on behalf of the software's developer because their system configures their worker as the default. GUI versions of mining software are not always available, so you may have to use the command line. The software's provider and your pool see next section should explain the necessary steps.
Don't follow instructions from sources you don't trust: it's easy to wreak havoc on your system using the command line, and tricking the inexperienced into doing so is some people's idea of a good time. Once you've decided what equipment you'll use to mine, you need to decide how to mine: solo or in a pool. Mining alone, you risk going long periods of time without finding a block. When you do find a block mining solo, however, you keep it all — the whole 25 litecoin plus fees. To be clear, this tradeoff exists only if you have a lot of hash power multiple ASICs. Pool mining, in which large numbers of miners combine and distribute the proceeds according to the hash power contributed, is still subject to the vagaries of chance: your pool might find three blocks out of 10, then wait for blocks to find another one.
Even so, your earnings are almost certain to be more steady with a pool; the tradeoff is that you only earn a small cut of each block the pool finds. Another aspect of pools to consider is security. Some pools have excellent reputations, but others fall on the spectrum from questionably managed to outright scams. Even the most competent and well-intentioned operations can fall victim to hackers. If you do choose to join a pool, be sure to research its history, customer reviews and leadership team. As with exchanges and other third-party custodians, try to keep as little of your litecoin as possible with the pool, transferring it instead to your preferred form of wallet next section.
There is no such thing as a bitcoin account
Finally, keep in mind the market concentration of the pool you want to join. It can be tempting to join the biggest pool since it likely offers the greatest chance of finding blocks frequently and turning a profit. If your pool reaches half the network's hashing power, though, it represents a risk to the litecoin network itself. You'll need a place to store your litecoin, known as a wallet.
How Bitcoin mining really works
You have a range of options, which impose tradeoffs in terms of security and convenience. The best balance is probably to download the Litecoin Core client. This will take up around 15 gigabytes of space since the client downloads the entire litecoin blockchain unlike with ethereum , you can change where these files are stored, so it's possible to keep them on an external hard drive.
The core is the most reputable wallet software for litecoin, suggesting that it's relatively secure. It can be used to send and receive litecoin, making it relatively convenient.