Crypto Mining Explained: Detailed Guide


Jacob Sansbury

Jacob Sansbury

Wed Dec 21 2022

7 min

Crypto Mining Explained: Detailed Guide

Disclaimer: This is for informational purposes and is not meant to serve as financial or investing advice.

An increasing number of people are getting into crypto mining. It’s a way they can grow their wealth through this secondary income source.

Sounds interesting, right? After learning more, you might be tempted to try it yourself.

We’ll give you a very palatable overview of crypto mining that you can follow in a breeze. We’ve seen other articles that would cause novices to become overwhelmed and lost.

That’s not us. We’re all about keeping it simple.

Knowledge of cryptocurrency is increasingly important because it’s a facet of the financial world that is ballooning in popularity. And it could have significant impacts on us all in the future.

Since it could majorly impact your life, it’s worth learning about. And perhaps this knowledge can help you achieve unimagined success.

Today, we at Pluto are here to help you grasp the basics of crypto mining.

What Are the Basics of Cryptocurrency and the Blockchain?

In a nutshell, cryptocurrency is a digital currency. Instead of physical dollars that you can grasp in your hand, it’s all online. No one can physically hold it.

The “crypto” part of the word comes from the fact it is secured through cryptography. This makes it very, very difficult for counterfeiting or double-spending to occur.

Crypto has no central issuing authority. Where the U.S. dollar is under the control of the U.S. government, cryptocurrencies (such as ETH, BTC, or SOL) are decentralized.

That means the government, for example, can't interfere with it. No official authority can.

There are many different types of cryptocurrency. There are various national currencies globally, and the same goes for crypto. For example, just like the Euro differs from the dollar, Bitcoin (BTC) is distinct from Ethereum (ETH).

The one thing uniting cryptocurrency? Every cryptocurrency, by necessity, is based on blockchain technology.

Don’t know what a blockchain is? In simple terms, it’s similar to a database of information shared among computer network nodes.

(What’s a node? Great question! A node is any connection point across a network that can send and receive data.)

These blockchains are secure spots that hold records of transactions. But here’s how it’s all different from databases. Databases use tables to structure all the data — a blockchain structures data into separate, connected chunks (or “blocks”).

The blocks are connected like a chain, forming a blockchain. Pretty simple when you break it down like that.

What Is Cryptocurrency Mining?

Now, let’s talk about the crypto-mining process. Mining operations, in essence, leverage powerful computers and cutting-edge mining hardware to generate new blocks and new coins. These block rewards are at the core of crypto as we know it.

You can generally differentiate crypto into two camps: proof-of-work crypto and proof-of-stake crypto. These are separate consensus mechanisms: proof-of-stake selects validators who have a significant investment in the token to validate coins, whereas proof-of-work uses mining to ensure the functioning and payout of the currency.

Think of a miner digging for coal — crypto mining works along the same lines, but of course, in a digital landscape. But instead of a pickaxe or industrial equipment, miners dig for cryptocurrency in a much different way.

For example, bitcoin miners use networks to generate new bitcoins (among other cryptocurrencies) and verify new transactions that will be added to the bitcoin blockchain.

Bitcoin mining is very popular. It’s all a cycle that works like this:

  1. Bitcoin miners work to verify the new transactions, adding to the blockchain.
  2. Individual miners are rewarded with newly generated bitcoins.
  3. The coins then incentivize crypto miners to keep maintaining the bitcoin network.

Now, there’s a catch, but it’s not one any miner today is likely to experience in their lifetime.

The system will only allow the creation of 21 million bitcoins. We’re not there yet. Those final coins (in theory) won't be mined until 2140.

After that, miners will likely be paid a more regular fee instead of “digging up” more Bitcoin.

What Is the Incentive To Mine for Coins?

Miners often do this as another income stream. Additionally, remember that the government does not regulate cryptocurrency. That means people can procure digital currency without Uncle Sam asking for his share or meddling in the system.

What Are the Risks of Mining?

You can spend countless dollars on top-notch computer equipment but not earn enough back to pay for it. More miners are joining up all the time, making the competition all that more fierce.

Not to mention mining isn’t exactly legal everywhere. That’s why it’s crucial to fully understand the laws for whatever part of the world you’re mining from.

Additionally, whether you’re mining for bitcoin transactions or some other trending coin, the electricity consumption involved in mining is nothing to scoff at. Sure, you’ll want to think about electricity costs.

However, you’ll also need to research your tech and ensure you’re doing your best to mitigate the significant ecological damage that results from bitcoin mining work.

Aside from rug-pulls and high-profile instances of fraud like the recent FTX fiasco, crypto’s reputation suffers most from the environmental impacts of the immense energy consumption of the high hash-rate machinery miners use.

What Are the Different Types of Crypto Mining?

There are many different ways to mine cryptocurrency. Let’s take a look at several of these mining machines. (They are also called “mining rigs.”)

1. GPU Mining

Remember how we mentioned the increasing popularity, and thus competition, or mining? Let’s imagine traditional mining, like coal.

As competition increases, people upgrade their equipment to get a leg up. They would advance their technology to beat the other guys working to procure coal.

Well, same here in the digital world. Instead of CPUs (central processing units), many miners now use GPUs (graphics processing units). They are more efficient and successful in crypto mining.

2. CPU Mining

Some people still use their CPUs to mine, but it’s not popular. You can find these hardware units on the average laptop or desktop computer. And a lot of people used these in the early days of crypto mining, back when there were few miners.

However, CPUs have become outdated due to competition and everyone upgrading their equipment.

Imagine everyone around you using high-tech trucks, loaders, and drills to mine for coal. And then there’s you, with your trusty pickaxe. You’d be left in the dust, considered a dinosaur.

It’s the same idea here.

3. ASIC-Based Mining

The acronym stands for “application-specific integrated circuit.” This is a system with the sole purpose of mining for crypto. That’s it.

This technology has been around for about a decade. And at the time, it was approximately 200 times more powerful than the standard GPU systems.

Before you run off to purchase one, we must warn you. It’s likely going to cost a pretty penny.

We’re talking between $2,000 and $15,000. And there’s no guarantee you’d be able to mine enough coins to pay for that.

They’re also incredibly specialized. These systems can only mine certain types of cryptocurrency, which can be highly limiting.

4. Cloud Mining

You’re likely familiar with using a cloud for storing your data. You can hire a cloud mining service that will allow you to mine without facing all those hefty price tags for the necessary equipment.

You can “rent” an ASIC system to mine for a set time limit that can span weeks to even years. To carry on with our metaphor, think of borrowing mining equipment to get the coal instead of owning it outright.

But these are also wildly popular, and you’ll face plenty of “sold out” signs in your search. As we said, some offer their mining systems to rent for years.

5. Mining Pools

If you can't beat them, join them! That’s essentially what mining pools are all about.

A mining pool is when a group of miners joins forces, each offering a share of computing power to grow their chances of successfully mining cryptocurrency.

Then, of course, each miner would get their share of the reward.

These pools developed when mining systems were slower (we’re looking at you, CPUs), and it would take much longer to succeed.

There’s a lot more that goes into it, to be sure. However, this is only an introduction to the concept. If you’d like to learn more about how to find mining pools, shoot us a quick message. We’d be happy to chat with you about it.

How Can You Start Mining for Crypto?

So, you’ve come this far, and it seems like a great way to pull in some additional income. Like any new venture, you will need to make some decisions.

First, you can mine different types of cryptocurrency. Which one are you looking to find?

Also, do you have a crypto wallet? This is where you store your public and private “keys” for transactions. You can find many for no charge at all.

Once you’ve decided what type of cryptocurrency you want to mine and have your wallet, you should consider which mining system you wish to use.

Will you go the GPU route? ASIC? (We know CPUs are obsolete.) Figure out how much you’re willing to invest in this digital adventure.

Another question to ask yourself is whether you’ll join a mining pool or go solo.

If you go solo, you can keep everything you find for yourself.

But you might find more with a pool. Plus, as a newbie, you’ll be facing a learning curve. By joining the ranks of a pool, you can create lasting friendships and learn more about mining. Only go solo if you think you have enough knowledge to be successful.


As stated in the beginning, cryptocurrency has a chance of making significant global impacts. It could change the face of the financial and legal sectors, to name a few.

Honestly, there’s no telling how far-reaching crypto technology’s impacts could be. In theory, it may end up changing the world. So whether you want to get involved or not, it’s at least worth making sure you and those closest to you have a basic working knowledge of it.

Of course, we’ve only scratched the surface here. You might have questions, and we have answers! We would love to talk with you if you're interested in cryptocurrency.

And no worries, we can keep it casual and educational.

And if you’ve begun mining crypto and want to handle your bounty with care and strategy to help it grow, that's where we come in. We use data and automation to help you expand your crypto wealth.

In case it wasn’t clear, Pluto is an investing app that helps you automate investing in stocks and crypto-currencies by building a portfolio of strategies or rules for when to buy and sell.

With Pluto, you can quickly build a portfolio of strategies to watch your investments and make better decisions with your own rules like

Check out our other blog entries or YouTube page where you can continue your crypto education!


Cryptocurrency Explained With Pros and Cons for Investment | Investopedia

Crypto basics | Coinbase

Crypto Mining Rigs Explained: From CPUs to GPUs to ASICs | Gemini