Chapter 9: Mining

Crypto Mining: What It is and How Does It Work?

Interesting Fact:

Did you know that crypto mining is not only a means of creating many digital assets, but also a means of securing them?

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10 minutes

In this section, we’re going to look into what is crypto mining, and how does crypto mining work!

If you’re reading this section, it means that you’ve had enough of hearing about crypto mining everywhere, and decided to finally tackle the question of “what is crypto mining” once and for all. That’s a good call, since mining is a fascinating and dynamic aspect of the cryptocurrency world, and it plays a vital role in the creation and security of many digital assets.

Even though this subject can get pretty polarizing, it still remains a fundamental pillar of the decentralized nature of cryptocurrencies. And you’re about to understand what makes this topic so interesting, yet so dividing, as well.

In this section, we’re going to look into the questions of what is crypto mining, how does crypto mining work, what kind of crypto mining software and hardware miners require, and everything else that’s related to the topic. For beginners, these questions may seem headache-inducing, but you can’t venture into the land of crypto without knowing the answers to them.

Without any further ado, let’s grab that virtual pickaxe and get to work.

Crypto Mining Explained: How to Earn From Mining Bitcoin? (Animated)

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Video Explainer: Crypto Mining: What It is and How Does It Work?

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What is Crypto Mining?

Starting from the very beginning, we should probably define the concept, first. So, what is crypto mining?

In its essence, crypto mining is the process that is used to create new digital coins, verify new transactions, and add them to the blockchain ledger. Many cryptos, and most importantly - Bitcoin, rely on crypto mining, because it’s thanks to mining that these currencies enter circulation in the shape of new, freshly-mined coins.

What is crypto mining: Mining definition.

That’s where the term "mining" comes from, since there is a limited number of new coins that can be “extracted”, or “mined”, same as with mineable natural resources in the real world, such as diamonds or coal.

Technically, crypto mining is part of something that’s known as a “consensus mechanism”.

A consensus mechanism is like a rulebook for how a blockchain operates. Different blockchain networks have different consensus mechanisms, which ensure that all network participants reach an agreement on what things should look like without the need for a central authority.

Let’s consider chess. Chess has its rules, and people simply follow them. There’s no need for a referee to sit beside and make sure that no one’s gonna begin making checkers’ moves with chess figures.

When it comes to the “rules of the blockchain”, this means that a consensus mechanism serves the purpose of ensuring that all the blockchain network participants agree on the validity of transactions and the state of the network. Different blockchains have different consensus mechanisms, and some of them don’t require mining in order to be functional.

By the way, it’s impossible to understand this without having a decent understanding of what a blockchain is. If you feel like you could refresh your knowledge about them, be sure to check out this section! Okay, now back to consensus mechanisms.

The consensus mechanism that relies on mining is known as Proof-of-Work, or, more commonly, PoW.

To explain PoW in simple terms, we can imagine a running competition. The fastest wins the race. In terms of crypto mining, this translates to “the fastest miner wins the reward”. Here’s what I mean.

What is crypto mining: Competition.

PoW involves miners competing to solve complex mathematical puzzles. These puzzles are known as hashes. Hashes are 64-digit numbers, and in order to find the right hash, miners have to put in quite a lot of effort. But this effort isn’t physical or mental. It’s pure computational power that requires a lot of electricity.

In addition to mining, this computational effort is used to ensure the security of the network, constantly monitor the integrity of transactions, and make it near impossible for malicious actors to manipulate the blockchain's transaction history.

So, that’s the definition of Proof-of-Work, the consensus mechanism. But, as you’ll soon see, understanding PoW is almost the same as understanding crypto mining as such. However, enough talking about consensus mechanisms, let’s get back to the concept of mining.

In itself, the mining process has nothing to do with pickaxes, or even mining, in general. It’s something way less exciting, since it’s literally just machines solving complex mathematical puzzles 24/7.

And these puzzles can get really, really difficult. Therefore, efficient and profitable crypto mining is almost impossible without having access to the latest, state-of-art pieces of equipment. And it can get pretty expensive!

What is crypto mining: Mining hardware.

But there’s logic to it. Investing in a crypto mining rig should lead to getting these puzzles solved, which would then lead to the miners receiving an award for their efforts and investments. And this award comes in the shape of the cryptocurrency that’s native to the blockchain that miners are working on.

Once again, the most important minable cryptocurrency is Bitcoin, therefore, whenever miners solve these complex problems on the Bitcoin network - they receive some Bitcoin as a reward. Or, in other words - they successfully mine Bitcoin.

When cryptocurrencies were just kicking off, no expensive gadgets were necessary in order to participate in crypto mining. But today, special crypto mining software, combined with such hardware units as ASICs (Application-Specific Integrated Circuits), or GPUs (Graphics Processing Units), are no longer enough! Crypto miners set up entire warehouses full of high-tech crypto mining rigs just so they could participate in the crypto mining race.

Therefore, Bitcoin mining has become a less accessible activity for most people, since setting up a crypto mining rig and installing the necessary crypto mining software would lead to heavy costs, and a constantly high electricity bill.

What is crypto mining: Bitcoin mining.

Yet, it still remains on the menu for those who want to experience this process fully. There are many other cryptocurrencies that are still very much available for mining, even without having access to expensive crypto mining rigs. In many cases, owning a laptop, a PC, or investing into an ASIC can be enough to begin your mining journey.

Therefore, when we talk about crypto mining profitability, it depends on the cryptocurrency. Nevertheless, before jumping into it, be sure to look up a specialized crypto mining calculator that would allow you to evaluate whether such an investment would be a smart move!

Recently, when Bitcoin went through a decrease in its value, there have been many stories about crypto miners facing problems, debts and downfalls, and even bankruptcies. This industry can get really rough!

Okay, so that’s what crypto mining looks like in theory. Let’s get practical. Let’s consider the importance of crypto mining when it comes to something as big and important as Bitcoin.

Crypto Mining & Bitcoin

As mentioned earlier, crypto mining, or, in this case, Bitcoin mining, is the process of validating Bitcoin transactions and adding them to the Bitcoin blockchain, or, as it’s often referred to, the public ledger that holds all transactions that have taken place on the network.

In the process of doing so, Bitcoin mining allows new Bitcoin to be created, and ensures the security of the entire network. It’s like the cement that holds the blockchain’s bricks, or blocks, together, and allows the further construction of this colossal Web3 skyscraper.

Here’s how it works. Imagine someone makes a transaction on the Bitcoin network. Now, the information about this particular transaction has to be recorded on the blockchain - the public ledger. That’s necessary in order to make sure that any attempts at tampering with the transaction history, and any instances of fraud, would be blocked.

What is crypto mining: New Bitcoin.

In order for this transaction to be inscribed into the blockchain, it has to be written into a block that would then be added to the network. When an old block is filled, a new block has to be created, thus continuously forming the chain of blocks - the blockchain.

And this is where the miners come in. Adding the newly-created block into the blockchain requires miners to find the already mentioned “hash.” You can view these hashes as a sort of a unique identifier, a block’s ID card that makes it possible for every validator to recognize and verify these blocks and their order within the blockchain.

Whenever a new block is about to be added to the blockchain, a new hash has to be found, which would correspond with the previous block’s hash. This process establishes a chronological order of transactions and creates a secure transaction history.

What is crypto mining: The blockchain.

Therefore, in order to calculate it correctly and on time, miners must rely on the previously-described specialized crypto-mining software and hardware. Bitcoin users want to see their transactions verified ASAP; thus, fast and efficient machinery is required to reduce the hash-finding time.

Now, this means that transaction validation is directly dependent on miners. But, as you can see, the blockchain and the creation of new blocks also depend on them! Therefore, it only makes sense that the hard work of miners gets rewarded. And these rewards are known as “Block Rewards.”

Whenever a miner successfully adds a new block to the blockchain, they are rewarded with newly minted Bitcoin. Since that’s a lot of money, it allows miners to invest into their crypto mining rig and software, while still remaining profitable.

Problems & Criticism

As you can see, crypto mining can get really intense. And when you have so much machinery that’s running all year long… you end up with rather high electricity bills, and some giant environmental problems. That’s where the main source of criticism towards crypto mining comes from.

Critics argue that the energy consumption that comes from mining Bitcoin contributes to carbon emissions, accelerates climate change, and intensifies the usage of fossil fuels and fossil fuel-based energy sources, which, of course, emits greenhouse gases.

Then, as you may have already realized, the industry heavily relies on constant upgrades of the hardware that’s used for mining. This means that all the machinery that becomes obsolete simply turns into e-waste, thus further contributing to the environmental problems that arise from Bitcoin mining.

What is crypto mining: Criticism.

So, it’s not rocket science to reach a conclusion that crypto mining may not be a truly sustainable solution in the long run.

Of course, as the industry evolves, new ways of mining, new consensus mechanisms, and new ways of validating transactions and securing the blockchain are being created, as well. Yet, Bitcoin prevails as the number one crypto in the world, and crypto mining is almost always synonymous with “Bitcoin mining.” Besides, Bitcoin is not going anywhere anytime soon.

Therefore, it’s important to be well-versed when it comes to understanding crypto mining, because this question is sure to be the center of many heated debates in the near future.

Wrapping Up

Having said this, we reached the end of the section! By now, I hope, you’ve got a better understanding of what is crypto mining and how does crypto mining work. Also, keep in mind that, instead of a pickaxe, you’d need proper crypto mining software and to set up a crypto mining rig to be able to participate in this activity!

Even though this industry can be profitable, and it allows many blockchains to actually function in a decentralized way, it nevertheless faces many questions, dilemmas, and problems. Therefore, whenever crypto mining is being considered, the educated thing to do is to be aware of both sides and seek the best solution for everyone.

previous section<\/strong><\/a>, I explained what crypto mining is, as such. Now, having discussed that, we can move on and venture into more complex topics, such as what is a mining pool, how to setup a mining pool, or simply, how to join a mining pool that’s already out there.<\/p>\n<p>Mining pools are subject to fierce debates. On the one hand, they’re a natural result of the <strong>constantly intensifying competition in the crypto mining industry<\/strong>, on the other hand, certain crypto mining pools have become so huge, that some consider them <strong>a threat to<\/strong> <strong><a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//crypto-terms//what-is-decentralization/">decentralization, that’s supposed to be almost synonymous with DeFi.<\/p>\n<p>In this section, we’re going to take a deeper look into the theory and practice of crypto mining pools, as well as answer the questions of what is a mining pool, how to setup a mining pool, and why they are so important.<\/p>\n<p><em>Let’s dive into it!<\/em><\/p>\n<h2>Different Types of Mining<\/h2>\n<p>So, just like with many things in life, crypto mining is something that can be done in different ways. It’s like going out for lunch. You can go alone, or you can go together with your co-workers. You’ll see what I mean in a minute.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is a mining pool: Miners.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-a-mining-pool-01.jpg/" alt=\"What is a mining pool: Miners.\" width=\"1000\" height=\"580\" \/><\/p>\n<p>But before we get into specifics, let’s speedrun the definition of what is crypto mining.<\/p>\n<p>So, cryptocurrency mining is an inseparable process of many important blockchains, such as the <a href=https://www.bitdegree.org/"//crypto//buy-bitcoin-btc/">Bitcoin network, as it ensures the network's efficiency and security. <strong>It consists of<\/strong> <strong>validating and verifying transactions that take place on the blockchain, and adding them to the blockchain's public ledger<\/strong>.<\/p>\n<p>Crypto miners use specialized hardware and software to solve complex mathematical problems, known as <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//crypto-terms//what-is-hash/">hashes, that secure the network. They receive rewards for doing so.<\/p>\n<p>And, as I’ve already mentioned, crypto miners can venture into this adventure alone, or they can join a crypto miner collective, which is also known as a crypto mining pool. Let’s define the difference between these two approaches.<\/p>\n<h2>Individual Mining (Solo Mining)<\/h2>\n<p>So, first of all, let’s talk about <strong>individual mining<\/strong>, which is also known as “<em>solo mining<\/em>.” Let’s rely on a very simple real-life example.<\/p>\n<p>Imagine going on a beach with a metal detector. You may go on exploring, and eventually stumble upon a lost watch, some coins, or similar stuff. But, as it has happened before to some lucky people, you may find a long-lost buried Roman treasure, waiting for some random metal detector hobbyist to unearth it.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is a mining pool: Solo mining.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-a-mining-pool-03.jpg/" alt=\"What is a mining pool: Solo mining.\" width=\"1000\" height=\"596\" \/><\/p>\n<p>Here’s the catch. <strong>You found it on your own<\/strong>. It’s yours. You invested into the necessary gear, you found the time, and you went for it. That’s an investment. And, as a result, whatever you may find, will be yours. <em>Founders keepers<\/em>, after all<em>.<\/em><\/p>\n<p>The same applies to individual mining. It involves <strong>a single miner investing and using their own resources in this activity, and, therefore, reaping the fruit of their labor for themselves<\/strong>. These resources are your own money, the required mining hardware and software, computing power, electricity, and time.<\/p>\n<p>Individual miners run their mining equipment independently and, as a result, receive the full rewards. Of course, this happens only in cases when they’re the ones to successfully mine a new block, and receive the block reward.<\/p>\n<p>But, as the industry grew, <strong>mining became a rather competitive concept<\/strong>. This resulted in individual mining becoming  expensive, risky, and not-that-profitable anymore, as it used to be.<\/p>\n<p>Of course, this is only true when talking about mining such coins as <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//what-is-a-bitcoin/">Bitcoin. There are other coins that rely on mining, and mining them remains less risky and more profitable, even to this day.<\/p>\n<p>But, receiving the block reward for mining a new coin is way more valuable and profitable, when the block reward is literally newly-mined Bitcoin. Therefore, many miners chose collaboration, instead of confrontation.<\/p>\n<p>As the saying goes: “<em>If you want to go fast - go alone. But if you want to go far - go together<\/em>.”<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is a mining pool: If you want go fast - go alone; If you want to go far - go together.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-a-mining-pool-04.jpg/" alt=\"What is a mining pool: If you want go fast - go alone; If you want to go far - go together.\" width=\"1000\" height=\"581\" \/><\/p>\n<p>Therefore, many individual crypto miners decided to <strong>combine their powers<\/strong>, which significantly increased their chances of successfully finding the hash, mining a new block, and receiving the reward. They form, or join, a mining pool.<\/p>\n<p>The downside of this is simple. <strong>The reward will have to be shared<\/strong> among those who together constitute the mining pool. But the logic here is obvious - even though the rewards will have to be shared, the chances of receiving them are higher. Therefore, you may receive less, but this should happen more often.<\/p>\n<h2>Mining Pools<\/h2>\n<p>So, <strong>mining pools<\/strong> are the opposite of solo mining. It’s literally just <strong>collective mining<\/strong>.<\/p>\n<p>Let’s get back to the previously mentioned metal detector analogy. Imagine going out to search for hidden treasures on some random beach. But this time, you’re going with a friend.<\/p>\n<p>However, there’s a minor, yet important detail. Your friend lends you one of his metal detectors, since you don’t have one of your own. So, you go out, the stars align in your favor, and you find a lost, yet still running, Rolex watch that’s worth at least $20K.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is a mining pool: Crypto mining pool.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-a-mining-pool-02.jpg/" alt=\"What is a mining pool: Crypto mining pool.\" width=\"1000\" height=\"541\" \/><\/p>\n<p>Even though you may be the one who found it, it’s a result of collective activity. And you’re most definitely sharing the profit that comes from selling the Rolex. If it wasn’t for your friend who gave you the necessary equipment, you probably wouldn’t have found the watch.<\/p>\n<p>So, in its dry technical definition, <strong>collective mining involves multiple miners combining their computational power and other resources<\/strong> to significantly increase their chances of successfully mining new blocks, and receiving rewards.<\/p>\n<p>The rewards are distributed among the participants<strong> based on their contributions<\/strong>, since different crypto mining pool participants contribute unequal amounts of resources.<\/p>\n<h2>Reward Distribution Methods in Mining Pools<\/h2>\n<p>But, as it’s always the case with anything crypto-related, things always get more complex. Distributing miners’ rewards is no easy task. Therefore, it’s important to take a look at the architectural principles that are integrated into different kinds of mining pools.<\/p>\n<p>In order for a mining pool to run smoothly, and for the distributional mechanism to make no mistakes, <strong>mining pools must rely on certain organizational principles<\/strong>. Therefore the question of “<em>how to set up a mining pool<\/em>” is technical and complex and, thus, requires a deep understanding of this technology.<\/p>\n<p>Apart from the technological aspect, the organizational one is also of paramount importance. <strong>Mining pools rely on coordinators<\/strong> who oversee the sophisticated block reward distribution processes.<\/p>\n<p>Most mining pools apply one of the following reward distribution methods. The first one is called “<strong>PPS<\/strong>”, which stands for “<strong>Pay-Per-Share<\/strong>,” while the other one is <strong>Pay-Per-Last-N-Shares<\/strong>, or “<strong>PPLNS<\/strong>,” in short.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is a mining pool: PPS and PPLNS.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-a-mining-pool-07.jpg/" alt=\"What is a mining pool: PPS and PPLNS.\" width=\"1000\" height=\"603\" \/><\/p>\n<p>The PPS method is a reward distribution model where miners <strong>receive a fixed payout for each share they contribute to the mining pool<\/strong>, regardless of whether the share ultimately leads to finding the right hash, which would lead to block creation.<\/p>\n<p>This “<em>share<\/em>” refers to the individual miner’s contribution to the mining effort. In this case, you can view this method as rewarding the employee with a regular salary. The obvious pro of this method is the stability of the income that miners receive.<\/p>\n<p>Often, you’d see that many prominent pools use a “<strong>PPS+<\/strong>” reward distribution method. It means that the whole distribution principle is the same, but it’s just a little bit enhanced. Such reward systems <strong>incorporate transaction fees into the reward calculation<\/strong>. These fees come from blocks that miners contribute to.<\/p>\n<p>The Pay-Per-Last-N-Shares method, on the other hand, takes a different approach. In PPLNS mining pools, miners get rewarded every time the mining pool succeeds at creating a new block. In such cases, <strong>they get rewarded according to the number of shares that miners contributed to this success<\/strong>. <em>The “N” in “PPLNS” here stands for this number.<\/em><\/p>\n<p>So, essentially, in PPLNS, miners who contribute more, get more rewards.<\/p>\n<h2>How to Join a Mining Pool<\/h2>\n<p>By now, we have laid out the theoretical background behind what is a mining pool. Let’s take a look at some <strong>real-life examples<\/strong>, and how to join a mining pool.<\/p>\n<p>Among some of the world’s biggest mining pools are such names as <strong>Foundry USA, AntPool, F2Pool, and <a href=https://www.bitdegree.org/"//crypto//goon//binance/" target=\"_blank\" rel=\"nofollow noindex noopener\">Binance<\/a> Pool<\/strong>. These giant pools control a lot of the computational power, and, as a result, they have a lot of influence over the network. For example, <strong>Slush Pool<\/strong> has over 200,000 registered users, and mines several different cryptocurrencies.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is a mining pool: Foundry USA, AntPool, F2Pool, and Binance Pool.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-a-mining-pool-08.jpg/" alt=\"What is a mining pool: Foundry USA, AntPool, F2Pool, and Binance Pool.\" width=\"1000\" height=\"562\" \/><\/p>\n<p>And, if you take a look at <strong>AntPool<\/strong>, you can see that this mining pool offers both reward distribution methods to their users, be it PPS+, or PPLNS. It depends on a person's preferences and financial situation. So, the options are not strictly limited.<\/p>\n<p>Now, the answer to the question of “<em>how to join a mining pool<\/em>” is rather intuitive. After setting up a crypto mining rig, a person has to check whether their hardware is compatible with the mining algorithm used by a particular mining pool. Then, <strong>everything goes the usual way<\/strong>.<\/p>\n<p>To put it simply, it consists of creating an account, connecting to the pool, setting up a <a href=https://www.bitdegree.org/"//crypto//best-cryptocurrency-wallet/">crypto wallet<\/strong><\/a>, monitoring the process, setting up a payout method, and, ultimately, withdrawing your earnings. <em>Of course, this is an oversimplification of the entire process.<\/em><\/p>\n<h2>Mining Pool vs. Mining Farm<\/h2>\n<p>Finally, there is one more aspect of this topic that requires addressing. It’s the difference between the two seemingly-similar, yet different concepts. I’m talking about “<strong>mining pools<\/strong>” and “<strong>mining farms<\/strong>.” They refer to two different things; therefore, it’s important not to confuse them.<\/p>\n<p>By now, “what is a mining pool” is something that I’ve already answered. But, to put it in the shortest possible way, it’s combined computational power in an effort to increase the chances of earning block rewards.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is a mining pool: Mining farm.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-a-mining-pool-09.jpg/" alt=\"What is a mining pool: Mining farm.\" width=\"1000\" height=\"574\" \/><\/p>\n<p>Now, a mining farm refers not to the fact of a collective mining effort, but to the <strong>physical location of where a large number of mining rigs are located<\/strong>. It can be huge, yet set up by a solo miner.<\/p>\n<p>Similarly, <strong>a<\/strong> <strong>single crypto mining pool can consist of many crypto farms<\/strong> that would all be collectively trying to fetch that block reward.<\/p>\n<h2>Wrapping Up<\/h2>\n<p>Alright, we’ve reached the end of the section! Crypto mining pools are a deep subject, and, hopefully, I’ve answered many questions that may have bothered you. To learn more about the crypto world as a whole, make sure to check out other chapters in this <strong>Crypto 101 Handbook<\/strong>.<\/p>","definition":"Did you know that a mining pool and a mining farm are two different concepts?","status":"published","meta_title":"What is a Mining Pool and How to Join One?","meta_description":"Want to become a part of the crypto mining community? Here, you'll find out what is a mining pool, how does it work, and how to join one!","meta_keywords":"what is a mining pool, how does mining pool work, how to setup a mining pool, how to join a mining pool","modified_content":"<p>In this section, we’re going to talk about <strong>what is a mining pool in crypto, how important are they, and how does a mining pool work<\/strong>, to begin with.<\/p>\n<p>Mining pools are like another chapter in the book of crypto mining. In the <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//what-is-crypto-mining/">previous section<\/strong><\/a>, I explained what crypto mining is, as such. Now, having discussed that, we can move on and venture into more complex topics, such as what is a mining pool, how to setup a mining pool, or simply, how to join a mining pool that’s already out there.<\/p>\n<p>Mining pools are subject to fierce debates. On the one hand, they’re a natural result of the <strong>constantly intensifying competition in the crypto mining industry<\/strong>, on the other hand, certain crypto mining pools have become so huge, that some consider them <strong>a threat to<\/strong> <strong><a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//crypto-terms//what-is-decentralization/">decentralization, that’s supposed to be almost synonymous with DeFi.<\/p>\n<p>In this section, we’re going to take a deeper look into the theory and practice of crypto mining pools, as well as answer the questions of what is a mining pool, how to setup a mining pool, and why they are so important.<\/p>\n<p><em>Let’s dive into it!<\/em><\/p>\n<div class=\"container\">\n <div class=\"row justify-content-center\">\n <div class=\"col-md-10 suggested-comparisons pb-3 mb-4\">\n <div class=\"d-flex flex-row\">\n <div class=\"text-center\">\n <div class=\"img-block-yt\">\n <img src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//assets//images//compare-crypto-exchanges.gif/"/n alt=\"What is a Crypto Mining Pool? Is it Worth it? (Beginner-Friendly)\"\n title=\"What is a Crypto Mining Pool? Is it Worth it? (Beginner-Friendly)\" class=\"border-0\">\n <p>Video Explainer<\/p>\n <\/div>\n <\/div>\n <div class=\"col-xs-10 col-sm-10 col-md-10 text-left py-3 yt-info\">\n <h4 class=\"mb-1\">Video Explainer: Mining Pools: Is Collective Mining Better Than Solo Mining?<\/h4>\n <p class=\"py-1 mb-0 youtube-video-subtitle\">Reading is not your thing? Watch the \"Mining Pools: Is Collective Mining Better Than Solo Mining?\" video explainer<\/p>\n <\/div>\n <\/div>\n <div class=\"row justify-content-center text-center\">\n <div class=\"col-12 col-md-11 px-3\">\n <div class=\"wrapper mb-0\">\n <div class=\"position-relative youtube mb-4 bg-transparent p-0 video-modal-popup\" data-toggle=\"modal\"\n data-target=\"#video-modal\" data-id=\"KVNkSCqWxJQ\" data-title=\"CryptoFinallyExplained\">\n <div class=\"video-gradient-top\"><\/div>\n <p class=\"text-left dyk-video-title\">What is a Crypto Mining Pool? Is it Worth it? (Beginner-Friendly)<\/p>\n <img data-srcset=\"https:\/\/assets.bitdegree.org\/youtube\/crypto-finally-explained\/what-is-a-crypto-mining-pool-is-it-worth-it-beginner-friendly.jpg?tr=w-420 500w,\n https:\/\/assets.bitdegree.org\/youtube\/crypto-finally-explained\/what-is-a-crypto-mining-pool-is-it-worth-it-beginner-friendly.jpg?tr=w-760 1000w\"\n alt=\"What is a Crypto Mining Pool? Is it Worth it? (Beginner-Friendly)\"\n title=\"What is a Crypto Mining Pool? Is it Worth it? (Beginner-Friendly)\"\n class=\"p-0 lazyload\">\n <img class=\"play-button lazyload\" data-target=\"#video-modal\"\n data-src=\"https:\/\/assets.bitdegree.org\/crypto\/assets\/video-button.png?tr=w-85\"\n alt=\"What is a Crypto Mining Pool? Is it Worth it? (Beginner-Friendly)\">\n <\/div>\n <\/div>\n <\/div>\n <\/div>\n <div class=\"row justify-content-center text-center\">\n <div>\n <a href=https://www.bitdegree.org/"https:////www.youtube.com//c//CryptoFinallyExplained?sub_confirmation=1\%22\n class=\"btn yt-promo mb-2\" target=\"_blank\" rel=\"nofollow noopener noindex\">\n <div class=\"row justify-content-center align-items-center mx-0 text-center\">\n <div class=\"col-4 col-md-4\">\n <i class=\"fab fa-youtube yt-dyk-btn\"><\/i>\n <\/div>\n <div class=\"col-8 col-md-8 text-center yt-promo-text\">\n <h4 class=\"m-0 text-white\">SUBSCRIBE<\/h4>\n <span>ON YOUTUBE<\/span>\n <\/div>\n <\/div>\n <\/a>\n <\/div>\n <\/div>\n <\/div>\n <\/div>\n<\/div>\n<div class=\"modal fade\" id=\"video-modal\" tabindex=\"-1\" role=\"dialog\">\n <div class=\"modal-dialog modal-dialog-centered modal-lg\" role=\"document\">\n <div class=\"modal-content\">\n <div class=\"modal-body p-0\">\n <button type=\"button\" class=\"video-modal-close close\" data-dismiss=\"modal\" aria-label=\"Close\">\n <i aria-hidden=\"true\" class=\"fas fa-times\"><\/i>\n <\/button>\n <div id=\"iframe\"><\/div>\n <\/div>\n <a class=\"text-decoration-none\"\n href=https://www.bitdegree.org/"https:////www.youtube.com//c//CryptoFinallyExplained?sub_confirmation=1\%22\n rel=\"nofollow noopener noindex\" target=\"_blank\">\n <div class=\"modal-footer p-0 d-block bg-white\">\n <div class=\"row justify-content-center m-0\">\n <div class=\"col-3 col-md-4 col-lg-2 p-0\">\n <img class=\"w-100 h-100\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//assets//crypto-subscribe.jpg/" alt=\"Subscribe\">\n <\/div>\n <div class=\"col-9 col-md-8 col-lg-2 px-0 d-flex\">\n <div class=\"modal-subscribe w-100\">\n <p class=\"m-0 mt-1 mr-3\">SUBSCRIBE<br>\n <span class=\"m-0\">ON YOUTUBE<\/span>\n <\/p>\n <\/div>\n <\/div>\n <div class=\"col-12 col-md-12 col-lg-8 p-0 text-center d-flex justify-content-center align-items-center\">\n <div class=\"modal-subscribe-text\">\n <h4 class=\"m-0\">Understand crypto with ease<\/h4>\n <span>New explainer videos every week!<\/span>\n <\/div>\n <\/div>\n <\/div>\n <\/div>\n <\/a>\n <\/div>\n <\/div>\n<\/div>\n<h2>Different Types of Mining<\/h2>\n<p>So, just like with many things in life, crypto mining is something that can be done in different ways. It’s like going out for lunch. You can go alone, or you can go together with your co-workers. You’ll see what I mean in a minute.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is a mining pool: Miners.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-a-mining-pool-01.jpg/" alt=\"What is a mining pool: Miners.\" width=\"1000\" height=\"580\" \/><\/p>\n<p>But before we get into specifics, let’s speedrun the definition of what is crypto mining.<\/p>\n<p>So, cryptocurrency mining is an inseparable process of many important blockchains, such as the <a href=https://www.bitdegree.org/"//crypto//buy-bitcoin-btc/">Bitcoin network, as it ensures the network's efficiency and security. <strong>It consists of<\/strong> <strong>validating and verifying transactions that take place on the blockchain, and adding them to the blockchain's public ledger<\/strong>.<\/p>\n<p>Crypto miners use specialized hardware and software to solve complex mathematical problems, known as <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//crypto-terms//what-is-hash/">hashes, that secure the network. They receive rewards for doing so.<\/p>\n<p>And, as I’ve already mentioned, crypto miners can venture into this adventure alone, or they can join a crypto miner collective, which is also known as a crypto mining pool. Let’s define the difference between these two approaches.<\/p>\n<h2>Individual Mining (Solo Mining)<\/h2>\n<p>So, first of all, let’s talk about <strong>individual mining<\/strong>, which is also known as “<em>solo mining<\/em>.” Let’s rely on a very simple real-life example.<\/p>\n<p>Imagine going on a beach with a metal detector. You may go on exploring, and eventually stumble upon a lost watch, some coins, or similar stuff. But, as it has happened before to some lucky people, you may find a long-lost buried Roman treasure, waiting for some random metal detector hobbyist to unearth it.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is a mining pool: Solo mining.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-a-mining-pool-03.jpg/" alt=\"What is a mining pool: Solo mining.\" width=\"1000\" height=\"596\" \/><\/p>\n<p>Here’s the catch. <strong>You found it on your own<\/strong>. It’s yours. You invested into the necessary gear, you found the time, and you went for it. That’s an investment. And, as a result, whatever you may find, will be yours. <em>Founders keepers<\/em>, after all<em>.<\/em><\/p>\n<p>The same applies to individual mining. It involves <strong>a single miner investing and using their own resources in this activity, and, therefore, reaping the fruit of their labor for themselves<\/strong>. These resources are your own money, the required mining hardware and software, computing power, electricity, and time.<\/p>\n<p>Individual miners run their mining equipment independently and, as a result, receive the full rewards. Of course, this happens only in cases when they’re the ones to successfully mine a new block, and receive the block reward.<\/p>\n<p>But, as the industry grew, <strong>mining became a rather competitive concept<\/strong>. This resulted in individual mining becoming  expensive, risky, and not-that-profitable anymore, as it used to be.<\/p>\n<p>Of course, this is only true when talking about mining such coins as <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//what-is-a-bitcoin/">Bitcoin. There are other coins that rely on mining, and mining them remains less risky and more profitable, even to this day.<\/p>\n<p>But, receiving the block reward for mining a new coin is way more valuable and profitable, when the block reward is literally newly-mined Bitcoin. Therefore, many miners chose collaboration, instead of confrontation.<\/p>\n<p>As the saying goes: “<em>If you want to go fast - go alone. But if you want to go far - go together<\/em>.”<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is a mining pool: If you want go fast - go alone; If you want to go far - go together.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-a-mining-pool-04.jpg/" alt=\"What is a mining pool: If you want go fast - go alone; If you want to go far - go together.\" width=\"1000\" height=\"581\" \/><\/p>\n<p>Therefore, many individual crypto miners decided to <strong>combine their powers<\/strong>, which significantly increased their chances of successfully finding the hash, mining a new block, and receiving the reward. They form, or join, a mining pool.<\/p>\n<p>The downside of this is simple. <strong>The reward will have to be shared<\/strong> among those who together constitute the mining pool. But the logic here is obvious - even though the rewards will have to be shared, the chances of receiving them are higher. Therefore, you may receive less, but this should happen more often.<\/p>\n<h2>Mining Pools<\/h2>\n<p>So, <strong>mining pools<\/strong> are the opposite of solo mining. It’s literally just <strong>collective mining<\/strong>.<\/p>\n<p>Let’s get back to the previously mentioned metal detector analogy. Imagine going out to search for hidden treasures on some random beach. But this time, you’re going with a friend.<\/p>\n<p>However, there’s a minor, yet important detail. Your friend lends you one of his metal detectors, since you don’t have one of your own. So, you go out, the stars align in your favor, and you find a lost, yet still running, Rolex watch that’s worth at least $20K.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is a mining pool: Crypto mining pool.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-a-mining-pool-02.jpg/" alt=\"What is a mining pool: Crypto mining pool.\" width=\"1000\" height=\"541\" \/><\/p>\n<p>Even though you may be the one who found it, it’s a result of collective activity. And you’re most definitely sharing the profit that comes from selling the Rolex. If it wasn’t for your friend who gave you the necessary equipment, you probably wouldn’t have found the watch.<\/p>\n<p>So, in its dry technical definition, <strong>collective mining involves multiple miners combining their computational power and other resources<\/strong> to significantly increase their chances of successfully mining new blocks, and receiving rewards.<\/p>\n<p>The rewards are distributed among the participants<strong> based on their contributions<\/strong>, since different crypto mining pool participants contribute unequal amounts of resources.<\/p>\n<h2>Reward Distribution Methods in Mining Pools<\/h2>\n<p>But, as it’s always the case with anything crypto-related, things always get more complex. Distributing miners’ rewards is no easy task. Therefore, it’s important to take a look at the architectural principles that are integrated into different kinds of mining pools.<\/p>\n<p>In order for a mining pool to run smoothly, and for the distributional mechanism to make no mistakes, <strong>mining pools must rely on certain organizational principles<\/strong>. Therefore the question of “<em>how to set up a mining pool<\/em>” is technical and complex and, thus, requires a deep understanding of this technology.<\/p>\n<p>Apart from the technological aspect, the organizational one is also of paramount importance. <strong>Mining pools rely on coordinators<\/strong> who oversee the sophisticated block reward distribution processes.<\/p>\n<p>Most mining pools apply one of the following reward distribution methods. The first one is called “<strong>PPS<\/strong>”, which stands for “<strong>Pay-Per-Share<\/strong>,” while the other one is <strong>Pay-Per-Last-N-Shares<\/strong>, or “<strong>PPLNS<\/strong>,” in short.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is a mining pool: PPS and PPLNS.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-a-mining-pool-07.jpg/" alt=\"What is a mining pool: PPS and PPLNS.\" width=\"1000\" height=\"603\" \/><\/p>\n<p>The PPS method is a reward distribution model where miners <strong>receive a fixed payout for each share they contribute to the mining pool<\/strong>, regardless of whether the share ultimately leads to finding the right hash, which would lead to block creation.<\/p>\n<p>This “<em>share<\/em>” refers to the individual miner’s contribution to the mining effort. In this case, you can view this method as rewarding the employee with a regular salary. The obvious pro of this method is the stability of the income that miners receive.<\/p>\n<p>Often, you’d see that many prominent pools use a “<strong>PPS+<\/strong>” reward distribution method. It means that the whole distribution principle is the same, but it’s just a little bit enhanced. Such reward systems <strong>incorporate transaction fees into the reward calculation<\/strong>. These fees come from blocks that miners contribute to.<\/p>\n<p>The Pay-Per-Last-N-Shares method, on the other hand, takes a different approach. In PPLNS mining pools, miners get rewarded every time the mining pool succeeds at creating a new block. In such cases, <strong>they get rewarded according to the number of shares that miners contributed to this success<\/strong>. <em>The “N” in “PPLNS” here stands for this number.<\/em><\/p>\n<p>So, essentially, in PPLNS, miners who contribute more, get more rewards.<\/p>\n<h2>How to Join a Mining Pool<\/h2>\n<p>By now, we have laid out the theoretical background behind what is a mining pool. Let’s take a look at some <strong>real-life examples<\/strong>, and how to join a mining pool.<\/p>\n<p>Among some of the world’s biggest mining pools are such names as <strong>Foundry USA, AntPool, F2Pool, and <a href=https://www.bitdegree.org/"//crypto//goon//binance/" target=\"_blank\" rel=\"nofollow noindex noopener\">Binance<\/a> Pool<\/strong>. These giant pools control a lot of the computational power, and, as a result, they have a lot of influence over the network. For example, <strong>Slush Pool<\/strong> has over 200,000 registered users, and mines several different cryptocurrencies.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is a mining pool: Foundry USA, AntPool, F2Pool, and Binance Pool.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-a-mining-pool-08.jpg/" alt=\"What is a mining pool: Foundry USA, AntPool, F2Pool, and Binance Pool.\" width=\"1000\" height=\"562\" \/><\/p>\n<p>And, if you take a look at <strong>AntPool<\/strong>, you can see that this mining pool offers both reward distribution methods to their users, be it PPS+, or PPLNS. It depends on a person's preferences and financial situation. So, the options are not strictly limited.<\/p>\n<p>Now, the answer to the question of “<em>how to join a mining pool<\/em>” is rather intuitive. After setting up a crypto mining rig, a person has to check whether their hardware is compatible with the mining algorithm used by a particular mining pool. Then, <strong>everything goes the usual way<\/strong>.<\/p>\n<p>To put it simply, it consists of creating an account, connecting to the pool, setting up a <a href=https://www.bitdegree.org/"//crypto//best-cryptocurrency-wallet/">crypto wallet<\/strong><\/a>, monitoring the process, setting up a payout method, and, ultimately, withdrawing your earnings. <em>Of course, this is an oversimplification of the entire process.<\/em><\/p>\n<h2>Mining Pool vs. Mining Farm<\/h2>\n<p>Finally, there is one more aspect of this topic that requires addressing. It’s the difference between the two seemingly-similar, yet different concepts. I’m talking about “<strong>mining pools<\/strong>” and “<strong>mining farms<\/strong>.” They refer to two different things; therefore, it’s important not to confuse them.<\/p>\n<p>By now, “what is a mining pool” is something that I’ve already answered. But, to put it in the shortest possible way, it’s combined computational power in an effort to increase the chances of earning block rewards.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is a mining pool: Mining farm.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-a-mining-pool-09.jpg/" alt=\"What is a mining pool: Mining farm.\" width=\"1000\" height=\"574\" \/><\/p>\n<p>Now, a mining farm refers not to the fact of a collective mining effort, but to the <strong>physical location of where a large number of mining rigs are located<\/strong>. It can be huge, yet set up by a solo miner.<\/p>\n<p>Similarly, <strong>a<\/strong> <strong>single crypto mining pool can consist of many crypto farms<\/strong> that would all be collectively trying to fetch that block reward.<\/p>\n<h2>Wrapping Up<\/h2>\n<p>Alright, we’ve reached the end of the section! Crypto mining pools are a deep subject, and, hopefully, I’ve answered many questions that may have bothered you. To learn more about the crypto world as a whole, make sure to check out other chapters in this <strong>Crypto 101 Handbook<\/strong>.<\/p>","youtube_video":{"id":87,"channel_id":1,"sort":25,"video_title":"What is a Crypto Mining Pool? Is it Worth it? (Beginner-Friendly)","description":"What is a mining pool? And how does a mining pool work?\n\nIn this video, I explain the theory behind the crypto mining pools. Not only are they not the same as \u201ccrypto mining farms,\u201d but there are even more layers and nuances when it comes to crypto mining pools. I address all of that, and provide clear examples, and comparisons so everyone can understand it clearly.\n\nEducating oneself about crypto mining pools, their setups, and differences, will allow you to immerse yourself in the crypto online space more freely, since the unfamiliar terminology will become clear to you.\n\nHave you ever considered joining a crypto mining pool? Would you like to? If you\u2019ve got any insights, questions, or comments, be sure to let me know in the comments. \n\nVideo Time Table:\n\n0:00 Introduction to What is a Mining Pool\n1:03 Different Types of Mining\n1:58 Individual Mining\n4:06 Mining Pools\n5:06 Reward Distribution Methods\n6:59 How to Join a Mining Pool\n8:14 Mining Pool vs Mining Farm\n8:56 Wrap-up: What is a Mining Pool?\n\nGet Quick Crypto Tips on Twitter - Follow:\nhttps:\/\/twitter.com\/crypto_xplained\n\n#MiningPool #CryptoMining #MiningBitcoin","video_id":"KVNkSCqWxJQ","duration":563,"view_count":229,"thumbnail_url":"https:\/\/assets.bitdegree.org\/youtube\/crypto-finally-explained\/what-is-a-crypto-mining-pool-is-it-worth-it-beginner-friendly.jpg","thumbnail_width":1280,"thumbnail_height":720,"published_at":"2023-06-23T14:48:43.000000Z","created_at":"2023-06-23T23:00:10.000000Z","updated_at":"2024-01-09T23:00:04.000000Z","channel":{"id":1,"title":"CryptoFinallyExplained","channel_id":"UCOryUY0yxC08eJtK23mNgiA","main_playlist_id":"UUOryUY0yxC08eJtK23mNgiA"}}}" :prev-section="{"id":604,"chapter_id":8,"order":46,"featured_image_id":3160,"youtube_video_id":86,"author_id":1,"created_at":"2023-06-01T08:37:41.000000Z","updated_at":"2023-12-29T10:43:51.000000Z","slug":"portfolio-diversification-definition","title":"Portfolio Diversification: The Whats, the Whys, and the Hows","content":"<p>In this section, we’re going to look into the <strong>portfolio diversification definition and why is diversification important in an investment portfolio<\/strong>!<\/p>\n<p>Portfolio diversification and its techniques are among the most important skills that every trader should aim to acquire. Crypto trading is almost synonymous with “risky”, and it’s exactly why portfolio diversification is so important. <strong>It reduces the risk<\/strong>.<\/p>\n<p>Despite its obvious importance, portfolio diversification often gets overlooked, especially by beginners. You see, acting cautiously and calculating your moves is not something that goes viral. Therefore, after having spent some time online in crypto spaces, a beginner may reach a conclusion that it’s not that important. And that would be a big mistake!<\/p>\n<p>In this section, we’re going to outline the portfolio diversification definition, take a look at 5 portfolio diversification techniques, and answer the questions of why diversification is important in an investment portfolio. After all, the primary purpose of portfolio diversification is to <strong>make safer, more thoughtful investments, and step up your trading game<\/strong>!<\/p>\n<p><em>Let’s get to it!<\/em><\/p>\n<h2>Portfolio Diversification Definition<\/h2>\n<p>Let’s kick this section off by taking a look at the portfolio diversification definition.<\/p>\n<p>At its very core, portfolio diversification is a <strong>risk management strategy<\/strong>. Those who practice this strategy spread investments across a variety of assets, and, by doing so, they reduce the overall risk that comes with investing.<\/p>\n<p>The risk is reduced by <strong>investing in different types of assets<\/strong> <strong>that are not closely related<\/strong>. If one of the investments flop, the others still have the chance to remain afloat, or, even better - generate gains that would counterbalance the losses from the previous, failed investment.<\/p>\n<p>The wisdom of the proverbial saying of \"<em>not putting all your eggs in one basket<\/em>,\" represents the idea behind portfolio diversification perfectly. But here, let’s consider a more contemporary, yet precise example.<\/p>\n<p>Imagine traveling to a foreign country. Now, would you keep all of your essential belongings, such as your passport, credit cards, and cash in one place, like your backpack? In case of it being stolen, you’re about to have a really bad time.<\/p>\n<p>Therefore, the right thing to do here would be to <strong>diversify your traveling portfolio<\/strong>, and spread your valuable belongings across a variety of different places. Such as, your wallet, a fanny pack, or even the safe back at the hotel.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"Portfolio diversification definition: What is it?\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//images//portfolio-diversification-01.jpg/" alt=\"Portfolio diversification definition: What is it?\" width=\"1000\" height=\"557\"><\/p>\n<p>Of course, crypto is a relatively new industry, and portfolio diversification in this space looks a little bit different than it does in the traditional sense. Typically, this strategy means <strong>spreading your investments across various asset types<\/strong> such as stocks, bonds, real estate, and cash.<\/p>\n<p>Now, when it comes to crypto, the same principles apply, they just take up a different form. In the crypto space, portfolio diversification is applied by not ignoring the fact that there are many different cryptocurrencies.<\/p>\n<p>Therefore, investing in various coins, such as <a href=https://www.bitdegree.org/"//crypto//buy-bitcoin-btc/">Bitcoin, <a href=https://www.bitdegree.org/"//crypto//buy-ethereum-eth/">Ethereum, and many others, mitigates the risk that comes from tying your financial well-being to one, single cryptocurrency.<\/p>\n<p>Consider a real-life example. Back in 2022, those who had invested the majority of their savings into the <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//cryptocurrency-prices//ftx-token-ftt-price/">FTX token<\/strong><\/a> went through a rather harsh life lesson. As the <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//news//sam-bankman-frieds-ftx-files-for-chapter-11-bankruptcy/">news broke out about FTX<\/strong><\/a>, the crypto exchange platform, having financial problems, <strong>the exchange’s native token took a nosedive, and never recovered<\/strong>.<\/p>\n<p>On November 8, 2022, the FTX Token was still being sold for over $22. Two days later, its price was just a little bit over $2.<\/p>\n<p>So, people who had unreasonable amounts of money invested in this one particular token, saw a tenfold reduction in their portfolio’s size. However, those who had invested in the FTX Token, but it was only a part of their diversified portfolio, didn’t face the end of their careers as crypto investors.<\/p>\n<p>This story perfectly encapsulates that the primary purpose of portfolio diversification is to mitigate risks that, unfortunately, are all over the place when it comes to crypto.<\/p>\n<p>So, having said that, I could safely state that the <strong>portfolio diversification definition includes neutralizing the threats<\/strong> that come from the fact that the cryptocurrency market is so volatile and unpredictable.<\/p>\n<p>Of course, portfolio diversification is not a solution to all the crypto world’s problems. Sometimes, even the most sophisticated diversification solutions couldn’t help the investors avoid losses.<\/p>\n<p>Sometimes, the entire industry will just take a hit, and every coin will turn red. But, even in cases like this, a <strong>diversified portfolio provides more stability and less risk<\/strong> than going all in on a single cryptocurrency.<\/p>\n<p>Okay, having said that, we can move on from the theory, and get more practical. Let’s take a look at actual ways of how portfolio diversification can be done. Let’s consider <strong>5 portfolio diversification techniques<\/strong>.<\/p>\n<h2>Crypto Portfolio Diversification Techniques<\/h2>\n<p>When it comes to \"<em>not putting all your eggs in one basket<\/em>,\" there are numerous ways of doing that. The same applies to crypto portfolio diversification techniques. Despite their differences, these techniques help traders achieve a balanced allocation of their assets, and reduce the risk that’s inherent in crypto.<\/p>\n<h3>Crypto Asset Allocation<\/h3>\n<p>The first one is the most self-explanatory. It’s a technique of allocating assets by simply doing exactly that - <strong>allocating your crypto assets<\/strong>. Instead of one cryptocurrency, you choose several. You select the coins of your choice, based on their <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//crypto-terms//what-is-market-capitalization-market-cap-mcap/">market capitalization<\/strong><\/a>, price, community, the coin’s potential, and other similar, equally- important factors.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"Portfolio diversification definition: Crypto asset allocation.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//images//portfolio-diversification-02.jpg/" alt=\"Portfolio diversification definition: Crypto asset allocation.\" width=\"1000\" height=\"1090\"><\/p>\n<p>Of course, many would agree that the safest way is to invest in the industry’s most-established cryptos, such as <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//what-is-a-bitcoin/">Bitcoin or <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//what-is-ethereum/">Ethereum. Investing in both of them, instead of a single one, would be a step toward the direction of portfolio diversification.<\/p>\n<p>Yet, in addition to that, <strong>traders consider investing in other, less-established coins<\/strong>. These coins are cheaper, probably more volatile, and they have a smaller market cap.<\/p>\n<p>Yet they’ve got something else - <strong>growth potential<\/strong>. By diversifying your portfolio and allocating a portion of your funds to coins like this, you expect higher returns, and, while having part of your money invested in the industry’s giants, you’d end up balancing the risk that comes from investing in smaller coins.<\/p>\n<p>This technique is often followed by <strong>the 80\/20 rule<\/strong>. It simply means that 80% of your investments should be aimed at large-cap coins, while the remaining 20% at mid & low-cap coins. By allocating such percentages, traders minimize the risk, but continue taking chances to see those smaller coins shoot into the sky.<\/p>\n<h3>Sector Diversification<\/h3>\n<p>The second technique is known as <strong>Sector Diversification<\/strong>. As its name suggests, it involves investing your crypto in different sectors. So, instead of simply investing into coins, based on their price and market cap, you get more specific.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"Portfolio diversification definition: Sector diversification.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//images//portfolio-diversification-03.jpg/" alt=\"Portfolio diversification definition: Sector diversification.\" width=\"1000\" height=\"507\"><\/p>\n<p>For example, in addition to the large-cap coins, you invest into <strong>stablecoins, privacy coins, exchange tokens, <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//crypto-terms//what-is-non-fungible-token-nft/">NFTs, or in the DeFi sector<\/strong> <strong>as such<\/strong>, by, for example, becoming a staker.<\/p>\n<p>Such a technique allows investors to further reduce the risk that comes with crypto investing. For example, if the NFT market would suddenly freeze, and people would lose interest in acquiring new NFTs, those traders who diversified their portfolios among different sectors would avoid a crisis.<\/p>\n<h3>Geographical Diversification<\/h3>\n<p>Up next, we’ve got <strong>Geographical Diversification<\/strong>.  Once again, the name says it all. This technique is all about taking into account one more factor: <em>which region does the coin or token originate from<\/em>. Despite crypto’s global nature, <strong>each coin is issued in a different country<\/strong>, which means that the coin’s issuer is subject to their country’s national legislation.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"Portfolio diversification definition: Geographical diversification.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//images//portfolio-diversification-04.jpg/" alt=\"Portfolio diversification definition: Geographical diversification.\" width=\"1000\" height=\"605\"><\/p>\n<p>So, imagine you invest into a crypto of your choice. It looks promising, with high potential, and it seems that there’s not much to worry about. And then, out of nowhere, news broke out that the government has banned crypto in a particular country, and so it happened that this coin of your choice was issued exactly there.<\/p>\n<p>Suddenly, regulatory challenges become a strong obstacle that messes up the seemingly apolitical market dynamics. Therefore, a considerate approach, and the evaluation of the geographical aspect while choosing where to invest are what make the geographical diversification technique useful.<\/p>\n<h3>Investment Style Diversification<\/h3>\n<p>Moving on, let’s talk about the <strong>Investment Style Diversification<\/strong>. This technique is a bit more advanced, since it requires traders to understand the differences between different investment styles.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"Portfolio diversification definition: Investment style diversification.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//images//portfolio-diversification-05.jpg/" alt=\"Portfolio diversification definition: Investment style diversification.\" width=\"1000\" height=\"734\"><\/p>\n<p>For example, traders can allocate part of their investments into assets based on their current value, and the other part into assets based on their growth potential, while always actively participating in the so-called <strong>Momentum Investing<\/strong>. This means that they have to constantly be <strong>on the hunt for signals<\/strong> that could help identify which assets may go through a sudden <strong>upward price momentum<\/strong>.<\/p>\n<p>Others may simply not have time for this. Therefore, they could include <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//crypto-terms//what-is-hodl/">HODLing in their investment style mix. Simply obtaining and holding particular assets with the hopes that it will pay off in the long run, while continuously obtaining other assets based on their value, growth, and so on.<\/p>\n<h3>Asset Allocation into Stablecoins<\/h3>\n<p>Last, but not least, we’ve got the most traditional technique of portfolio diversification. This means that it involves the <strong>active allocation of your assets into coins that are connected to traditional fiat currencies<\/strong>. I’m talking about stablecoins. This technique allows traders to keep a distance from the volatility storms that are always present in the crypto market.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"Portfolio diversification definition: Stablecoins.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//images//portfolio-diversification-06.jpg/" alt=\"Portfolio diversification definition: Stablecoins.\" width=\"1000\" height=\"556\"><\/p>\n<p>A trader that invests in stablecoins does not expect them to generate a return, because, obviously, <strong>stablecoins have a fixed price<\/strong>. Yet, owning stablecoins creates an opportunity to quickly jump into the crypto market whenever a great opportunity presents itself.<\/p>\n<p>This technique allows traders to <strong>save time<\/strong>, since swapping stablecoins for other cryptocurrencies is a faster process than going through the entire procedure of buying them with fiat money.<\/p>\n<p><em>By the way, if you feel like your knowledge about stablecoins could need some upgrading, make sure to check out my channel - there's <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//what-are-stablecoins/">a section about this topic<\/strong><\/a>, specifically!<\/em><\/p>\n<h2>Wrapping Up<\/h2>\n<p>Having said that, we arrive at the end of this section. I hope that, by now, you’ve got a better understanding of the portfolio diversification definition, and <strong>why is diversification important in an investment portfolio<\/strong>, to begin with.<\/p>\n<p>As the crypto industry evolves, the ways and techniques of diversifying your assets will, eventually, change as well, but until then, these methods that I’ve presented today, are among the most popular, trusted and practiced in the industry.<\/p>","definition":"Did you know that portfolio diversification is one of the most prominent risk management strategies?","status":"published","meta_title":"Portfolio Diversification Definition: Why is It Important?","meta_description":"Here, you'll find out the portfolio diversification definition, why is diversification important in an investment portfolio, and much more!","meta_keywords":"portfolio diversification definition, 5 portfolio diversification definition, why is diversification important in an investment portfolio, the primary purpose of portfolio diversification is to","modified_content":"<p>In this section, we’re going to look into the <strong>portfolio diversification definition and why is diversification important in an investment portfolio<\/strong>!<\/p>\n<p>Portfolio diversification and its techniques are among the most important skills that every trader should aim to acquire. Crypto trading is almost synonymous with “risky”, and it’s exactly why portfolio diversification is so important. <strong>It reduces the risk<\/strong>.<\/p>\n<p>Despite its obvious importance, portfolio diversification often gets overlooked, especially by beginners. You see, acting cautiously and calculating your moves is not something that goes viral. Therefore, after having spent some time online in crypto spaces, a beginner may reach a conclusion that it’s not that important. And that would be a big mistake!<\/p>\n<p>In this section, we’re going to outline the portfolio diversification definition, take a look at 5 portfolio diversification techniques, and answer the questions of why diversification is important in an investment portfolio. After all, the primary purpose of portfolio diversification is to <strong>make safer, more thoughtful investments, and step up your trading game<\/strong>!<\/p>\n<p><em>Let’s get to it!<\/em><\/p>\n<div class=\"container\">\n <div class=\"row justify-content-center\">\n <div class=\"col-md-10 suggested-comparisons pb-3 mb-4\">\n <div class=\"d-flex flex-row\">\n <div class=\"text-center\">\n <div class=\"img-block-yt\">\n <img src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//assets//images//compare-crypto-exchanges.gif/"/n alt=\"5 Best Crypto Portfolio Diversification Strategies (Animated Explanation)\"\n title=\"5 Best Crypto Portfolio Diversification Strategies (Animated Explanation)\" class=\"border-0\">\n <p>Video Explainer<\/p>\n <\/div>\n <\/div>\n <div class=\"col-xs-10 col-sm-10 col-md-10 text-left py-3 yt-info\">\n <h4 class=\"mb-1\">Video Explainer: Portfolio Diversification: The Whats, the Whys, and the Hows<\/h4>\n <p class=\"py-1 mb-0 youtube-video-subtitle\">Reading is not your thing? Watch the \"Portfolio Diversification: The Whats, the Whys, and the Hows\" video explainer<\/p>\n <\/div>\n <\/div>\n <div class=\"row justify-content-center text-center\">\n <div class=\"col-12 col-md-11 px-3\">\n <div class=\"wrapper mb-0\">\n <div class=\"position-relative youtube mb-4 bg-transparent p-0 video-modal-popup\" data-toggle=\"modal\"\n data-target=\"#video-modal\" data-id=\"JdG2mC7uHHQ\" data-title=\"CryptoFinallyExplained\">\n <div class=\"video-gradient-top\"><\/div>\n <p class=\"text-left dyk-video-title\">5 Best Crypto Portfolio Diversification Strategies (Animated Explanation)<\/p>\n <img data-srcset=\"https:\/\/assets.bitdegree.org\/youtube\/crypto-finally-explained\/5-best-crypto-portfolio-diversification-strategies-animated-explanation.jpg?tr=w-420 500w,\n https:\/\/assets.bitdegree.org\/youtube\/crypto-finally-explained\/5-best-crypto-portfolio-diversification-strategies-animated-explanation.jpg?tr=w-760 1000w\"\n alt=\"5 Best Crypto Portfolio Diversification Strategies (Animated Explanation)\"\n title=\"5 Best Crypto Portfolio Diversification Strategies (Animated Explanation)\"\n class=\"p-0 lazyload\">\n <img class=\"play-button lazyload\" data-target=\"#video-modal\"\n data-src=\"https:\/\/assets.bitdegree.org\/crypto\/assets\/video-button.png?tr=w-85\"\n alt=\"5 Best Crypto Portfolio Diversification Strategies (Animated Explanation)\">\n <\/div>\n <\/div>\n <\/div>\n <\/div>\n <div class=\"row justify-content-center text-center\">\n <div>\n <a href=https://www.bitdegree.org/"https:////www.youtube.com//c//CryptoFinallyExplained?sub_confirmation=1\%22\n class=\"btn yt-promo mb-2\" target=\"_blank\" rel=\"nofollow noopener noindex\">\n <div class=\"row justify-content-center align-items-center mx-0 text-center\">\n <div class=\"col-4 col-md-4\">\n <i class=\"fab fa-youtube yt-dyk-btn\"><\/i>\n <\/div>\n <div class=\"col-8 col-md-8 text-center yt-promo-text\">\n <h4 class=\"m-0 text-white\">SUBSCRIBE<\/h4>\n <span>ON YOUTUBE<\/span>\n <\/div>\n <\/div>\n <\/a>\n <\/div>\n <\/div>\n <\/div>\n <\/div>\n<\/div>\n<div class=\"modal fade\" id=\"video-modal\" tabindex=\"-1\" role=\"dialog\">\n <div class=\"modal-dialog modal-dialog-centered modal-lg\" role=\"document\">\n <div class=\"modal-content\">\n <div class=\"modal-body p-0\">\n <button type=\"button\" class=\"video-modal-close close\" data-dismiss=\"modal\" aria-label=\"Close\">\n <i aria-hidden=\"true\" class=\"fas fa-times\"><\/i>\n <\/button>\n <div id=\"iframe\"><\/div>\n <\/div>\n <a class=\"text-decoration-none\"\n href=https://www.bitdegree.org/"https:////www.youtube.com//c//CryptoFinallyExplained?sub_confirmation=1\%22\n rel=\"nofollow noopener noindex\" target=\"_blank\">\n <div class=\"modal-footer p-0 d-block bg-white\">\n <div class=\"row justify-content-center m-0\">\n <div class=\"col-3 col-md-4 col-lg-2 p-0\">\n <img class=\"w-100 h-100\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//assets//crypto-subscribe.jpg/" alt=\"Subscribe\">\n <\/div>\n <div class=\"col-9 col-md-8 col-lg-2 px-0 d-flex\">\n <div class=\"modal-subscribe w-100\">\n <p class=\"m-0 mt-1 mr-3\">SUBSCRIBE<br>\n <span class=\"m-0\">ON YOUTUBE<\/span>\n <\/p>\n <\/div>\n <\/div>\n <div class=\"col-12 col-md-12 col-lg-8 p-0 text-center d-flex justify-content-center align-items-center\">\n <div class=\"modal-subscribe-text\">\n <h4 class=\"m-0\">Understand crypto with ease<\/h4>\n <span>New explainer videos every week!<\/span>\n <\/div>\n <\/div>\n <\/div>\n <\/div>\n <\/a>\n <\/div>\n <\/div>\n<\/div>\n<h2>Portfolio Diversification Definition<\/h2>\n<p>Let’s kick this section off by taking a look at the portfolio diversification definition.<\/p>\n<p>At its very core, portfolio diversification is a <strong>risk management strategy<\/strong>. Those who practice this strategy spread investments across a variety of assets, and, by doing so, they reduce the overall risk that comes with investing.<\/p>\n<p>The risk is reduced by <strong>investing in different types of assets<\/strong> <strong>that are not closely related<\/strong>. If one of the investments flop, the others still have the chance to remain afloat, or, even better - generate gains that would counterbalance the losses from the previous, failed investment.<\/p>\n<p>The wisdom of the proverbial saying of \"<em>not putting all your eggs in one basket<\/em>,\" represents the idea behind portfolio diversification perfectly. But here, let’s consider a more contemporary, yet precise example.<\/p>\n<p>Imagine traveling to a foreign country. Now, would you keep all of your essential belongings, such as your passport, credit cards, and cash in one place, like your backpack? In case of it being stolen, you’re about to have a really bad time.<\/p>\n<p>Therefore, the right thing to do here would be to <strong>diversify your traveling portfolio<\/strong>, and spread your valuable belongings across a variety of different places. Such as, your wallet, a fanny pack, or even the safe back at the hotel.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"Portfolio diversification definition: What is it?\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//images//portfolio-diversification-01.jpg/" alt=\"Portfolio diversification definition: What is it?\" width=\"1000\" height=\"557\"><\/p>\n<p>Of course, crypto is a relatively new industry, and portfolio diversification in this space looks a little bit different than it does in the traditional sense. Typically, this strategy means <strong>spreading your investments across various asset types<\/strong> such as stocks, bonds, real estate, and cash.<\/p>\n<p>Now, when it comes to crypto, the same principles apply, they just take up a different form. In the crypto space, portfolio diversification is applied by not ignoring the fact that there are many different cryptocurrencies.<\/p>\n<p>Therefore, investing in various coins, such as <a href=https://www.bitdegree.org/"//crypto//buy-bitcoin-btc/">Bitcoin, <a href=https://www.bitdegree.org/"//crypto//buy-ethereum-eth/">Ethereum, and many others, mitigates the risk that comes from tying your financial well-being to one, single cryptocurrency.<\/p>\n<p>Consider a real-life example. Back in 2022, those who had invested the majority of their savings into the <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//cryptocurrency-prices//ftx-token-ftt-price/">FTX token<\/strong><\/a> went through a rather harsh life lesson. As the <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//news//sam-bankman-frieds-ftx-files-for-chapter-11-bankruptcy/">news broke out about FTX<\/strong><\/a>, the crypto exchange platform, having financial problems, <strong>the exchange’s native token took a nosedive, and never recovered<\/strong>.<\/p>\n<p>On November 8, 2022, the FTX Token was still being sold for over $22. Two days later, its price was just a little bit over $2.<\/p>\n<p>So, people who had unreasonable amounts of money invested in this one particular token, saw a tenfold reduction in their portfolio’s size. However, those who had invested in the FTX Token, but it was only a part of their diversified portfolio, didn’t face the end of their careers as crypto investors.<\/p>\n<p>This story perfectly encapsulates that the primary purpose of portfolio diversification is to mitigate risks that, unfortunately, are all over the place when it comes to crypto.<\/p>\n<p>So, having said that, I could safely state that the <strong>portfolio diversification definition includes neutralizing the threats<\/strong> that come from the fact that the cryptocurrency market is so volatile and unpredictable.<\/p>\n<p>Of course, portfolio diversification is not a solution to all the crypto world’s problems. Sometimes, even the most sophisticated diversification solutions couldn’t help the investors avoid losses.<\/p>\n<p>Sometimes, the entire industry will just take a hit, and every coin will turn red. But, even in cases like this, a <strong>diversified portfolio provides more stability and less risk<\/strong> than going all in on a single cryptocurrency.<\/p>\n<p>Okay, having said that, we can move on from the theory, and get more practical. Let’s take a look at actual ways of how portfolio diversification can be done. Let’s consider <strong>5 portfolio diversification techniques<\/strong>.<\/p>\n<h2>Crypto Portfolio Diversification Techniques<\/h2>\n<p>When it comes to \"<em>not putting all your eggs in one basket<\/em>,\" there are numerous ways of doing that. The same applies to crypto portfolio diversification techniques. Despite their differences, these techniques help traders achieve a balanced allocation of their assets, and reduce the risk that’s inherent in crypto.<\/p>\n<h3>Crypto Asset Allocation<\/h3>\n<p>The first one is the most self-explanatory. It’s a technique of allocating assets by simply doing exactly that - <strong>allocating your crypto assets<\/strong>. Instead of one cryptocurrency, you choose several. You select the coins of your choice, based on their <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//crypto-terms//what-is-market-capitalization-market-cap-mcap/">market capitalization<\/strong><\/a>, price, community, the coin’s potential, and other similar, equally- important factors.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"Portfolio diversification definition: Crypto asset allocation.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//images//portfolio-diversification-02.jpg/" alt=\"Portfolio diversification definition: Crypto asset allocation.\" width=\"1000\" height=\"1090\"><\/p>\n<p>Of course, many would agree that the safest way is to invest in the industry’s most-established cryptos, such as <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//what-is-a-bitcoin/">Bitcoin or <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//what-is-ethereum/">Ethereum. Investing in both of them, instead of a single one, would be a step toward the direction of portfolio diversification.<\/p>\n<p>Yet, in addition to that, <strong>traders consider investing in other, less-established coins<\/strong>. These coins are cheaper, probably more volatile, and they have a smaller market cap.<\/p>\n<p>Yet they’ve got something else - <strong>growth potential<\/strong>. By diversifying your portfolio and allocating a portion of your funds to coins like this, you expect higher returns, and, while having part of your money invested in the industry’s giants, you’d end up balancing the risk that comes from investing in smaller coins.<\/p>\n<p>This technique is often followed by <strong>the 80\/20 rule<\/strong>. It simply means that 80% of your investments should be aimed at large-cap coins, while the remaining 20% at mid & low-cap coins. By allocating such percentages, traders minimize the risk, but continue taking chances to see those smaller coins shoot into the sky.<\/p>\n<h3>Sector Diversification<\/h3>\n<p>The second technique is known as <strong>Sector Diversification<\/strong>. As its name suggests, it involves investing your crypto in different sectors. So, instead of simply investing into coins, based on their price and market cap, you get more specific.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"Portfolio diversification definition: Sector diversification.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//images//portfolio-diversification-03.jpg/" alt=\"Portfolio diversification definition: Sector diversification.\" width=\"1000\" height=\"507\"><\/p>\n<p>For example, in addition to the large-cap coins, you invest into <strong>stablecoins, privacy coins, exchange tokens, <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//crypto-terms//what-is-non-fungible-token-nft/">NFTs, or in the DeFi sector<\/strong> <strong>as such<\/strong>, by, for example, becoming a staker.<\/p>\n<p>Such a technique allows investors to further reduce the risk that comes with crypto investing. For example, if the NFT market would suddenly freeze, and people would lose interest in acquiring new NFTs, those traders who diversified their portfolios among different sectors would avoid a crisis.<\/p>\n<h3>Geographical Diversification<\/h3>\n<p>Up next, we’ve got <strong>Geographical Diversification<\/strong>.  Once again, the name says it all. This technique is all about taking into account one more factor: <em>which region does the coin or token originate from<\/em>. Despite crypto’s global nature, <strong>each coin is issued in a different country<\/strong>, which means that the coin’s issuer is subject to their country’s national legislation.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"Portfolio diversification definition: Geographical diversification.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//images//portfolio-diversification-04.jpg/" alt=\"Portfolio diversification definition: Geographical diversification.\" width=\"1000\" height=\"605\"><\/p>\n<p>So, imagine you invest into a crypto of your choice. It looks promising, with high potential, and it seems that there’s not much to worry about. And then, out of nowhere, news broke out that the government has banned crypto in a particular country, and so it happened that this coin of your choice was issued exactly there.<\/p>\n<p>Suddenly, regulatory challenges become a strong obstacle that messes up the seemingly apolitical market dynamics. Therefore, a considerate approach, and the evaluation of the geographical aspect while choosing where to invest are what make the geographical diversification technique useful.<\/p>\n<h3>Investment Style Diversification<\/h3>\n<p>Moving on, let’s talk about the <strong>Investment Style Diversification<\/strong>. This technique is a bit more advanced, since it requires traders to understand the differences between different investment styles.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"Portfolio diversification definition: Investment style diversification.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//images//portfolio-diversification-05.jpg/" alt=\"Portfolio diversification definition: Investment style diversification.\" width=\"1000\" height=\"734\"><\/p>\n<p>For example, traders can allocate part of their investments into assets based on their current value, and the other part into assets based on their growth potential, while always actively participating in the so-called <strong>Momentum Investing<\/strong>. This means that they have to constantly be <strong>on the hunt for signals<\/strong> that could help identify which assets may go through a sudden <strong>upward price momentum<\/strong>.<\/p>\n<p>Others may simply not have time for this. Therefore, they could include <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//crypto-terms//what-is-hodl/">HODLing in their investment style mix. Simply obtaining and holding particular assets with the hopes that it will pay off in the long run, while continuously obtaining other assets based on their value, growth, and so on.<\/p>\n<h3>Asset Allocation into Stablecoins<\/h3>\n<p>Last, but not least, we’ve got the most traditional technique of portfolio diversification. This means that it involves the <strong>active allocation of your assets into coins that are connected to traditional fiat currencies<\/strong>. I’m talking about stablecoins. This technique allows traders to keep a distance from the volatility storms that are always present in the crypto market.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"Portfolio diversification definition: Stablecoins.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//images//portfolio-diversification-06.jpg/" alt=\"Portfolio diversification definition: Stablecoins.\" width=\"1000\" height=\"556\"><\/p>\n<p>A trader that invests in stablecoins does not expect them to generate a return, because, obviously, <strong>stablecoins have a fixed price<\/strong>. Yet, owning stablecoins creates an opportunity to quickly jump into the crypto market whenever a great opportunity presents itself.<\/p>\n<p>This technique allows traders to <strong>save time<\/strong>, since swapping stablecoins for other cryptocurrencies is a faster process than going through the entire procedure of buying them with fiat money.<\/p>\n<p><em>By the way, if you feel like your knowledge about stablecoins could need some upgrading, make sure to check out my channel - there's <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//what-are-stablecoins/">a section about this topic<\/strong><\/a>, specifically!<\/em><\/p>\n<h2>Wrapping Up<\/h2>\n<p>Having said that, we arrive at the end of this section. I hope that, by now, you’ve got a better understanding of the portfolio diversification definition, and <strong>why is diversification important in an investment portfolio<\/strong>, to begin with.<\/p>\n<p>As the crypto industry evolves, the ways and techniques of diversifying your assets will, eventually, change as well, but until then, these methods that I’ve presented today, are among the most popular, trusted and practiced in the industry.<\/p>","youtube_video":{"id":86,"channel_id":1,"sort":26,"video_title":"5 Best Crypto Portfolio Diversification Strategies (Animated Explanation)","description":"What\u2019s the crypto portfolio diversification definition? Why is diversification important in an investment portfolio? What are the top 5 portfolio diversification techniques? These are the questions that I answer in this video.\n\nThe wisdom of the proverbial saying of \"not putting all your eggs in one basket,\" represents the idea behind portfolio diversification perfectly. But, it\u2019s easier said than done.\n\nUnderstanding the core principles of crypto portfolio diversification leads to significant reductions in risks that are associated with crypto trading. Therefore it makes sense to learn it.\n\nDo you have any suggestions, additions or requests? Be sure to let us know in the comment section below!\n\nVideo Time Table:\n\n0:00 Introduction to 5 Best Crypto Portfolio Diversification Strategies\n1:12 Portfolio Diversification Definition\n4:26 Crypto Portfolio Diversification Techniques\n4:44 Crypto Asset Allocation\n5:58 Sector Diversification\n6:35 Geographical Diversification\n7:23 Investment Style Diversification\n8:06 Stablecoins\n8:53 Wrap-up: 5 Best Crypto Portfolio Diversification Strategies\n\nGet Quick Crypto Tips on Twitter - Follow:\nhttps:\/\/twitter.com\/crypto_xplained \n\n#PortfolioDiversification #CryptoPortfolio #Stablecoin","video_id":"JdG2mC7uHHQ","duration":584,"view_count":160,"thumbnail_url":"https:\/\/assets.bitdegree.org\/youtube\/crypto-finally-explained\/5-best-crypto-portfolio-diversification-strategies-animated-explanation.jpg","thumbnail_width":1280,"thumbnail_height":720,"published_at":"2023-06-20T15:07:24.000000Z","created_at":"2023-06-20T23:00:12.000000Z","updated_at":"2024-01-09T23:00:04.000000Z","channel":{"id":1,"title":"CryptoFinallyExplained","channel_id":"UCOryUY0yxC08eJtK23mNgiA","main_playlist_id":"UUOryUY0yxC08eJtK23mNgiA"}}}" :model="{"id":605,"chapter_id":9,"order":1,"featured_image_id":3099,"youtube_video_id":85,"author_id":1,"created_at":"2023-06-01T10:06:20.000000Z","updated_at":"2023-12-29T11:11:04.000000Z","slug":"what-is-crypto-mining","title":"Crypto Mining: What It is and How Does It Work?","content":"<p>In this section, we’re going to look into <strong>what is crypto mining, and how does crypto mining work<\/strong>!<\/p>\n<p>If you’re reading this section, it means that you’ve had enough of hearing about crypto mining everywhere, and decided to finally tackle the question of “<em>what is crypto mining<\/em>” once and for all. That’s a good call, since mining is a fascinating and dynamic aspect of the cryptocurrency world, and <strong>it plays a vital role in the creation and security of many digital assets<\/strong>.<\/p>\n<p>Even though this subject can get pretty polarizing, it still remains a fundamental pillar of the decentralized nature of cryptocurrencies. And you’re about to understand what makes this topic so interesting, yet so dividing, as well.<\/p>\n<p>In this section, we’re going to look into the questions of what is crypto mining, how does crypto mining work, <strong>what kind of<\/strong> <strong>crypto mining software and hardware miners require<\/strong>, and everything else that’s related to the topic. For beginners, these questions may seem headache-inducing, but you can’t venture into the land of crypto without knowing the answers to them.<\/p>\n<p><em>Without any further ado, let’s grab that virtual pickaxe and get to work.<\/em><\/p>\n<h2>What is Crypto Mining?<\/h2>\n<p>Starting from the very beginning, we should probably define the concept, first. <strong>So, what is crypto mining?<\/strong><\/p>\n<p>In its essence, crypto mining is the process that is used to <strong>create new digital coins, verify new transactions, and add them to the blockchain ledger<\/strong>. Many cryptos, and most importantly - <a href=https://www.bitdegree.org/"//crypto//buy-bitcoin-btc/">Bitcoin, rely on crypto mining, because it’s thanks to mining that these currencies enter circulation in the shape of new, freshly-mined coins.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is crypto mining: Mining definition.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-crypto-mining-01.jpg/" alt=\"What is crypto mining: Mining definition.\" width=\"1000\" height=\"574\" \/><\/p>\n<p>That’s where the term \"<em>mining<\/em>\" comes from, since there is a limited number of new coins that can be “extracted”, or “mined”, same as with mineable natural resources in the real world, such as diamonds or coal.<\/p>\n<p>Technically, crypto mining is part of something that’s known as a “<strong>consensus mechanism<\/strong>”.<\/p>\n<p>A consensus mechanism is like a <strong>rulebook for how a blockchain operates<\/strong>. Different blockchain networks have different consensus mechanisms, which ensure that all network participants reach an agreement on what things should look like without the need for a central authority.<\/p>\n<p>Let’s consider chess. Chess has its rules, and people simply follow them. There’s no need for a referee to sit beside and make sure that no one’s gonna begin making checkers’ moves with chess figures.<\/p>\n<p>When it comes to the “<em>rules of the blockchain<\/em>”, this means that a consensus mechanism serves the purpose of <strong>ensuring that all the blockchain network participants agree on the validity of transactions and the state of the network<\/strong>. Different blockchains have different consensus mechanisms, and some of them don’t require mining in order to be functional.<\/p>\n<p><em>By the way, it’s impossible to understand this without having a decent understanding of what a blockchain is. If you feel like you could refresh your knowledge about them, be sure to <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//what-is-blockchain/">check out this section<\/strong><\/a>! Okay, now back to consensus mechanisms.<\/em><\/p>\n<p>The consensus mechanism that relies on mining is known as <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//crypto-terms//what-is-proof-of-work-pow/">Proof-of-Work, or, more commonly, PoW.<\/p>\n<p>To explain PoW in simple terms, we can imagine a running competition. The fastest wins the race. In terms of crypto mining, this translates to “<em>the fastest miner wins the reward<\/em>”. Here’s what I mean.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is crypto mining: Competition.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-crypto-mining-02.jpg/" alt=\"What is crypto mining: Competition.\" width=\"1000\" height=\"604\" \/><\/p>\n<p>PoW involves<strong> miners competing to solve complex mathematical puzzles<\/strong>. These puzzles are known as <strong>hashes<\/strong>. Hashes are 64-digit numbers, and in order to find the right hash, miners have to put in quite a lot of effort. But this effort isn’t physical or mental. It’s <strong>pure computational power<\/strong> that requires a lot of electricity.<\/p>\n<p>In addition to mining, this computational effort is used to <strong>ensure the security of the network<\/strong>, constantly monitor the integrity of transactions, and make it near impossible for malicious actors to manipulate the blockchain's transaction history.<\/p>\n<p>So, that’s the definition of Proof-of-Work, the consensus mechanism. But, as you’ll soon see, understanding PoW is almost the same as understanding crypto mining as such. However, enough talking about consensus mechanisms, let’s get back to the concept of mining.<\/p>\n<p>In itself, the mining process has nothing to do with pickaxes, or even mining, in general. It’s something way less exciting, since it’s literally just <strong>machines solving complex mathematical puzzles 24\/7<\/strong>.<\/p>\n<p>And these puzzles can get really, really difficult. Therefore, efficient and profitable crypto mining is almost impossible without having access to the latest, state-of-art pieces of equipment. And it can get pretty expensive!<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is crypto mining: Mining hardware.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-crypto-mining-03.jpg/" alt=\"What is crypto mining: Mining hardware.\" width=\"1000\" height=\"590\" \/><\/p>\n<p>But there’s logic to it. Investing in a <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//crypto-terms//what-is-mining-rig/">crypto mining rig<\/strong><\/a> should lead to getting these puzzles solved, which would then lead to the <strong>miners receiving an award for their efforts and investments<\/strong>. And this award comes in the shape of the cryptocurrency that’s native to the blockchain that miners are working on.<\/p>\n<p>Once again, <strong>the most important minable cryptocurrency is<\/strong> <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//what-is-a-bitcoin/">Bitcoin, therefore, whenever miners solve these complex problems on the Bitcoin network - they receive some Bitcoin as a reward. Or, in other words - they successfully mine Bitcoin.<\/p>\n<p>When cryptocurrencies were just kicking off, no expensive gadgets were necessary in order to participate in crypto mining. But today, <strong>special crypto mining software<\/strong>, combined with such hardware units as <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//crypto-terms//what-is-asic/">ASICs (Application-Specific Integrated Circuits), or <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//crypto-terms//what-is-graphical-processing-unit-gpu/">GPUs (Graphics Processing Units), are no longer enough! Crypto miners set up entire <strong>warehouses full of high-tech crypto mining rigs<\/strong> just so they could participate in the crypto mining race.<\/p>\n<p>Therefore, Bitcoin mining has become a less accessible activity for most people, since setting up a crypto mining rig and installing the necessary crypto mining software would lead to heavy costs, and a constantly high electricity bill.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is crypto mining:\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-crypto-mining-04.jpg/" alt=\"What is crypto mining: Bitcoin mining.\" width=\"1000\" height=\"542\" \/><\/p>\n<p>Yet, it still remains on the menu for those who want to experience this process fully. There are many <strong>other cryptocurrencies that are still very much available for mining<\/strong>, even without having access to expensive crypto mining rigs. In many cases, owning a laptop, a PC, or investing into an ASIC can be enough to begin your mining journey. <\/p>\n<p>Therefore, when we talk about crypto mining profitability, it depends on the cryptocurrency. Nevertheless, before jumping into it, be sure to look up a <strong>specialized crypto mining calculator<\/strong> that would allow you to evaluate whether such an investment would be a smart move!<\/p>\n<p>Recently, when Bitcoin went through a decrease in its value, there have been many stories about crypto miners facing problems, debts and downfalls, and even bankruptcies. <strong>This industry can get really rough<\/strong>!<\/p>\n<p>Okay, so that’s what crypto mining looks like in theory. Let’s get practical. Let’s consider the importance of crypto mining when it comes to something as big and important as Bitcoin.<\/p>\n<h2>Crypto Mining & Bitcoin<\/h2>\n<p>As mentioned earlier, crypto mining, or, in this case, Bitcoin mining, is <strong>the process of validating Bitcoin transactions and adding them to the Bitcoin blockchain<\/strong>, or, as it’s often referred to, the public ledger that holds all transactions that have taken place on the network.<\/p>\n<p>In the process of doing so, Bitcoin mining allows new Bitcoin to be created, and ensures the security of the entire network. It’s like the cement that holds the blockchain’s bricks, or <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//crypto-terms//what-is-block/">blocks, together, and allows the further construction of this colossal <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//what-is-web-3-0/">Web3 skyscraper.<\/p>\n<p><em>Here’s how it works<\/em>. Imagine someone makes a transaction on the Bitcoin network. Now, the <strong>information about this particular transaction has to be recorded on the blockchain<\/strong> - the public ledger. That’s necessary in order to make sure that any attempts at tampering with the transaction history, and any instances of fraud, would be blocked.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is crypto mining: New Bitcoin.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-crypto-mining-05.jpg/" alt=\"What is crypto mining: New Bitcoin.\" width=\"1000\" height=\"508\" \/><\/p>\n<p>In order for this transaction to be inscribed into the blockchain, <strong>it has to be written into a block<\/strong> that would then be added to the network. When an old block is filled, a new block has to be created, thus continuously forming the chain of blocks - the blockchain.<\/p>\n<p>And this is where the miners come in. Adding the newly-created block into the blockchain requires miners to find the already mentioned “<em>hash<\/em>.” You can view these hashes as a sort of a unique identifier, a block’s ID card that makes it possible for every validator to recognize and verify these blocks and their order within the blockchain.<\/p>\n<p><strong>Whenever a new block is about to be added to the blockchain, a new hash has to be found<\/strong>, which would correspond with the previous block’s hash. This process establishes a chronological order of transactions and creates a secure transaction history.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is crypto mining: The blockchain.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-crypto-mining-06.jpg/" alt=\"What is crypto mining: The blockchain.\" width=\"1000\" height=\"511\" \/><\/p>\n<p>Therefore, in order to calculate it correctly and on time, miners must rely on the previously-described specialized crypto-mining software and hardware. Bitcoin users want to see their transactions verified ASAP; thus, fast and efficient machinery is required to reduce the hash-finding time.<\/p>\n<p>Now, this means that <strong>transaction validation is directly dependent on miners<\/strong>. But, as you can see, the blockchain and the creation of new blocks also depend on them! Therefore, it only makes sense that the hard work of miners gets rewarded. And these rewards are known as “<strong>Block Rewards<\/strong>.”<\/p>\n<p>Whenever a miner successfully adds a new block to the blockchain, they are rewarded with newly minted Bitcoin. Since that’s a lot of money, it allows miners to invest into their crypto mining rig and software, while still remaining profitable.<\/p>\n<h2>Problems & Criticism<\/h2>\n<p>As you can see, crypto mining can get really intense. And when you have so much machinery that’s running all year long… you end up with rather <strong>high electricity bills, and some giant environmental problems<\/strong>. That’s where the main source of criticism towards crypto mining comes from.<\/p>\n<p>Critics argue that the energy consumption that comes from mining Bitcoin contributes to carbon emissions, accelerates climate change, and intensifies the usage of fossil fuels and fossil fuel-based energy sources, which, of course, emits greenhouse gases.<\/p>\n<p>Then, as you may have already realized, the industry heavily relies on constant upgrades of the hardware that’s used for mining. This means that all the <strong>machinery that becomes obsolete simply turns into e-waste<\/strong>, thus further contributing to the environmental problems that arise from Bitcoin mining.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is crypto mining: Criticism.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-crypto-mining-07.jpg/" alt=\"What is crypto mining: Criticism.\" width=\"1000\" height=\"538\" \/><\/p>\n<p>So, it’s not rocket science to reach a conclusion that crypto <strong>mining may not be a truly sustainable solution in the long run<\/strong>.<\/p>\n<p>Of course, as the industry evolves, new ways of mining, new consensus mechanisms, and new ways of validating transactions and securing the blockchain are being created, as well. Yet, Bitcoin prevails as the number one crypto in the world, and <strong>crypto mining is almost always synonymous with “Bitcoin mining.”<\/strong> Besides, Bitcoin is not going anywhere anytime soon.<\/p>\n<p>Therefore, it’s important to be well-versed when it comes to understanding crypto mining, because this question is sure to be the center of many heated debates in the near future.<\/p>\n<h2>Wrapping Up<\/h2>\n<p>Having said this, we reached the end of the section! By now, I hope, you’ve got a better understanding of what is crypto mining and how does crypto mining work. Also, keep in mind that, <strong>instead of a pickaxe, you’d need proper crypto mining software and to set up a crypto mining rig to be able to participate in this activity<\/strong>!<\/p>\n<p>Even though this industry can be profitable, and it allows many blockchains to actually function in a decentralized way, it nevertheless faces many questions, dilemmas, and problems. Therefore, whenever crypto mining is being considered, the educated thing to do is to be aware of both sides and seek the best solution for everyone.<\/p>","definition":"Did you know that crypto mining is not only a means of creating many digital assets, but also a means of securing them?","status":"published","meta_title":"What is Crypto Mining and How Does It Work?","meta_description":"You've probably heard something about Bitcoin mining, but what is crypto mining as a whole, and how does it actually work? Find out here!","meta_keywords":"what is crypto mining, how does crypto mining work, crypto mining software, crypto mining rig, crypto mining calculator, crypto mining profitability","modified_content":"<p>In this section, we’re going to look into <strong>what is crypto mining, and how does crypto mining work<\/strong>!<\/p>\n<p>If you’re reading this section, it means that you’ve had enough of hearing about crypto mining everywhere, and decided to finally tackle the question of “<em>what is crypto mining<\/em>” once and for all. That’s a good call, since mining is a fascinating and dynamic aspect of the cryptocurrency world, and <strong>it plays a vital role in the creation and security of many digital assets<\/strong>.<\/p>\n<p>Even though this subject can get pretty polarizing, it still remains a fundamental pillar of the decentralized nature of cryptocurrencies. And you’re about to understand what makes this topic so interesting, yet so dividing, as well.<\/p>\n<p>In this section, we’re going to look into the questions of what is crypto mining, how does crypto mining work, <strong>what kind of<\/strong> <strong>crypto mining software and hardware miners require<\/strong>, and everything else that’s related to the topic. For beginners, these questions may seem headache-inducing, but you can’t venture into the land of crypto without knowing the answers to them.<\/p>\n<p><em>Without any further ado, let’s grab that virtual pickaxe and get to work.<\/em><\/p>\n<div class=\"container\">\n <div class=\"row justify-content-center\">\n <div class=\"col-md-10 suggested-comparisons pb-3 mb-4\">\n <div class=\"d-flex flex-row\">\n <div class=\"text-center\">\n <div class=\"img-block-yt\">\n <img src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//assets//images//compare-crypto-exchanges.gif/"/n alt=\"Crypto Mining Explained: How to Earn From Mining Bitcoin? (Animated)\"\n title=\"Crypto Mining Explained: How to Earn From Mining Bitcoin? (Animated)\" class=\"border-0\">\n <p>Video Explainer<\/p>\n <\/div>\n <\/div>\n <div class=\"col-xs-10 col-sm-10 col-md-10 text-left py-3 yt-info\">\n <h4 class=\"mb-1\">Video Explainer: Crypto Mining: What It is and How Does It Work?<\/h4>\n <p class=\"py-1 mb-0 youtube-video-subtitle\">Reading is not your thing? Watch the \"Crypto Mining: What It is and How Does It Work?\" video explainer<\/p>\n <\/div>\n <\/div>\n <div class=\"row justify-content-center text-center\">\n <div class=\"col-12 col-md-11 px-3\">\n <div class=\"wrapper mb-0\">\n <div class=\"position-relative youtube mb-4 bg-transparent p-0 video-modal-popup\" data-toggle=\"modal\"\n data-target=\"#video-modal\" data-id=\"-2AqtP1ZFJU\" data-title=\"CryptoFinallyExplained\">\n <div class=\"video-gradient-top\"><\/div>\n <p class=\"text-left dyk-video-title\">Crypto Mining Explained: How to Earn From Mining Bitcoin? (Animated)<\/p>\n <img data-srcset=\"https:\/\/assets.bitdegree.org\/youtube\/crypto-finally-explained\/crypto-mining-explained-how-to-earn-from-mining-bitcoin-animated.jpg?tr=w-420 500w,\n https:\/\/assets.bitdegree.org\/youtube\/crypto-finally-explained\/crypto-mining-explained-how-to-earn-from-mining-bitcoin-animated.jpg?tr=w-760 1000w\"\n alt=\"Crypto Mining Explained: How to Earn From Mining Bitcoin? (Animated)\"\n title=\"Crypto Mining Explained: How to Earn From Mining Bitcoin? (Animated)\"\n class=\"p-0 lazyload\">\n <img class=\"play-button lazyload\" data-target=\"#video-modal\"\n data-src=\"https:\/\/assets.bitdegree.org\/crypto\/assets\/video-button.png?tr=w-85\"\n alt=\"Crypto Mining Explained: How to Earn From Mining Bitcoin? (Animated)\">\n <\/div>\n <\/div>\n <\/div>\n <\/div>\n <div class=\"row justify-content-center text-center\">\n <div>\n <a href=https://www.bitdegree.org/"https:////www.youtube.com//c//CryptoFinallyExplained?sub_confirmation=1\%22\n class=\"btn yt-promo mb-2\" target=\"_blank\" rel=\"nofollow noopener noindex\">\n <div class=\"row justify-content-center align-items-center mx-0 text-center\">\n <div class=\"col-4 col-md-4\">\n <i class=\"fab fa-youtube yt-dyk-btn\"><\/i>\n <\/div>\n <div class=\"col-8 col-md-8 text-center yt-promo-text\">\n <h4 class=\"m-0 text-white\">SUBSCRIBE<\/h4>\n <span>ON YOUTUBE<\/span>\n <\/div>\n <\/div>\n <\/a>\n <\/div>\n <\/div>\n <\/div>\n <\/div>\n<\/div>\n<div class=\"modal fade\" id=\"video-modal\" tabindex=\"-1\" role=\"dialog\">\n <div class=\"modal-dialog modal-dialog-centered modal-lg\" role=\"document\">\n <div class=\"modal-content\">\n <div class=\"modal-body p-0\">\n <button type=\"button\" class=\"video-modal-close close\" data-dismiss=\"modal\" aria-label=\"Close\">\n <i aria-hidden=\"true\" class=\"fas fa-times\"><\/i>\n <\/button>\n <div id=\"iframe\"><\/div>\n <\/div>\n <a class=\"text-decoration-none\"\n href=https://www.bitdegree.org/"https:////www.youtube.com//c//CryptoFinallyExplained?sub_confirmation=1\%22\n rel=\"nofollow noopener noindex\" target=\"_blank\">\n <div class=\"modal-footer p-0 d-block bg-white\">\n <div class=\"row justify-content-center m-0\">\n <div class=\"col-3 col-md-4 col-lg-2 p-0\">\n <img class=\"w-100 h-100\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//assets//crypto-subscribe.jpg/" alt=\"Subscribe\">\n <\/div>\n <div class=\"col-9 col-md-8 col-lg-2 px-0 d-flex\">\n <div class=\"modal-subscribe w-100\">\n <p class=\"m-0 mt-1 mr-3\">SUBSCRIBE<br>\n <span class=\"m-0\">ON YOUTUBE<\/span>\n <\/p>\n <\/div>\n <\/div>\n <div class=\"col-12 col-md-12 col-lg-8 p-0 text-center d-flex justify-content-center align-items-center\">\n <div class=\"modal-subscribe-text\">\n <h4 class=\"m-0\">Understand crypto with ease<\/h4>\n <span>New explainer videos every week!<\/span>\n <\/div>\n <\/div>\n <\/div>\n <\/div>\n <\/a>\n <\/div>\n <\/div>\n<\/div>\n<h2>What is Crypto Mining?<\/h2>\n<p>Starting from the very beginning, we should probably define the concept, first. <strong>So, what is crypto mining?<\/strong><\/p>\n<p>In its essence, crypto mining is the process that is used to <strong>create new digital coins, verify new transactions, and add them to the blockchain ledger<\/strong>. Many cryptos, and most importantly - <a href=https://www.bitdegree.org/"//crypto//buy-bitcoin-btc/">Bitcoin, rely on crypto mining, because it’s thanks to mining that these currencies enter circulation in the shape of new, freshly-mined coins.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is crypto mining: Mining definition.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-crypto-mining-01.jpg/" alt=\"What is crypto mining: Mining definition.\" width=\"1000\" height=\"574\" \/><\/p>\n<p>That’s where the term \"<em>mining<\/em>\" comes from, since there is a limited number of new coins that can be “extracted”, or “mined”, same as with mineable natural resources in the real world, such as diamonds or coal.<\/p>\n<p>Technically, crypto mining is part of something that’s known as a “<strong>consensus mechanism<\/strong>”.<\/p>\n<p>A consensus mechanism is like a <strong>rulebook for how a blockchain operates<\/strong>. Different blockchain networks have different consensus mechanisms, which ensure that all network participants reach an agreement on what things should look like without the need for a central authority.<\/p>\n<p>Let’s consider chess. Chess has its rules, and people simply follow them. There’s no need for a referee to sit beside and make sure that no one’s gonna begin making checkers’ moves with chess figures.<\/p>\n<p>When it comes to the “<em>rules of the blockchain<\/em>”, this means that a consensus mechanism serves the purpose of <strong>ensuring that all the blockchain network participants agree on the validity of transactions and the state of the network<\/strong>. Different blockchains have different consensus mechanisms, and some of them don’t require mining in order to be functional.<\/p>\n<p><em>By the way, it’s impossible to understand this without having a decent understanding of what a blockchain is. If you feel like you could refresh your knowledge about them, be sure to <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//what-is-blockchain/">check out this section<\/strong><\/a>! Okay, now back to consensus mechanisms.<\/em><\/p>\n<p>The consensus mechanism that relies on mining is known as <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//crypto-terms//what-is-proof-of-work-pow/">Proof-of-Work, or, more commonly, PoW.<\/p>\n<p>To explain PoW in simple terms, we can imagine a running competition. The fastest wins the race. In terms of crypto mining, this translates to “<em>the fastest miner wins the reward<\/em>”. Here’s what I mean.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is crypto mining: Competition.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-crypto-mining-02.jpg/" alt=\"What is crypto mining: Competition.\" width=\"1000\" height=\"604\" \/><\/p>\n<p>PoW involves<strong> miners competing to solve complex mathematical puzzles<\/strong>. These puzzles are known as <strong>hashes<\/strong>. Hashes are 64-digit numbers, and in order to find the right hash, miners have to put in quite a lot of effort. But this effort isn’t physical or mental. It’s <strong>pure computational power<\/strong> that requires a lot of electricity.<\/p>\n<p>In addition to mining, this computational effort is used to <strong>ensure the security of the network<\/strong>, constantly monitor the integrity of transactions, and make it near impossible for malicious actors to manipulate the blockchain's transaction history.<\/p>\n<p>So, that’s the definition of Proof-of-Work, the consensus mechanism. But, as you’ll soon see, understanding PoW is almost the same as understanding crypto mining as such. However, enough talking about consensus mechanisms, let’s get back to the concept of mining.<\/p>\n<p>In itself, the mining process has nothing to do with pickaxes, or even mining, in general. It’s something way less exciting, since it’s literally just <strong>machines solving complex mathematical puzzles 24\/7<\/strong>.<\/p>\n<p>And these puzzles can get really, really difficult. Therefore, efficient and profitable crypto mining is almost impossible without having access to the latest, state-of-art pieces of equipment. And it can get pretty expensive!<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is crypto mining: Mining hardware.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-crypto-mining-03.jpg/" alt=\"What is crypto mining: Mining hardware.\" width=\"1000\" height=\"590\" \/><\/p>\n<p>But there’s logic to it. Investing in a <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//crypto-terms//what-is-mining-rig/">crypto mining rig<\/strong><\/a> should lead to getting these puzzles solved, which would then lead to the <strong>miners receiving an award for their efforts and investments<\/strong>. And this award comes in the shape of the cryptocurrency that’s native to the blockchain that miners are working on.<\/p>\n<p>Once again, <strong>the most important minable cryptocurrency is<\/strong> <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//what-is-a-bitcoin/">Bitcoin, therefore, whenever miners solve these complex problems on the Bitcoin network - they receive some Bitcoin as a reward. Or, in other words - they successfully mine Bitcoin.<\/p>\n<p>When cryptocurrencies were just kicking off, no expensive gadgets were necessary in order to participate in crypto mining. But today, <strong>special crypto mining software<\/strong>, combined with such hardware units as <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//crypto-terms//what-is-asic/">ASICs (Application-Specific Integrated Circuits), or <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//crypto-terms//what-is-graphical-processing-unit-gpu/">GPUs (Graphics Processing Units), are no longer enough! Crypto miners set up entire <strong>warehouses full of high-tech crypto mining rigs<\/strong> just so they could participate in the crypto mining race.<\/p>\n<p>Therefore, Bitcoin mining has become a less accessible activity for most people, since setting up a crypto mining rig and installing the necessary crypto mining software would lead to heavy costs, and a constantly high electricity bill.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is crypto mining:\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-crypto-mining-04.jpg/" alt=\"What is crypto mining: Bitcoin mining.\" width=\"1000\" height=\"542\" \/><\/p>\n<p>Yet, it still remains on the menu for those who want to experience this process fully. There are many <strong>other cryptocurrencies that are still very much available for mining<\/strong>, even without having access to expensive crypto mining rigs. In many cases, owning a laptop, a PC, or investing into an ASIC can be enough to begin your mining journey. <\/p>\n<p>Therefore, when we talk about crypto mining profitability, it depends on the cryptocurrency. Nevertheless, before jumping into it, be sure to look up a <strong>specialized crypto mining calculator<\/strong> that would allow you to evaluate whether such an investment would be a smart move!<\/p>\n<p>Recently, when Bitcoin went through a decrease in its value, there have been many stories about crypto miners facing problems, debts and downfalls, and even bankruptcies. <strong>This industry can get really rough<\/strong>!<\/p>\n<p>Okay, so that’s what crypto mining looks like in theory. Let’s get practical. Let’s consider the importance of crypto mining when it comes to something as big and important as Bitcoin.<\/p>\n<h2>Crypto Mining & Bitcoin<\/h2>\n<p>As mentioned earlier, crypto mining, or, in this case, Bitcoin mining, is <strong>the process of validating Bitcoin transactions and adding them to the Bitcoin blockchain<\/strong>, or, as it’s often referred to, the public ledger that holds all transactions that have taken place on the network.<\/p>\n<p>In the process of doing so, Bitcoin mining allows new Bitcoin to be created, and ensures the security of the entire network. It’s like the cement that holds the blockchain’s bricks, or <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//crypto-terms//what-is-block/">blocks, together, and allows the further construction of this colossal <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//what-is-web-3-0/">Web3 skyscraper.<\/p>\n<p><em>Here’s how it works<\/em>. Imagine someone makes a transaction on the Bitcoin network. Now, the <strong>information about this particular transaction has to be recorded on the blockchain<\/strong> - the public ledger. That’s necessary in order to make sure that any attempts at tampering with the transaction history, and any instances of fraud, would be blocked.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is crypto mining: New Bitcoin.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-crypto-mining-05.jpg/" alt=\"What is crypto mining: New Bitcoin.\" width=\"1000\" height=\"508\" \/><\/p>\n<p>In order for this transaction to be inscribed into the blockchain, <strong>it has to be written into a block<\/strong> that would then be added to the network. When an old block is filled, a new block has to be created, thus continuously forming the chain of blocks - the blockchain.<\/p>\n<p>And this is where the miners come in. Adding the newly-created block into the blockchain requires miners to find the already mentioned “<em>hash<\/em>.” You can view these hashes as a sort of a unique identifier, a block’s ID card that makes it possible for every validator to recognize and verify these blocks and their order within the blockchain.<\/p>\n<p><strong>Whenever a new block is about to be added to the blockchain, a new hash has to be found<\/strong>, which would correspond with the previous block’s hash. This process establishes a chronological order of transactions and creates a secure transaction history.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is crypto mining: The blockchain.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-crypto-mining-06.jpg/" alt=\"What is crypto mining: The blockchain.\" width=\"1000\" height=\"511\" \/><\/p>\n<p>Therefore, in order to calculate it correctly and on time, miners must rely on the previously-described specialized crypto-mining software and hardware. Bitcoin users want to see their transactions verified ASAP; thus, fast and efficient machinery is required to reduce the hash-finding time.<\/p>\n<p>Now, this means that <strong>transaction validation is directly dependent on miners<\/strong>. But, as you can see, the blockchain and the creation of new blocks also depend on them! Therefore, it only makes sense that the hard work of miners gets rewarded. And these rewards are known as “<strong>Block Rewards<\/strong>.”<\/p>\n<p>Whenever a miner successfully adds a new block to the blockchain, they are rewarded with newly minted Bitcoin. Since that’s a lot of money, it allows miners to invest into their crypto mining rig and software, while still remaining profitable.<\/p>\n<h2>Problems & Criticism<\/h2>\n<p>As you can see, crypto mining can get really intense. And when you have so much machinery that’s running all year long… you end up with rather <strong>high electricity bills, and some giant environmental problems<\/strong>. That’s where the main source of criticism towards crypto mining comes from.<\/p>\n<p>Critics argue that the energy consumption that comes from mining Bitcoin contributes to carbon emissions, accelerates climate change, and intensifies the usage of fossil fuels and fossil fuel-based energy sources, which, of course, emits greenhouse gases.<\/p>\n<p>Then, as you may have already realized, the industry heavily relies on constant upgrades of the hardware that’s used for mining. This means that all the <strong>machinery that becomes obsolete simply turns into e-waste<\/strong>, thus further contributing to the environmental problems that arise from Bitcoin mining.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is crypto mining: Criticism.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-crypto-mining-07.jpg/" alt=\"What is crypto mining: Criticism.\" width=\"1000\" height=\"538\" \/><\/p>\n<p>So, it’s not rocket science to reach a conclusion that crypto <strong>mining may not be a truly sustainable solution in the long run<\/strong>.<\/p>\n<p>Of course, as the industry evolves, new ways of mining, new consensus mechanisms, and new ways of validating transactions and securing the blockchain are being created, as well. Yet, Bitcoin prevails as the number one crypto in the world, and <strong>crypto mining is almost always synonymous with “Bitcoin mining.”<\/strong> Besides, Bitcoin is not going anywhere anytime soon.<\/p>\n<p>Therefore, it’s important to be well-versed when it comes to understanding crypto mining, because this question is sure to be the center of many heated debates in the near future.<\/p>\n<h2>Wrapping Up<\/h2>\n<p>Having said this, we reached the end of the section! By now, I hope, you’ve got a better understanding of what is crypto mining and how does crypto mining work. Also, keep in mind that, <strong>instead of a pickaxe, you’d need proper crypto mining software and to set up a crypto mining rig to be able to participate in this activity<\/strong>!<\/p>\n<p>Even though this industry can be profitable, and it allows many blockchains to actually function in a decentralized way, it nevertheless faces many questions, dilemmas, and problems. Therefore, whenever crypto mining is being considered, the educated thing to do is to be aware of both sides and seek the best solution for everyone.<\/p>","youtube_video":{"id":85,"channel_id":1,"sort":27,"video_title":"Crypto Mining Explained: How to Earn From Mining Bitcoin? (Animated)","description":"What is crypto mining?\n\nBy now, everyone\u2019s heard of crypto mining. But, how does crypto mining work? Is it difficult, is it worth it? What are the main risks, and drawbacks of crypto mining? These are among the questions that I address in this video.\n\nUnderstanding crypto mining is a necessary step for anyone who wants to understand crypto, Defi, and the future of finance. And it all begins with learning about Proof-of-Work and Bitcoin mining!\n\nHave you tried crypto mining? Would you like to? Is there a question that you would like to ask? Please let us know in the comment section below!\n\nVideo Time Table:\n\n0:00 Introduction to What is Crypto Mining?\n1:06 Crypto Mining Explained\n6:01 What is Bitcoin Mining?\n8:06 Problems & Criticism\n9:21 Wrap-up: What is Crypto Mining?\n\nGet Quick Crypto Tips on Twitter - Follow:\nhttps:\/\/twitter.com\/crypto_xplained \n\n#CryptoMining #BitcoinMining #MiningRig","video_id":"-2AqtP1ZFJU","duration":616,"view_count":236,"thumbnail_url":"https:\/\/assets.bitdegree.org\/youtube\/crypto-finally-explained\/crypto-mining-explained-how-to-earn-from-mining-bitcoin-animated.jpg","thumbnail_width":1280,"thumbnail_height":720,"published_at":"2023-06-16T14:04:24.000000Z","created_at":"2023-06-16T23:00:16.000000Z","updated_at":"2024-01-09T23:00:04.000000Z","channel":{"id":1,"title":"CryptoFinallyExplained","channel_id":"UCOryUY0yxC08eJtK23mNgiA","main_playlist_id":"UUOryUY0yxC08eJtK23mNgiA"}},"featured_image":{"id":3099,"uuid":"f8e0e846-7b67-47e2-b401-84b59920a273","name":"what-is-crypto-mining-featured-image.jpg","url":"https:\/\/assets.bitdegree.org\/images\/what-is-crypto-mining-featured-image.jpg","path":"images\/what-is-crypto-mining-featured-image.jpg","mime_type":"image\/jpeg","disk":"digitalOceanSpaces","size":72847,"width":1024,"height":576,"custom_properties":null,"created_at":"2023-06-19T07:33:26.000000Z","updated_at":"2023-06-19T07:33:26.000000Z"}}" :chapter-list="[{"id":1,"title":"Blockchain","slug":"blockchain","updated":null,"chapter":"crypto\/assets\/crypto-book\/chapters\/learn-blockchain.jpg","chapter_simple":"crypto\/assets\/crypto-book\/chapters-simple\/blockchain-101.jpg","rating":100,"sections":[{"chapter_id":1,"order":1,"slug":"what-is-blockchain","title":"What is the Blockchain?","status":"published","modified_content":null},{"chapter_id":1,"order":2,"slug":"decentralized-blockchain","title":"Anonymous & Decentralized Blockchains: The Cornerstone of Crypto","status":"published","modified_content":null},{"chapter_id":1,"order":3,"slug":"blockchain-transaction","title":"What is a Blockchain Transaction in Crypto?","status":"published","modified_content":null},{"chapter_id":1,"order":4,"slug":"crypto-fees","title":"The Different Types of Crypto Fees Explained","status":"published","modified_content":null},{"chapter_id":1,"order":5,"slug":"what-is-bridging-in-crypto","title":"The Key Notion Behind the Concept of Bridging in Crypto","status":"published","modified_content":null},{"chapter_id":1,"order":6,"slug":"types-of-blockchains","title":"Different Types of Blockchains: What to Look Out For?","status":"published","modified_content":null}]},{"id":2,"title":"Cryptocurrencies","slug":"cryptocurrencies","updated":null,"chapter":"crypto\/assets\/crypto-book\/chapters\/learn-cryptocurrencies.jpg","chapter_simple":"crypto\/assets\/crypto-book\/chapters-simple\/cryptocurrencies-101.jpg","rating":100,"sections":[{"chapter_id":2,"order":1,"slug":"what-is-a-cryptocurrency","title":"What is a Cryptocurrency?","status":"published","modified_content":null},{"chapter_id":2,"order":2,"slug":"how-does-cryptocurrency-work","title":"How Does Cryptocurrency Work?","status":"published","modified_content":null},{"chapter_id":2,"order":3,"slug":"is-cryptocurrency-a-good-investment","title":"Is Cryptocurrency a Good Investment? The Pros & Cons","status":"published","modified_content":null},{"chapter_id":2,"order":4,"slug":"coin-vs-token","title":"Coin VS Token: How Do They Differ?","status":"published","modified_content":null},{"chapter_id":2,"order":5,"slug":"what-are-stablecoins","title":"What are Stablecoins, Altcoins & Wrapped Coins?","status":"published","modified_content":null},{"chapter_id":2,"order":6,"slug":"what-is-a-bitcoin","title":"Bitcoin: the Pioneer of the Crypto World","status":"published","modified_content":null},{"chapter_id":2,"order":7,"slug":"what-is-ethereum","title":"The Ultimate Blockchain for dApp Creation: Ethereum","status":"published","modified_content":null},{"chapter_id":2,"order":8,"slug":"what-is-cardano-in-crypto","title":"What is Cardano and What is It Used For?","status":"published","modified_content":null},{"chapter_id":2,"order":9,"slug":"what-is-shiba-inu-coin","title":"Shiba Inu: the Dogecoin 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Standards","status":"published","modified_content":null},{"chapter_id":3,"order":5,"slug":"how-to-buy-crypto","title":"From Fiat to Crypto: How to Buy Crypto for the First Time","status":"published","modified_content":null},{"chapter_id":3,"order":6,"slug":"fiat-to-crypto","title":"Taking Profits: Turning Crypto Into Fiat","status":"published","modified_content":null},{"chapter_id":3,"order":7,"slug":"how-to-use-crypto","title":"You\u2019ve Got Crypto: What Can You Do With It?","status":"published","modified_content":null}]},{"id":4,"title":"Crypto Wallets","slug":"crypto-wallets","updated":false,"chapter":"crypto\/assets\/crypto-book\/chapters\/learn-crypto-wallets.jpg","chapter_simple":"crypto\/assets\/crypto-book\/chapters-simple\/crypto-wallets-101.jpg","rating":80,"sections":[{"chapter_id":4,"order":1,"slug":"what-is-a-crypto-wallet","title":"What is a Crypto Wallet?","status":"published","modified_content":null},{"chapter_id":4,"order":2,"slug":"hot-wallet-vs-cold-wallet","title":"Hot Wallet VS Cold Wallet: Which One to Pick?","status":"published","modified_content":null},{"chapter_id":4,"order":3,"slug":"non-custodial-wallet","title":"What are Non-Custodial Crypto Wallets?","status":"published","modified_content":null},{"chapter_id":4,"order":4,"slug":"what-is-metamask","title":"Metamask: The Leading Non-Custodial Wallet","status":"published","modified_content":null},{"chapter_id":4,"order":37,"slug":"how-safe-is-cryptocurrency","title":"The Key Crypto Wallet Safety Practices: How Safe Can Crypto Be?","status":"published","modified_content":null}]},{"id":5,"title":"NFTs","slug":"nfts","updated":null,"chapter":"crypto\/assets\/crypto-book\/chapters\/learn-nfts.jpg","chapter_simple":"crypto\/assets\/crypto-book\/chapters-simple\/nfts-101.jpg","rating":100,"sections":[{"chapter_id":5,"order":2,"slug":"how-to-trade-nfts","title":"NFT Trading: The Ins and Outs","status":"published","modified_content":null},{"chapter_id":5,"order":3,"slug":"buying-nft","title":"Tips and Tricks of Choosing the Right NFTs","status":"published","modified_content":null},{"chapter_id":5,"order":4,"slug":"how-to-store-nft","title":"How to Store NFTs: Best Practices","status":"published","modified_content":null},{"chapter_id":5,"order":5,"slug":"how-to-create-an-nft","title":"How to Create Your Own NFTs?","status":"published","modified_content":null},{"chapter_id":5,"order":6,"slug":"how-to-make-passive-money-with-nft","title":"Making Passive Money with NFTs","status":"published","modified_content":null}]},{"id":6,"title":"dApps & Defi","slug":"dapps-and-defi","updated":true,"chapter":"crypto\/assets\/crypto-book\/chapters\/learn-dapps.jpg","chapter_simple":"crypto\/assets\/crypto-book\/chapters-simple\/dapps-defi-101.jpg","rating":80,"sections":[{"chapter_id":6,"order":1,"slug":"what-are-nfts","title":"What are Non-Fungible Tokens (NFTs)?","status":"published","modified_content":null},{"chapter_id":6,"order":1,"slug":"what-is-defi","title":"What is Decentralized Finance (DeFi)?","status":"published","modified_content":null},{"chapter_id":6,"order":2,"slug":"what-is-defi-2-0","title":"DeFi 2.0: The New Version of Decentralized Finance","status":"published","modified_content":null},{"chapter_id":6,"order":3,"slug":"what-are-dapps-in-crypto","title":"What Are dApps and How Do They Work?","status":"published","modified_content":null},{"chapter_id":6,"order":4,"slug":"defi-dapps","title":"Picking the Right dApps: Dos and Don'ts","status":"published","modified_content":null},{"chapter_id":6,"order":5,"slug":"what-is-web-3-0","title":"Web 3.0: The Future of the Internet","status":"published","modified_content":null},{"chapter_id":6,"order":6,"slug":"what-are-smart-contracts","title":"What is the Core Purpose of Smart Contracts?","status":"published","modified_content":null},{"chapter_id":6,"order":7,"slug":"what-is-a-dao-in-crypto","title":"The Notion of a Decentralized Autonomous Ogranization (DAO)","status":"published","modified_content":null},{"chapter_id":6,"order":8,"slug":"what-is-staking-in-crypto","title":"What is the Goal of Staking Crypto Assets?","status":"published","modified_content":null},{"chapter_id":6,"order":9,"slug":"what-is-liquidity-pool-in-crypto","title":"What is a Liquidity Pool and How Does It Work?","status":"published","modified_content":null},{"chapter_id":6,"order":10,"slug":"what-is-automated-market-maker","title":"Automated Market Maker: the Cornerstone of the Decentralized Crypto Exchange Industry","status":"published","modified_content":null},{"chapter_id":6,"order":11,"slug":"what-is-yield-farming-in-crypto","title":"The Main Yield Farming Techniques","status":"published","modified_content":null},{"chapter_id":6,"order":12,"slug":"what-is-an-oracle-in-crypto","title":"Crypto Oracles: The Link Between Blockchain and Outside World Data","status":"published","modified_content":null},{"chapter_id":6,"order":13,"slug":"crypto-gambling","title":"The Peculiarities of Decentralized Crypto Gambling","status":"published","modified_content":null},{"chapter_id":6,"order":14,"slug":"what-is-the-metaverse","title":"Metaverse: A New Perception of Reality","status":"published","modified_content":null}]},{"id":7,"title":"Trading & Investing","slug":"trading-and-investing","updated":null,"chapter":"crypto\/assets\/crypto-book\/chapters\/learn-crypto-trading.jpg","chapter_simple":"crypto\/assets\/crypto-book\/chapters-simple\/crypto-trading-101.jpg","rating":80,"sections":[{"chapter_id":7,"order":1,"slug":"where-to-trade-crypto","title":"Where Can You Trade 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Tokens?","status":"published","modified_content":null},{"chapter_id":8,"order":5,"slug":"how-to-research-crypto","title":"Crypto Research Fundamentals & Social Signals: Your Daily Trading Strategy","status":"published","modified_content":null},{"chapter_id":8,"order":46,"slug":"portfolio-diversification-definition","title":"Portfolio Diversification: The Whats, the Whys, and the Hows","status":"published","modified_content":null}]},{"id":9,"title":"Mining","slug":"mining","updated":false,"chapter":"crypto\/assets\/crypto-book\/chapters\/learn-crypto-mining.jpg","chapter_simple":"crypto\/assets\/crypto-book\/chapters-simple\/crypto-mining-101.jpg","rating":80,"sections":[{"chapter_id":9,"order":1,"slug":"what-is-crypto-mining","title":"Crypto Mining: What It is and How Does It Work?","status":"published","modified_content":null},{"chapter_id":9,"order":2,"slug":"what-is-a-mining-pool","title":"Mining Pools: Is Collective Mining Better Than Solo Mining?","status":"published","modified_content":null},{"chapter_id":9,"order":3,"slug":"what-is-staking-crypto","title":"An Advanced Look into What is Staking Crypto","status":"published","modified_content":null},{"chapter_id":9,"order":4,"slug":"what-is-proof-of-stake-vs-proof-of-work","title":"Proof-of-Work VS Proof-of-Stake: The Differences That Matter","status":"published","modified_content":null},{"chapter_id":9,"order":5,"slug":"what-is-crypto-mining-rig","title":"Crypto Mining Rig: What It is and How to Build One?","status":"published","modified_content":null}]},{"id":10,"title":"Crypto Terms","updated":false,"chapter":"crypto\/assets\/crypto-book\/chapters\/crypto-101-glossary.jpg","chapter_simple":"crypto\/assets\/crypto-book\/chapters-simple\/crypto-glossary-101.jpg","rating":100,"sections":["A","B","C","D","E","F","G","H","I","J","K","L","M","N","O","P","Q","R","S","T","U","V","W","X","Y","Z"]}]" current-chapter="mining" current-section="what-is-crypto-mining">

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