What is mining? If you’ve been reading about the fascinating world of cryptocurrency, then you’ve probably heard a lot about crypto mining. As crypto is beginning to shape an entirely new financial system, many people question its legitimacy and how these coins are made in the first place.
Generally speaking, mining is the mechanism cryptocurrencies are generated, and understanding how it works will give you a much more comprehensive picture of how a cryptocurrency works.
This guide gives a layperson’s description of crypto mining – what it is, how it works, and what its impacts are.
What Is Crypto Mining? A Quick Overview
Crypto mining is the term used to describe the process of creating new blocks of data on a cryptocurrency blockchain. Some mining methods require solving complex mathematical equations that require high-performance machines to solve them.
In this case, the first miner to solve the puzzle gets the reward for doing so and adds the new block of data to the blockchain. The process often consumes a lot of energy, especially if plenty of miners compete against each other to be the first to solve the equation.
Mining is what makes cryptocurrency so secure. Every time a new block is added, it adds to the security of the chain by checking all previous blocks.
What Is Mining in Blockchain?
In the broader blockchain sphere, mining serves the same purpose as in crypto. It’s a way to create new blocks of data and secure transactions on the network. This process is vital to keeping blockchain technology functioning properly.
The only real difference between mining in crypto and non-crypto blockchains is the reward.
When mining Bitcoin, for example, you get a specific amount of bitcoins as a reward if you’re the first miner to solve the puzzle we explained above. Meanwhile, mining a non-crypto blockchain yields tokens that can function as proof of rights to digital or physical assets.
What Is Bitcoin Mining?
Bitcoin mining is crypto mining on the Bitcoin blockchain. Miners on the Bitcoin network solve complex mathematical puzzles in exchange for bitcoins as rewards for being the most successful miners.
The amount of bitcoins miners get per mined block has been reducing over time. This is a deliberate function called halving, which serves to keep Bitcoin a valuable currency.
Here’s the history of Bitcoin halvings thus far:
- 3 January 2009 (BTC launching): 50 BTC per block
- 28 November 2012: 25 BTC per block
- 9 July 2016: 12.5 BTC per block
- 11 May 2020: 6.25 BTC per block
How Does Crypto Mining Work?
Mining occurs every time a new block of data is “solved” and added to the blockchain. When an unverified block joins the network, miners need to verify it before it can be added to the chain. This is an integral part of blockchain technology, as it ensures the security of the data ledgers stored within it and that all blocks are truly legitimate.
Hashes and Nonces
How does Bitcoin mining work to verify the new block, though? Miners must first contribute computing power to solve these mathematical problems, creating a new block of data with its unique hash.
The hash is a 64-digit hexadecimal string derived from another number (called nonce) through encryption. It requires solving to create a new block in the chain and is executed by a miner attempting to find the correct nonce to solve the hash.
The nonce is named for the term “number only used once” and is a unique protocol that must be generated to solve a hash problem. It is essentially what mining is all about. As such, miners must go through a process of trial-and-error attempts to solve the problem.
The miner has to find the number less or equal to the nonce. Doing this is like somebody asking you to guess what number they’re thinking of, but that number is anything between one and a trillion. As such, computers are used to generate these trials using mining hardware.
Bitcoin Mining Hardware Explained
Since Bitcoin is the most competitive and popular crypto to mine, we’ll use its mining hardware as an example. Please note, however, that not all cryptos or blockchains use this mining protocol known as the Proof-of-Work.
Bitcoin mining hardware consists of computers specialized in mining BTC (often called ASICs). These are incredibly expensive and must run 24/7 to bring you a profit, making the cooling and power consumption quite pricey.
Besides the hardware and incredibly powerful computing power, what exactly is a Bitcoin miner going to need to begin mining?
- CPU (4-8 GB of RAM)
- 1000+W power supply
- 1+TB storage
The expensive parts of this compilation are the ASIC and GPU (graphics processing units). You can purchase everything else for moderate prices. It is possible to purchase a pre-made mining rig. However, the cost is high, and they don’t always carry enough GPUs.
What is Mining? Solving the Problem
As we already explained, a miner has to be the first on the network to solve complex math puzzles to receive the reward. They also need to provide proof that they did the calculating needed to reach the right answer. This evidence comes in the form of a Proof-of-Work (PoW) statement.
Proof-of-Work is evidence that the miner has invested computational power in solving the puzzle.
This is what cryptocurrency mining does to uphold security on the network while maintaining consensus without a central authority. Without these two concepts, miners could fake confirmations.
Once a certain amount of the network members verify this proof, the transaction finally joins the blockchain, and the miner gets tokens as an award for their work (assuming they were the first to solve the hash).
What Does Mining Bitcoin Mean for the Environment?
While many are excited at the prospect of a new financial future, there are concerns about the effects of mining on the environment. For example, mining Bitcoin consumes more power than Sweden. The effects of this consumption are alarming as the demand for computational power burns more fossil fuels than an entire developed country.
As a solution, the Bitcoin community considers greener solutions or changing the mining protocol in the future. For now, this push toward renewable energy in Bitcoin mining is a more popular option, although it’s questionable whether it’s a feasible idea given how much disruption it would cause.
People Also Ask
In cryptocurrency, mining refers to the approval and addition of transactions on a cryptocurrency’s blockchain. This is done by solving complex mathematical challenges that demand cutting-edge computational power.
By solving such math puzzles, a miner adds a record of the transaction to the blockchain. As a reward, they receive crypto coins native to the platform. This creates new coins that are put into circulation.
How exactly to mine crypto depends on the particular crypto you choose to mine. For example, mining Bitcoin is different from mining Ether because of the higher number of miners for the former and different mining mechanisms.
That said, you’ll need to get a mining rig and a wallet to store your cryptos. Odds are you’ll have to join a mining pool for a viable chance to profit from your efforts. However, this doesn’t necessarily have to be the case.
This is a complicated question to answer. The best answer would have to be that Bitcoin is worth mining, but only if you join a mining pool.
On the one hand, a single Bitcoin is worth a lot of money (around $35,000 at the moment of writing). On the other hand, the hardware and energy needed to mine it make the endeavor expensive. Another problem is that Bitcoin will cost more to mine as time goes by. That reduces the profit to be gained from the mining operations.
By rule, mining a block of data on the Bitcoin blockchain takes ten minutes. However, you’ll never get a single Bitcoin for successful mining. At the moment of writing, each mined block yields 6.25 BTC.
The purpose of mining is twofold. For one, it keeps the blockchain secure by verifying and adding blocks to the network. Secondly, mining creates new tokens (e.g., crypto coins), which can be used as currency or proof of ownership of physical or digital assets.
Without miners, blockchains are vulnerable to double spending (recording the same transaction more than once), and crypto supplies wouldn’t grow without it. To cut it short, if you’re wondering, “what is mining?” understand that it is the key mechanism that makes the blockchain tick.