What is Cryptocurrency Mining?
Cryptocurrency mining is a process by which new coins are introduced into the existing circulating supply, as well as a process used to secure the network the coin operates on. The people who mine a coin, are known as miners. Therefore, instead of having a central authority that controls and secures the money supply, this control and security is spread out across the network that miners help to maintain.
The Mining Process
Transactions that occur on the network such as, “Alice sends 10 bitcoins to Bob”, are collected by a miner and bundled up into a block. The miner then verifies that all transactions in the block are valid, as if he attempts to submit a block with an invalid transaction, the block will be rejected. An example of an invalid transaction would be Alice sending 10 Bitcoins to Bob, even though she does not have 10 Bitcoins to send.
After the miner has successfully verified that all transaction in the block are valid, he must then compute a cryptographic hash. It is necessary for miners perform this computation in-order to prevent just anyone from being able to create blocks therefore secures the network against fraudulent blocks. Computing a cryptographic hash requires a large amount of computing power as hundreds of millions of calculations are needed to be performed each second. This process is known as proof-of-work. Once the miner successfully solves the hash, his block is then relayed to the network to be checked against the consensus rules. Once accepted, the block is then added to the blockchain network and the miner is rewarded with set amount of the cryptocurrency.
Who Can be a Crypto Miner?
Anyone with the right resources and knowledge can become a cryptocurrency miner. Cryptocurrency mining is the process of helping to maintain network security, in which individuals volunteer their computing power in order to offload specific tasks that are necessary to validate transactions. In return for their technical assistance, cryptocurrency miners will be rewarded with cryptocurrency as payment for their services rendered.
Usually cryptocurrency miners possess a computer system that contains powerful processors, such as ASICs, GPUs, and FPGA chipsets, which are specialized devices designed specifically to increase computational power and efficiency while cryptocurrency mining. Beyond that, cryptocurrency miners also need access to an appropriate amount of electricity, cooling equipment and software solutions designed to optimize cryptocurrency operations. With these components in place they can join forces with like-minded people who form large networks called pools to more easily complete blocks of data recording – a step towards verifying digital transactions all around the globe.
Benefits of Crypto Mining
Cryptocurrency mining is quickly becoming a popular digital asset strategy. Mining is beneficial both miners and traders.
Traders benefit from the security that the decentralized structure of the trading network.
And by verifying transactions on cryptocurrency networks, cryptocurrency miners receive new coins as they are created on the cryptocurrency network giving them the potential to significantly increase their cryptocurrency holdings with minimal risk or effort.
Originally Posted: 20 September 2017
Last Updated: 1st February 2023