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What is Cryptocurrency Mining? 2017-10-31T02:34:05+00:00
bitcoin cryptocurrency mining rig operation

What is Mining?

Cryptocurrency mining is the process of adding and verifying transactions made on the public distributed ledger, which is in short a list of all past transactions. This ledger of past transactions is called the blockchain as it is a chain of blocks. The blockchain serves to confirm transactions to the rest of the network as having taken place.

Mining has two main functions, the primary purpose of mining is to allow the mining nodes (miner’s computers) to reach a secure, tamper-resistant consensus. The second function mining facilitates is to add new cryptocurrency tokens into circulation. As a reward for solving the blockchain (confirming the transactions) miners are rewarded with cryptocurrency.

Bitcoin miners for example are rewarded with small amounts of Bitcoin for every transaction they mine (verify). When a full block (usually thousands of transactions) is mined, they would have been rewarded a total of 12.5 BTC, worth around £50,000 at the time of writing (15 October 2017).

Staying with the Bitcoin example, the process of verifying the transactions is actually a very simple task for most computers, but in order to give the miners an incentive, they must make it incredibly difficult. This process is known as proof of work and requires the computer to solve very complex mathematical problems that need a large amount of computational power to solve.

The number of bitcoins a miner earns for solving the block remains the same but halves every 2 years. The reward started out as 50 Bitcoins and is now at 12.5 meaning it has halved twice. The number of Bitcoins awarded to each miner is dependant on how much computational power or hashpower was dedicated to solving the particular block. All of the miners compete to find the solution to the given mathmatical problem, and the rewards go to those that solve it fastest.

Cryptocurrency mining can be very profitable with the right equipment, but due to the high computational power required, it costs a great deal in energy. Many mining rigs are set up in sunny places and use solar energy to power the operations.

There are many other methods of verifying transactions on other networks such as the popular Ethereum network which uses a proof of stake system.

You can learn more about cryptocurrency mining and get started yourself here

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