Most crypto enthusiasts are already familiar with the underlying technology of cryptocurrency, which is the blockchain. However, they seldom know the industry that keeps the blockchain running and just who takes charge to make sure all crypto transactions are validated and recorded.
The process of validating and recording your transactions in the blockchain is called mining. It is a concept that was first designed by the developers behind Bitcoin. Crypto mining is a system of network interactions. It is a protocol that prevents double-spending by checking all cryptocurrency transfers against a designated public ledger.
If you’re curious to know more about the concept of crypto mining and how it works, here is a guide that might shed light on this complex process for you!
What is crypto mining?
Crypto mining is a process that takes place whenever transactions are requested. During this process, mining nodes verify and validate transaction data before digitally adding them in a block and uploading that block in the blockchain. In simpler terms, it is a record-keeping process executed by miners by computing a complex mathematical problem. A block can only be added to the chain once a solution to the problem has been solved.
All of the miners on a specific blockchain contribute to a decentralized, peer-to-peer network to ensure that every transaction is valid and secure.
The concept of crypto mining came from the similarity of discovering new cryptocurrencies to the physical act of digging for gold. While gold miners shovel through the earth until they strike gold, crypto miners attempt to solve complex mathematical problems to ‘find’ a coin. The first miner to solve the problem gets a reward for their effort!
You can say that crypto mining is the backbone of crypto exchange operations. It keeps the transaction network secured and trustworthy, which are the main features of cryptocurrency.
How does it work?
Crypto mining might seem complicated at first, but the concept behind it is fairly simple: miners compute algorithmic problems to authenticate the ownership of the coin. It is a way to verify and ascertain that the transaction is secured.
The concept of mining was first introduced to prevent double-spending. In the traditional monetary system, you exchange a physical currency for the goods that you want. Once done, you can no longer use the same money to purchase other goods.
However, in digital transactions, there is no physical exchange of goods and currency. For this reason, there’s a possibility that someone can use the same coins in different transactions.
This is where miner’s enter to prevent double-spending. Miners detect any attempts in tampering and double-spending through hashes. The hash is a long string of numbers that serve as proof of work (PoW).
Every transaction data can only generate one unique hash when put under a hash function, which in Bitcoin’s case is the SHA-256. This hash function by Bitcoin converts the data into a 256-bit integer.
If tampering happens, the hash will change and so should the rest of the hashes from the blocks before it. This makes it virtually impossible for malicious actors to hack the blockchain.
However, a hash only has a one-way function which allows miners to check if the data that generated the hash matches the original data. It cannot be used to obtain the original data.
The role of miners is to take the data that represents the transaction and hash it together with a seed value to ensure that the hash is below a certain target value. How do miners ensure that they generate a hash below the target? Simple! They alter the hash by adding an integer called a nonce or a number used once.
Securing the chain
Once there’s a valid hash, it will be broadcasted in the peer-to-peer network and the block can finally be added to the chain! The miner who first generated the valid hash will receive a reward for their work. For Bitcoin miners, there is a 10-minute processing time for each block to be mined.
What are the methods of crypto mining?
There are several methods you can use to mine crypto. Take a look at these four methods below:
Method 1: Cloud mining
Cloud mining is one of the most popular methods of mining known today. It involves paying a mining corporation to rent their equipment called rigs. Basically, you pay them to do the work for you with the rent duration depending on your agreed terms with the company.
During this time, all of the profits earned through mining minus the expenses will be added to your cryptocurrency wallet.
Method 2: CPU mining
CPU mining uses processors to mine crypto, meaning anyone with a computer can mine cryptocurrency. The equipment for this method is also cheaper. Although CPU mining used to be one of the most viable methods, it has become less popular these days because it is extremely slow in processing a hash.
Method 3: GPU mining
Aside from cloud mining, another popular method is GPU mining. This uses graphic processing units (GPUs) to mine cryptocurrencies. GPUs are found to be some of the most efficient tools for crypto mining. A standard GPU rig can consist of at least one processor, motherboard, cooling, rig frame and a few graphic cards.
The equipment for the GPU can cost around US$3,000. While it sounds like a hefty investment, the rig’s speed and efficiency make it all worth it.
Method 4: ASIC mining
Application-Specific Integrated Circuits (ASIC) are devices made to perform only one specific task. For mining, this is an advantage since it requires all the power and energy of your device to process transactions and solve mathematical problems to generate hashes.
ASIC is the most powerful among other mining options since it is task-specific and extremely fast. However, it is also the most expensive equipment so new miners and companies often find it difficult to invest in this device.
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