What is Cryptocurrency Mining? Comprehensive Guide 2021

What is Cryptocurrency Mining?

There is a lot of news covering cryptocurrency mining lately, and the lucrative prices of these cryptocurrencies rocketing sky high such as how Bitcoin has managed to accelerate all the way to $60k, compel people to pursue this endeavour. Cryptocurrency mining is a lucrative field, and it is more like earning a reward at the end while trying to win a blockchain lottery rather than jolting your system to run around the clock and, in a traditional sense, extract or mine cryptocurrency because it doesn’t work like that. A detailed definition and the working principle of mining will be explained shortly within this article.

Crypto Mining-Related Threats Lurking Around on the Internet

But before that, you need to understand the negative side of crypto mining or, more promptly, the vicious side you need to mask yourself from. There has been news around that computer of the internet users have been riddled with malware compelling their system to mine cryptocurrency, or even some fractions indicate that the entire botnets have been compromised and entitled to do the same task.

This is not mining, not in the traditional sense though, it is an event that leads to the corruption of entire systems to produce cryptocurrency, and the reward at the end is not validated for the user whose system was involved in the operation but to the culprits who manages to compromise it in the first place. Necessary action should be taken, such as scanning your system more often and practising the use of anti-malware or anti-virus systems for the sake of shadowing yourself from these emerging threats. In order to understand what is cryptocurrency mining, you need to understand what cryptocurrency is?

What is Cryptocurrency?

Cryptocurrency can be defined as a form of digital currency that is being encrypted with cryptographic systems that ensure that each transaction is authentic and protected with the best cryptographic systems. It provides a secure medium of exchange, there are hundreds of different cryptocurrencies out there, and various experts believe that cryptocurrency is the future of fiat money.

The most elementary cryptocurrency of them all is Bitcoin; surely, you have heard about it. In fact, it was the first functional cryptocurrency to have made into the hands of people, and after that, many other cryptocurrencies such as ethereal came into practice. These cryptocurrencies might use different mediums when it comes to the encryption they use and algorithms these are made of, but in the end, all of them end up in the same place, which is the blockchain and out next topic of discussion.

What is Blockchain?

Blockchain refers to the digital ledger, which keeps all records of every transaction related to cryptocurrency that ever happened, and it is impossible to alter. It uses hashing and technique similar to salting (used in cryptography) to continuously complete the block of information related to crypto-oriented transactions and whatnot, which develops into a chain and forms a ledger that is unchanging over time and reluctant to further interpretation.

Hashing, on the other hand, is the concept of mapping data of any particular length into fixed arrays of length orbits. When cryptography is involved, it becomes a one-way function where every strand of data has the same length, and even its continuation would have the same length to complete the blocks. The most significant hashing algorithm out there is the SHA-256 which will produce data according to the lengths of the 256 bits. Each and every value is unique, and even the smallest of the change can, in turn, modify the whole value into something else.

What is Cryptocurrency Mining?

Cryptocurrency mining is a process in which a machine performs different tasks that might include solving complex equations to get some reward at the end in the form of cryptocurrency. In the more complex array of things or putting out its definition in practical terms, it is the act of computing the correct value for the sake of satisfying the hash function in the blockchain; this is known as mining. In terms of the cryptocurrency, a reward is being generated and given to whoever solves the correct value, although it is going to take some significant power to be able to pull it off.

In some cases, people might fuse their computing power together to be able to solve the value, and when they hit success, the award is then split. Other than that, there are hackers who are known to inject malware into people’s computers and then use some of their computing power behind the curtains to be able to mine for cryptocurrency. There are even arrays of entire botnets which are doing nothing other than mining. There are different people and sets of computing elements who are doing it, and whoever finds the correct value first will get awarded.

Understanding the Mining Function

To make it simple for you and to be able to absorb every bit and ounce of the mining function, here is a simple explanation. Let’s say that you have built yourself a mining machine and if it is a little too complicated even now, then only consider that the mining machine is your personal computer. Now you turn it on and allow for it to mine cryptocurrency, and it would start doing it right off the bat according to the computing efficiency that it carries.

It will have to perform a lot of tasks to obtain even the slimmest amount of cryptocurrency there is. These tasks are known as the proof of work, and the purpose of these tasks is to create an equal playing field for all the miners out there engaging their efforts towards the same end goal, which is to acquire cryptocurrency.

These tasks are none other than the math equations, and the more miners are onto an equation, trying to find its definite value, the more complex it would become, and hence more computing power would be required for it. There are a lot of other complicated factors that are at play here, but with the computing power your machine allocates to the process, you will receive the award for its input and your efforts.             

Now when you have acclimated yourself with all this information, there are, in fact, a lot of terms that you need to work on rigorously to be able to fully understand the mining function, such as;

Proof of Work

If you have heard of Bitcoin, the chances are that you also might have heard about proof of work; it is the heart of the decentralized system and is of utmost importance for the cryptocurrency to keep on doing what it does best and for the executing of all the protocols when a transaction is being submitted. This allows the decentralized network of various computers posing as the framework of a cryptocurrency to stay in sync with each other.     

This very invention is what separates Bitcoin from the trials that have been made in the past for the sake of developing digital money and why Bitcoin successfully came out to be the world’s first working cryptocurrency. The fiat money or paper money is created or administered by the banks while the Bitcoin is mined by miners who are trying to become the computer that is allowed to have all the records of the recent crypto transactions, if your machine is competitive enough to win this then surely you will get yourself some Bitcoin as a reward for your efforts.

The Lottery

Mining your fair share of Bitcoin is exactly like winning a lottery, and the most efficient way of doing that is to guess the number as many times as possible before someone else guesses it and takes the reward off of your hands. To be able to do this, you must build yourself a competitive setup that will indeed bring the reward home for you. The lucky number is known as nonce, and the miners and their machines try to guess the nonce that is either less than or closer to the particular target for which everyone is mining.

Every bitcoin transaction that is waiting to be completed will be set into the mempool; it serves as a holding section for all the pending validation transactions while on the Bitcoin network. The miners’ job is to attend to the transactions that are pending validation and using them to create a block of transactions, and this process is done by combining the lot of them.

If a miner needs to win the lottery, then they will have to take their block of the transactions and information which they have accumulated from the confirmed blocks and then add a random lucky number which satisfies the condition faster for the blockchain than any other miner present on the network. That lucky number is basically your winning lottery ticket; if your machine could guess it in time before anyone else, then the lottery will be yours for sure, which here means a Bitcoin. They will require the information from the latest confirmed blocks to create a chain of blocks or the blockchain in general.

The whole process might even take trillions of seconds for the miners to guess the lucky number, and the whole duration for this process is ten minutes from the very beginning to the end. But it will usually depend on the number of overall guesses the miners are making. The guessing of this number is extremely complicated, but you are forced to simply guess the number as fast as you can and take on as many guesses as you can potentially take.

There are two dedicated outcomes in this course of playing for the blockchain lottery such as;

  • The proof of work refrains the miners to be able to develop and earn bitcoin out of nowhere as the guessing system entails that the miners must surf a lot of computing power for the sake of earning bitcoin, and it would have been a less worrying or less finically hectic process had the cost of electricity was not a problem. But in the mining process, this is simply the real cost that needs to be accounted for before getting on with this process.
  • The proof of work also makes the Bitcoin rigid history, like combining different bones and making a firm structure out of it. This prevents any hacker from contemplating the system and using it to their advantage. Say a hacker is to change the course of a transaction that happened in the past, then to be able to do that, they will have to redo all the work that has been done till now to change the chain length and consecutively altering the transaction information. So, that is next to impossible. That is why miners are an essential part of the cryptocurrency world and keeping the blockchain and all the information within it in order.

Anyone interested in earning a few crypto coins can begin with the mining process, but recently, the process of mining has been fairly industrialized where only big players with serious investment and hefty hardware are taking part and are earning some great coins in the process. However, they will have to account for cheap electricity, and other than that, they are alright; that is why you will see most of the mining happening within the data centres.

What is Bitcoin Mining Difficulty?

The crypto miners pick up the transactions that are awaiting validation from the mempool and then hash them, and their actual target is to guess the hash that is either lower or equal to the network target to get themselves a reward in terms of the cryptocurrency. The Bitcoin mining difficult refers to the fact that how difficult it is going to be for the bitcoin miners to actually find the hash, and in logical terms, it is equal to the inverse of the network target. The lower the network target is, the more difficult it will be for the miners to find the valid block because it is calculated as the inverse of the network difficulty.

The Bitcoin network is continually seeking the consistency of keeping the block times at even 10 minutes by the initial design. The mining difficulty will automatically get adjusted every 2016 blocks, and it is periodically done every two weeks. That is why it is highly likely that a miner will be able to add a block successfully to the blockchain every 10 minutes or so. The difficulty is properly managed according to the concept of how many miners are out there and how much hash power is then active on the network. More and more miners joining the blockchain network entail that the overall difficulty will keep on rising, and that is why a 10-minute interval is made the standard.

Who are the Bitcoin Miners?

Bitcoin miners are the people who are tasked with chronologically ordering the transactions by including them into the blocks of Bitcoin which they find. The very equipment used to do this is called the Bitcoin mining hardware. Its performance verily depends on how much computing power this thing has or can offer, and even the individual mining devices can also be targeted or called the mining rigs.

Many people perform bitcoin mining on their own using their personal hardware, and that it is not associated with an organization or massive mining hardware. The more intense the computational power of mining machines, the more quickly you will be able to process the hash and find the block value and then can reward yourself with it. If you have the correct hardware and software, then yes, you can become a miner.

Bitcoin Mining Hardware

Although you can use your personal computer for the sake of mining cryptocurrency, it might not have the necessary computational power to be able to mine cryptocurrency the way it is intended. A mining computer is better fitted for the task of mining cryptocurrency as these are designed to guess the correct hash as quickly and efficiently as possible. These are run by ASICs (application specific integrated circuits), which are designed to operate for a single function, and that is mining.

In earlier days, mining was done with standard CPU based computers, but miners were bent to increase the hash power, and for this, they designed customized machines that used the GPU power at first but then were shifted to the ASICs.

The Final Verdict

There are various mining setups designed to effectively mine Bitcoins and other cryptocurrencies, such as cloud mining, GPU and CPU mining, or ASIC mining, which are specifically designed for mining purposes. Giving out a possible verdict to choose one of these the most votes from the professional’s side who are engaged with mining and do it as their source of earning money to the cloud and GPU mining, whichever you see fit for your use case.

Mining keeps the blockchain intact and the wheel of the crypto world constantly turning, so if you are thinking of getting into it, then go for it but not before estimating the electricity usage and learning the art of crypto mining.              

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