Mining is probably the word you have heard the most when crossing cryptocurrencies. Sometimes you hear it from people who no nothing about cryptocurrencies but have heard the word “mining” and are familiar with miners. Of course, these people would fail due to their lack of knowledge about the subject. If you don’t want to be a loser, stay with us through this article.
But first, you need to know about cryptocurrencies. Here, you can read about them.
What is crypto mining?
It has been years that people are mining valuable minerals from mountains. Once a valuable stone like gold is mined, the miner has used his or her time and energy in order to get something valuable.
Well, at that time, mining was done with shovels and hacks. Rich people used slaves and prisoners to work on the mines and extract worthy minerals from other stones. Then, new machineries for the purpose of mining were designed and the era of hacks and shovels was over. Today, using special machineries and equipment, the process of mining is much simpler than the way it used to be. Meanwhile the need for workforce has reduced as well.
Today is the world of digitalization. Aside from all the advances that has been made in the physical world, the world of digital has seen many improvements.
Such improvements have led human being into a place where we are dealing with cryptocurrencies or digital currencies that are mined but with a simple move of your finger.
In previous articles we talked about blockchain, cryptocurrencies and how cryptocurrencies come from blockchain technology. If you have no idea what blockchain is, please read the article “what is blockchain” to get the basic information needed for this article.
What does crypto mining mean? You may have heard or asked this question a number of times. You should be familiar with blockchain concept in order to understand the meaning of mining. If you already know blockchain, you must be aware that it is a distributed network. This mean that there is no central system or organization to control and manage the network. Each user connected to blockchain is considered as a manager so the network is run by these users.
Now each of these users in blockchain network is called a node. You must know that blockchain is used for anonymous and peer to peer financial transactions, therefore, it must be %100 secure, and surprisingly, is it! But how is it secured? The security is also provided by the users! So, the users are both in charge of running and securing the network. However, the don’t do it for free!
Users who receive an amount of a currency in return of their activity in blockchain network are called miners and the process of doing such activity which results in receiving the currency is called mining.
Let’s go back to our first question: what does crypto mining mean?
In simple words: the process of doing a special task in blockchain network in order to receive an amount of a cryptocurrency is called mining.
But what is this special task? What activity shall be done in order for the network to pay a reward?
Since blockchain is a distributed and peer to peer network, or better said it is not managed by any center and needs no intermediary, its users are in charge of updating the network and confirming transactions. In fact, miners are rewarded after confirming a transaction and updating the block. How is it done?
Let me give you an example. Suppose that I want to transfer 10 BTC from my crypto wallet to another wallet address. I sent the transferring request on the network and miners are notified. But the real question is that do I really have 10 BTCs? Do I have enough credit in my wallet?
Answering this question is confirming the transaction!
If what is have in my wallet is as much as I claim, the transaction is confirmed by the miners. Now 10 BTCs must be deducted from my balance and added to the destination wallet. This is called updating the block. These two tasks, confirming transactions and updating the block, comes with a reward that is called block reward. The important thing that is done by the miners while updating the block status, is recording the transaction on a distributed ledger.
In fact, all transactions are registered on blockchain. The main goal of processing a transaction is to record it!
Mining reward including the block reward and the transaction fee is an amount of a cryptocurrency paid to miners in order to compensate for the amount of computational power dedicated by them to the network and of course to persuade them for such dedication. The act of processing and confirming transactions is done through solving complex mathematical equations that can only be done with powerful hardware like advanced CPUs. Mining cryptocurrencies can also be done with PCs, but if you want to earn from it you have to do it by special miners. Of course, no one is using his or her PC to mine BTC since there so many advanced miners and giant farms that leave nothing for personal computers.
Mining cryptocurrency uses a lot of electricity and the miners themselves are expensive. So before starting anything, consider all the costs. Meanwhile, you have to know that for each transaction, you receive a small amount of the transaction as its fee.
What is mining pool?
Once the number of miners in a network increases, the difficulty of the so-called network will increase in respect. Network difficulty means block processing for mining gets harder. In order to solve this problem, miners have developed a method called mining pool in which the miners’ computational power is merged to solve the complex mathematical equations and mine the BTC. Increasing computing power means more miners and electricity usage which come of very high cost for individual miners.
Therefore, mining pools are developed to share the computing power with less expenditure.
Top cryptocurrencies to mine
Bitcoin is certainly the most popular and valuable coin around the world. But this does not mean that bitcoin is the best choice.
If it was a few years ago, running a mining pool with PCs would be reasonable, but mining is getting harder every day and PCs are not sufficient anymore.
However, there are other coins rather than bitcoin which are proficient to mined. Altcoins like Ethereum have cheaper mining devices but their electricity usage and maintenance costs are the same.
Now you can say that you know a good deal about mining, cryptocurrencies and blockchain. You know what is mining, how it is done, what is block reward, how the transactions are done and what is the transaction fees.
Earning through mining is only one way to make money from cryptocurrencies. There are many other methods you can use to earn money in crypto world.
If you want to know more about other cryptocurrencies and how they work, continue reading.