The Mining Process
A new block containing some transactions was just created.
Alright, you check to make sure the block has the correct hash function – the previous block’s unique fingerprint that we discussed.
We will assume you are an honest person and won’t tamper with anything inside the block.
The quickest way to check that your blockchain is correct is to compare it to other people’s.
We won’t bother with the details. It is much easier and quicker to check other people’s work against your own (this is proof-of-work).
So, the block contains the correct hash function that you have received from the previous block.
Now starts the process of figuring out that Nonce.
It could take a varying amount of time, but eventually your computer (mining rig) generates the correct number!
This provides the block with its unique hash function that will be used by the next block to connect them both.
But hold on – we should still check to make sure you aren’t being a miscreant!
Everyone will once again check your work.
You need 51% of the network to approve your work in order for the block to be accepted.
This is an important part of security. It means that you’d need control over 51% of the network in order to cheat the system.
If a network consists of millions of computers – well, no one currently has the ability to overcome that obstacle.
Once you have your 51% approval, the block is accepted onto the chain and you receive your 20 Cryptos4noobs coins! Onto the next block!
That is the basic process of mining. Cryptos have some different rules and methods, but in a broad sense this is how it all works.
Let’s learn a little more about mining. It is arguably the most important work in relation to cryptos.
Who are Miners?
Anyone in the entire world can be a miner if they so choose. In fact, most miners are your regular everyday person.
It does require a computer and an upfront investment.
Since the creation of cryptos in 2009, the hardware available for miners has become more specialised for some currencies. This results in higher barriers-to-entry for miners.
Some companies nowadays have their own mining setups. If you’re looking to start mining it will be harder to turn a profit from it.
These big mining operations make it harder for us lot to make money from mining.
This is because the difficulty of the algorithm scales. The blockchain assesses how long it took to mine a certain number of blocks and then adjusts the difficulty.
Why do People Mine?
Mining validates transactions and creates cryptocurrency.
Earlier, we discussed that miners are constantly trying to solve the algorithm attached to each block.
Once the equation is solved and validated by other miners, the person who first solved the equation receives cryptos as a reward!
So, the incentive to mine is the creation of cryptocurrency – which is money!
A lot of people who invested in the early days of cryptos are millionaires today because the value increase has been incredible.
Unfortunately, the likelihood of this nowadays is similar to winning the lottery – there are over 1,400 cryptocurrencies in existence today and there is no knowing the price trajectory of any of them.
Think back to the California Gold Rush.
This is the digital version and the early adopters hit the jackpot, whereas today it’s a little late and you may find yourself with some fool’s gold!
Generally speaking, people mine because it can be profitable given enough time, and largely do so as a secondary or tertiary source of income.
How Do You Start Mining?
The mining process requires hardware and software that will vary depending on the cryptocurrency of choice. The hardware will typically consist of your basic computer parts:
A power unit
A whole lot of graphics cards – around 5-10 for a beginner.
Setting up a mining rig is doable but it is hard – potentially the hardest aspect of cryptocurrencies. This kit is your upfront investment, but you have to take into account the electricity costs.
Your typical mining operation will run 24 hours a day. Any time not spent Mining is a loss.
The maintenance of such an operation is no small thing either. Hardware must be fine-tuned and consistently cooled (yes, more electricity costs) and some operations will require special drivers and operating systems.
Reliability is an issue – hardware can break without continued, proper care.
Software to mine the cryptocurrency is available online and once downloaded you can then start mining.
You have to do your research, however, as there have been several cases of cryptocurrency creators scamming people who adopt the currency!
Today in the mining world most miners will be part of what’s called a ‘Mining Pool’.
This is a large group of miners that pool their mining power together in order to have a better chance at being the first to solve a block.
Subsequently, the rewards and Cryptocurrency are spread out to all those in the Pool. This is usually balanced by the processing power provided by each miner.
Collaboration will get you much further in mining than independence.
With regards to mining, that about sums it up!
Mining can be a feasible choice but it is not an easy thing to accomplish.
The maintenance alone could become a full-time job and it will take around a year to see any financial profit.
The process of creation and validation, however, is one of the foundations of cryptocurrencies and the purpose miners fill is an integral aspect of cryptocurrencies.
So, hopefully you now feel comfortable answering the question of “what is cryptocurrency mining?” – don’t worry if you feel overwhelmed by it though! Having a full understanding of everything about cryptocurrency mining is not integral for you just yet.