Crypto mining is the process of recovering cryptocurrencies by solving equations with the help of computers. The process of crypto mining involves the validation of data blocks and the addition of transaction records to a blockchain. In more technical terms, one can say that it is the process of solving more complex functions with the help of computers to record data into a blockchain. To better understand crypto mining, one first needs to understand what a cryptocurrency is and the basic difference between decentralised and centralised systems.
What is Cryptocurrency?
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A cryptocurrency is a type of digital coinage that is encrypted with cryptography, making it impossible to counterfeit. Blockchains are an essential component of many cryptocurrencies that safeguards the integrity of transactions.
Traditional banks follow centralised systems that are used to control and maintain the centralised record. Every transaction has to enter into the central banking system, where it gets recorded and verified in layman terms. However, only a few banks have access to the direct, centralised banking systems, which makes it a restricted system.
On the flipside, cryptocurrencies follow a decentralised system, which doesn't have any central authority or a centralised record system. Cryptocurrencies follow a decentralised system, which is known as a blockchain.
Anyone can do a transaction without the involvement of a centralised body. In addition, to have a decentralised system, cryptocurrencies also have a distributed ledger system that allows users to have a transparent record or ledger book publicly available. Cryptocurrency users use cryptographic algorithms to authenticate the transactions before adding them to ledgers.
There are various types of methods for the mining of cryptocurrencies, the most popular among all are illustrated below in brief:
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When we talk about general consideration, crypto mining is legal; however, it depends on the geographical location of mining and the process by which a miner mines cryptocurrency. As far as the miner is using legal methods, there is not an issue, but if a miner enters into illicit methods of mining, it comes under illegal activity. Some miners install malware on unsuspecting users' devices to hijack their systems and then mine cryptos for themselves.
However, the government across the world has different views on the mining of cryptocurrency. As of February 2020, Bitcoin was legal in Japan, the US, UK and other developed countries. The US has released guidelines for taxpayers. Russia, Vietnam, Bolivia, Columbia and Ecuador don’t consider Bitcoin as a legitimate payment method.
In addition to that, the use of Ethereum is banned in Afghanistan, Pakistan, Bangladesh, Bolivia, Algeria, Saudi Arabia and few other countries as well.
Bitcoin, Dash, Monero and Ethereum are among the few most popular cryptocurrencies in the world. However, there are thousands of other cryptocurrencies which exist in the world. There are more than 4,000 cryptocurrencies in the world as of January 2021. Beyond that, daily new additions are being made to the list.
Some of the popular cryptocurrencies other than Bitcoin are Ethereum (ETH), Litecoin (LTC), Cardano (ADA), Polkadot (DOT), Bitcoin Cash (BCH), Stellar (XLM), Chainlink, Binance Coin (BNB), Tether (USDT), Monero (XMR).
Since more people are getting familiar with cryptocurrencies and learning the mining process, more people are using computers to mine cryptocurrencies. With more people joining the race to become crypto miners, encryption becomes harder and requires more computing power with more electricity requirements.
In addition to that, people’s greed to use digital money with greater privacy controls of their money also fueled the mining momentum. The better-than-expected crypto market size in coming years with US$1 trillion crossed in January 2021 has also added to the mushrooming of crypto miners.