- Bitcoin mining is done by using advanced and hi-tech computers that can solve complex computational arithmetic problems.
- Several computers are a part of this distributed network, and the ledger is available and accessible to the public who can verify the transactions.
- The first step in the crypto mining process is to verify that the transactions are legitimate with the help of nodes.
The recent crackdown on bitcoin mining by China where it had shut down operations in five regions has opened the age-old debate on its environmental feasibility and energy usage, besides how safe it is in terms of cybersecurity. Bitcoin mining is used to introduce new bitcoins into circulation. It is done by using advanced and hi-tech computers that can solve complex computational arithmetic problems, which are a crucial component in the entire system. Since its beginning, cryptocurrency market has attracted a lot of interest and curious eyes as the market provides an alternative to the traditional banking system, which is a restricted system and is controlled and maintained by a central authority through a centralised ledger or record. Cryptocurrencies, on the other hand, use a decentralised system and a distributed ledger based on blockchain technology, which falls outside the control of central authorities.
What is crypto mining?
The concept of crypto mining started in 2009 when bitcoins were first mined, and it got the attention and interest of investors and miners, along with cybercriminals. Crypto mining is basically the process of validating and then recording the new transactions on the blockchain by hashing them. A unique hash is assigned to each data set, which helps in compressing the data into an irreversible jumble of bits. The miners can gain cryptocurrencies by solving cryptographic equations and complex functions with the help of computers.
Several computers are a part of this distributed network, and the ledger is available and accessible to the public who can verify the transactions based on cryptographic algorithms. But carrying out these cryptographic calculations is not an easy task. The miners have to do a lot of computing work to gain a small number of cryptocurrencies.
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How crypto mining works
The incentive to carry out crypto mining is the reward in the form of cryptocurrencies. It is very important for the miner to first understand the concept of blockchain, which includes public key encryption or asymmetric encryption and mathematics. The blockchain or the decentralised ledger contains important pieces of data which include cryptographic hashes. The blocks are added to the end of the ledger to create a chain of verifies transactions, which helps in bringing about full transparency.
The first step in the crypto mining process is to verify that the transactions are legitimate with the help of nodes, which are the individuals or devices that are a part of the blockchain, like the computers of miners. After verification, the next step is to bundle the separate transactions into a list, and then add it to a new and unconfirmed block of data. Adding transactions to the blockchain helps in averting ‘double spending’ of cryptocurrencies, by making it a part of the public ledger that can’t be manipulated or altered.
Also read: How has Bitcoin fared in 2021?
Computing a new hash is required to change the data, and when sufficient transactions are added to the block, more information is added as well. This includes the header data and hash from the previous block in the chain and a new hash for the new block. A new hash is generated by combining a nonce and the header of the most recent block, and this hash will have to be verified by a miner node after getting added to the unconfirmed block. If you’re able to solve it, you can let other miners on the network know.
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The miners verify the new hashes to check the veracity of the unconfirmed block and ensure that the blocks are legitimate. Once the block gets the confirmation, it is successfully added to the blockchain. It is an achievement for the crypto miner if the PoW (Proof of Work) is completed. PoW is a cumbersome process and it takes ample amount of time in solving the hash, but in the mining process, it is very important to prove to others on the network that you have legitimately added the transaction to the blockchain, while allowing them to verify the same.
As the ledger is public, anyone can update it by making random guesses to solve the cryptographic equations on the blockchain system. If your effort in solving the equation is successful, then the transaction is added for approval to the next data block. But if you can’t solve the equation, then you can still keep trying or maybe use your time and resources elsewhere.
With thousands of cryptocurrencies operating across the globe, major examples being bitcoin, Ethereum, and Tether etc., the multibillion-dollar global crypto market is an attraction for various reasons. Some people don’t trust the existing financial systems and want greater privacy and more control over their finances, which is provided by the crypto market. But if the crypto market is so advantageous and crypto mining is so simple, then why doesn’t everyone do it?
Crypto mining is an appealing alternative to the centralised systems such as traditional banking and is continuously evolving and growing at a very rapid pace across the globe. But before entering the crypto mining market, it is important to analyse the costs and returns, and ensure that it is a feasible option for you.