What is Cryptocurrency Mining?
Logan Ross
Contributor, Benzinga
January 19, 2021
Updated: January 26, 2021
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Want to jump straight to the answer? The best crypto platform for most people is definitely eToro.
You may have heard the term mining in relation to Bitcoin or cryptocurrency in general – but it isn’t quite obvious what it means in that context.
Mining in the crypto world is the process of keeping blockchain data in check. It involves hard work (done by computers) and results in a slow accumulation of resources – just like mining for minerals.
Anyone can become a miner, but mining is not for everyone. Over 70% of Bitcoin mining happens in China, where dirt cheap electricity makes running mining computers extremely profitable.
Should you become a miner? Or is there a better way to make money from mining?
Why Mine Cryptocurrency?
Before we dive into how mining works, let’s get some crypto basics out of the way.
The 1st important thing to keep in mind is that cryptocurrency transactions are recorded on a blockchain. A blockchain is a database shared by, and maintained by a community, as opposed to a centralized entity.
Blockchain. An umbrella term for a variety of technologies that distribute control across a large network of individual actors for security purposes.
Decentralized. Anything that is not controlled by a single, central entity or group.
Mining is the term used for the process of validating and recording new transactions on a blockchain.
What’s the Incentive?
Validating and recording all the new transactions that come across the network is not an easy task. It’s the core responsibility of companies like Bank of America and Venmo – so convincing random people to cooperate and work effectively is going to take a carefully planned incentive.
The rules of any successful decentralized system must be created in such a way that it is in the best interest of random people around the world to help maintain it.
Satoshi Nakamoto incentivized people to maintain Bitcoin’s blockchain by rewarding them with newly-minted Bitcoin. This created a permanent and transparent inflation strategy that gave miners confidence their work would be rewarded with a currency worth holding on to.
Who Mines Cryptocurrency?
Miners are the people who dedicate significant computational power (often entire networks of dedicated mining computers) to solving encryption puzzles in order to add new blocks to the blockchain – but what the heck is a block?
Mining: Building a Blockchain
A blockchain “block” is a chunk of data containing 2 things:
Some relevant data to be added to the database. (For example, all the bitcoin transactions that occurred within the last 10 minutes.)
The ID of the block before it in the chain.
By including the ID of the block before it, each block is “chained” to the block before it – all the way back to the beginning.
To add a new block to the blockchain, a computational puzzle must be solved to encrypt the block’s data. Mining is the act of solving this puzzle.
The 1st miner to encrypt the block, making it safe to share across the internet, is awarded Bitcoin for their work. The winner shares their results with all the other miners, who verify the encryption is safe and the work is done. This is called “proof of work.”
Once verified by the other miners, the winner securely adds the new block to the existing chain.
The Halvening
You many have heard of the Bitcoin “halvening”. Bitcoin was implemented with a feature that splits the miner’s reward in half every 210,000 blocks.
When Bitcoin was created in 2009, the reward was an astounding 50 Bitcoin for every block.
Bitcoin has halved a total of 3 times since then, leaving the current reward at 6.25 BTC as of May 2020. Bitcoin will continue to halve until all 21,000,000 Bitcoin are in circulation. Once the last Bitcoin is mined (around 2140), miners will begin charging small transaction fees.
Mining Pools
Many individual miners lack the necessary equipment to ever mine a block on their own. To still have a chance at making some profits, they join mining pools.
Mining pools allow miners to combine (or pool) their mining power and split the earnings. Members of the pool will receive a portion of the reward equivalent to their contribution to the total mining power of the pool.
Mining pools are controversial in the cryptocurrency community as they tend to centralize power rather than further decentralization.
Thanks to cryptocurrency exchanges, wallets, and other tools, Bitcoin is transferable between parties within minutes, regardless of the size of the transaction with very low costs. The process of transferring money in the current system can take days at a time and have fees. Transferability is a hugely important aspect of any currency. While it takes vast amounts of electricity to mine Bitcoin, maintain the blockchain, and process digital transactions, individuals do not typically hold any physical representation of Bitcoin in the process.local bitcoin bitcoin инвестирование currency bitcoin future bitcoin bitcoin миллионеры bitcoin investment bitcoin motherboard терминал bitcoin delphi bitcoin анимация bitcoin security bitcoin bitcoin расшифровка bitcoin видео создать bitcoin ethereum доллар сбербанк bitcoin Mining rewards are paid to the miner who discovers a solution to the puzzle first, and the probability that a participant will be the one to discover the solution is equal to the portion of the total mining power on the network. Participants with a small percentage of the mining power stand a very small chance of discovering the next block on their own. For instance, a mining card that one could purchase for a couple of thousand dollars would represent less than 0.001% of the network's mining power. With such a small chance at finding the next block, it could be a long time before that miner finds a block, and the difficulty going up makes things even worse. The miner may never recoup their investment. The answer to this problem is mining pools. Mining pools are operated by third parties and coordinate groups of miners. By working together in a pool and sharing the payouts among all participants, miners can get a steady flow of bitcoin starting the day they activate their miner. Statistics on some of the mining pools can be seen on Blockchain.info.bitcoin trojan If you are ASIC mining, your hardware likely comes pre-installed with mining software. If you are *****U or GPU mining, you will need to choose your own software, keeping security in mind. A software package could contain malware. You should also watch out for other tricky, if not outright malicious, behavior. It's easy enough to find yourself accidentally mining on behalf of the software's developer because their system configures their worker as the default.bitcoin token индекс bitcoin cryptocurrency mining tether комиссии bitcoin clock raiden ethereum ethereum org
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