This is the first in a series of blog posts exploring the inner workings of blockchain and cryptocurrency technology. We’ll be writing about Bitcoin, Ethereum, and other blockchains and cryptocurrencies, how they work, and what you can do to get started as a developer.
What follows is an introduction to mining cryptocurrency — how it works, what it means for your crypto wallet, and what you can do to mine some for yourself.
Understanding Blockchain & Cryptocurrency
Before we dive into the nitty gritty of how cryptocurrency mining works, let’s take a step back. What is a blockchain? How are cryptocurrencies stored? To answer these questions we have to go back to where it all began: the ledger.
The Ledger: Ancient History
If you’ve ever worked in an office or run a business before, chances are that you’ve had some experience with ledgers: personal or business accounting books that keep track of assets and expenditures. Throughout history, ledgers have been used to keep track of personal finances (think bank accounts), ownership (think property deeds), government expenditures (think tax money), and much more. While there are countless types of ledgers, most follow a similar structure: they’re centralized systems that trust
Cryptocurrency mining is a process in which transactions for various forms of cryptocurrency are verified and added to the blockchain digital ledger. Also known as cryptocoin mining, altcoin mining, or Bitcoin mining (for the most popular form of cryptocurrency, Bitcoin), cryptocurrency mining has increased both as a topic and activity as cryptocurrency usage itself has grown exponentially in the last few years.
Every time a cryptocurrency transaction is made, a cryptocurrency miner is responsible for ensuring the authenticity of information and updating the blockchain with the transaction. The mining process itself involves competing with other cryptominers to solve complicated mathematical problems with cryptographic hash functions that are associated with a block containing the transaction data.
The first miner to solve these problems and validate a block receives what’s known as a “block reward.” For Bitcoin, a block reward is paid as a fraction of digital bitcoin.
The digital currency Bitcoin has been the de facto standard for cryptocurrencies since its inception. Bitcoin’s popularity and value have risen steadily over the years, but its price is still far below its highs in 2013 and 2014.
Many people are hoping that the price of Bitcoin will go up again, but no one knows what will happen in the future. This makes it difficult to decide whether it’s worth investing your money or time in cryptocurrency mining.
If you’re not sure whether you should start mining cryptocurrency, this article will help you decide by discussing how mining works and how long it takes to mine a single block of Bitcoin.
Cryptocurrency mining is an expensive and intensive process, so it’s important to understand how long it takes before deciding whether or not it’s worth it for you to start mining your own cryptocurrency.
It’s been the story of my life: I’ve always been late to the party.
When I was 14, I missed out on being one of the first people to use Friendster. When I was in college, I never got a chance to join Napster. And just a few years ago, when Bitcoin was worth $10 each, I had absolutely no interest in investing in it or buying any part of it.
Now, looking back at all three instances of me missing out on being one of the first people to get involved with what are now extremely popular trends, I can’t help but feel a little jealous and bitter that all three times I had the chance to be an early adopter. But alas, there’s nothing we can do about our past mistakes, so instead let’s focus on fixing those mistakes this time around and getting involved with one of today’s most promising trends: cryptocurrency mining.
But before we dive into how you can get started with cryptocurrency mining, let’s take a look at what cryptocurrencies even are and how they work.
The process of mining cryptocurrency is a bit like finding a needle in a haystack. Miners use powerful computers to “guess” the solutions to cryptographic functions that produce the blocks that make up the blockchain.
The first miner to get their block verified earns tokens as well as all transaction fees included within that block. The more computing power a machine has, the more guesses it can make and therefore the more likely it is to win the reward.
Proof-of-work (PoW) is a system that uses some work from the service requester, usually meaning processor time, as a means of blocking denial of service (DoS) attacks. A hashcash proof-of-work is generated through solving hard problems in cryptography. The main function of PoW is to deter spam or Distributed Denial of Service (DDoS) attacks on networks. The most common form of PoW is Bitcoin’s Hashcash algorithm which secures transactions on the network.
The concept of mining cryptocurrencies is relatively simple and can be thought of as a process of solving complex mathematical problems. But, what does this mean?
Well, cryptomining is the process by which transactions are verified on a blockchain and new coins are released to the public. This verification is done in a process known as proof-of-work. In order to verify the transactions, miners must solve complex math equations. If they are successful in doing so, they will release new coins into circulation.
Mining cryptocurrencies takes a lot of power as well as advanced hardware. A single cryptocurrency miner won’t yield much profit but when groups of miners band together to form mining pools, they can share their resources and make it more profitable.
There is a lot of interest in cryptocurrency mining these days. But how does bitcoin mining work? And is it still possible to make money doing it?
Let’s take a look at how you can mine cryptocurrency and where to begin.