Cryptocurrency Mining — The Ultimate Beginners Guide
You go to a Grocery Store. Places an order. Pay the amount as occurs. Later, you find that the groceries were ruined. You go back to the store. Recites the whole act & asks for a refund. And, he denies. Now, you can’t do anything. The reason being you don’t possess any proof that you bought the Grocery & made a payment.
Here, the fault was Yours. You didn’t ask for the receipt. You empowered Seller to do this to you.
This was a very basic example from our daily lives. This tells that even a simple exchange of money demands cautiousness from both the parties. So, that nobody is in the loss. And, a fair transaction takes place.
When we’re transacting using traditional currency (Rupees, Dollars, Pounds) then the Government and the Banks exist in between to make sure fair code of conduct.
But what about Cryptocurrency?
What if a transaction involves cryptocurrency as a medium of exchange? Who will ensure fair deals?
Somebody dug for the answer to these questions and here is what came out.
What is Cryptocurrency Mining?
Whenever a transaction involving Cryptocurrency takes place, Cryptocurrency Mining occurs as an inevitable act. Here, individuals know as Miners works to secure and verify the transaction, to add a block to the chain, & to inject more cryptocurrencies in circulation. Just to give you an outline the whole Cryptocurrency system runs on Blockchain Technology. As its fully decentralized, Miners ensure an ethical code of conduct.
Now let’s dig into various functions of Miners.
- Securing & Verifying the Transaction
Assume Sunny wants to send (Bitcoin) Cryptocurrency to his brother Bobby. He initiates the transaction with his own private key (personal information) towards Bobby considering his public key (public information). Now, the information attached to this transaction like the name (username), amount, date, time, location, etc, are to be secured & verified by Miner. A miner takes that information into account and encrypts it into technical code using Cryptography & Hashing Function. This is done to secure the data from getting disrupted by anyone.
Cracking those codes isn’t easy. For verification of the transaction, Miners compete with each other to solve a Crypto Puzzle. A mathematical problem. The solving of the problem leads to a transaction getting verified. This process is known as Proof of Work. Criteria of verification vary from transaction to transaction. Some may require only 1 miner confirmation. Whereas, some may require 10 miner confirmations.
2. Adding of Block to the Chain
It’s a by-product of the above function. Once securing & verification of the transaction gets accomplish properly then that information is recorded in a block. A single block can store up to 1 MB of data. Every block possesses a Hash Code of the previous block. This makes it even difficult to crack for anyone. Next, this chain of blocks continues to forms in the same process.
3. Injecting More Cryptocurrency
A miner gets a reward for cracking the puzzle & verifying the transaction in the form of Cryptocurrency itself. He/She is obliged to receive 12.5 coins (Bitcoin) as of now. Cryptocurrency is getting popular therefore Mining as well. This increased the demand for Miners in the market. Hence, the rewards are shrinking. These 12.5 coins in the form of reward are the injection of cryptocurrency to the market. That’s how Cryptocurrency circulation is regulated in the decentralized market.
What Does Cryptocurrency Mining Requires?
For Cryptocurrency Mining, special hardware with quite strong enough power is the first thing. That hardware should have a Graphical Processing Unit (GPU) or Application Specific Integrated Circuit (ASIC), a good cooling system to prevent the system from getting heated and a strong incessant Internet connection. Apart from this Miner should be standing with the conditions required for Cryptocurrency like wallet, being part of a Crypto Exchange, etc.
Nowadays, due to increasing competition in Cryptocurrency Mining, a single miner make a collab with other miners to form a pool. Here, on the basis of their contribution to mining, the reward is distributed. This is known as Mining Pool in popular.
This was about Cryptocurrency Mining. All the essential and basics have been covered in this blog. Definitely Cryptocurrency Mining is a good way to enter the Cryptocurrency world without directly investing in Cryptocurrency. Maybe it doesn’t seem but it’s interesting to be a Cryptocurrency Miner. After all, he/she is the backbone of Crypto World.
If you want to go ahead with Cryptocurrency Mining here is a good read for you from Amazon.
That’s all for this blog.
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