The word ‘Crypto’ is derived from a Greek word, kruptos, meaning hidden. Indeed, the whole crypto idea is little known by the majority, and only a few have a grasp of the crypto world. This article sheds light on what you should know about cryptocurrency and cryptocurrency mining if you’re a beginner.
What is Cryptocurrency Mining?
Cryptocurrencies, or simply cryptos, are digital coins. There are several types of cryptos, Bitcoin being the largest and the most common in trade for over a decade now. Bitcoin was first mined in 2009 when Japanese legend Satoshi Nakamoto mined the first-ever Bitcoin currency.
Cryptocurrency mining involves creating new crypto coins by solving complex mathematical equations. This process requires the investor’s and investment details captured into a distributed ledger, otherwise known as the blockchain.
To complete a process, a miner verifies a single digital transaction as legit. At this point, a transaction is locked into a blockchain for everyone along the network to see.
To get verified, miners must solve complex cryptographic equations. Miners along the blockchain are always in a race against each other to solve math problems.
A successful miner is paid a fraction of the transaction to find a solution for these complex equations. Each successful transaction means a new coin is entering into circulation.
How Cryptocurrency Mining Works
Crypto-currency mining is necessary for maintaining transactional checks and keeping the cryptos in circulation. Utmost critical, the cryptocurrency mining process prevents the threat of double-spending and counterfeiting.
When a person spends cryptocurrency, like physical currency, the digital records must be kept up to date by debiting and crediting separate accounts.
Still, the digital arena can be fluently manipulated, posing a significant challenge to this type of transaction. Thus, only vindicated miners could carry out digital tally transaction updates; hence, an additional task of securing the network from double-spending.
Solving these complex mathematical problems requires sophisticated equipment, including power-intensive computer processors. The crypto mining facility is expensive because of the high cost of electricity attached to the intensive nature of round-the-clock operations.
One of the outstanding features of these digital transactions is their decentralization nature. There is no intervention of central authorities, such as central banks or courts, which renders it difficult to validate the legitimacy of these digital transactions. It’s at this point where proof-of-work, PoW comes into play.
PoW is a mechanism that requires network members to employ extensive efforts in solving the cryptographic hash puzzles to prevent counterfeiting and manipulating the mining system.
In other words, proof-of-work is the essence of validating crypto transactions while generating the new token, letting the members in the network be aware of the additional block on the chain.
In addition, a proof-of-work (PoW) consensus protocol requires only verified miners to secure the network and update ledger transactions. PoW also protects the network from external attacks and possible hacks.
In a nutshell, cryptocurrency mining entails all the activities, processes, and equipment involved in solving complect cryptographic algorithms—tokens reward the first miner who finds the solution to such a problem.
Then, transactions are recorded and made public to other members of a network. A new block is then added to a blockchain network for reference.