cryptocurrency mining and what uses does it have? We explain it to you
Today much is said about cryptocurrencies , their fluctuations, advantages and disadvantages . But very few really know how they are produced. However, we have all heard of cryptocurrency mining at some point. But… What does he mean? What is cryptocurrency mining and what uses does it have? Knowing this can perhaps help us to better understand this new world of investment in digital assets that is gaining more and more ground and more followers.
Cryptocurrency uses advanced encryption technology in various ways. Cryptography evolved out of the need for secure communication methods during World War II and was designed to convert easy-to-read information into encrypted code. Now crypto has come a long way. The two main elements of applied cryptography are cryptocurrency hashing algorithms and digital signatures . Let us remember that today’s digital world is mainly based on computer science and mathematical theories.
A characteristic of most cryptocurrencies is that they are designed to slowly reduce the production of crypto assets . This has the same attributes as commodities like gold and other precious metals. Some people claim that the creators of Bitcoin actually imitated precious metals to create cryptocurrencies. Therefore, over time, mining becomes more difficult because the mining reward is halved every few years until it reaches zero.
What is cryptocurrency mining?
Cryptocurrency mining is the process in which miners use computing power ( hashing ), to process transactions and earn rewards, in this case cryptocurrencies. Put another way, it is the process of adding new transaction records as blocks to the blockchain. Or also, that it is the process of recording blockchain transactions , in exchange for a reward, delivered in the same type of cryptocurrency that is being mined. For example, if Bitcoin is mined, the reward is in BTC.
One of the main characteristics of mining is the concentration of resources. That is, it requires a large amount of computing power that can meet the demands of mining. In addition to allowing all participants in the mining network to agree on the efficiency and accuracy of the blockchain. In addition, not only must a large computing power mining machine be provided, but a stable electrical power network must also be guaranteed.
Mining requires specific software for the resolution of mathematical problems, and the verification of the legal transaction that confirms that a block is a block. These blocks are added to the public ledger ( blockchain ) approximately every 10 minutes. When the software resolves the transaction, the miner will receive a certain amount of digital coins. The faster the miner’s hardware can process these math problems, the more likely it is to verify the transactions and receive your rewards.
What is needed to mine cryptocurrencies?
To mine a certain cryptocurrency, you need proper hardware to mine that coin . Depending on the coin, you may need an ASIC miner (a computer dedicated to mining a certain coin) or a computer with a high-performance GPU (graphics card). In some cases, it can even use a CPU (central processor ) as well. Different hardware may be required for each type of coin to be mined. Using the wrong hardware will only result in losing money.
GPU-based miners can effectively mine all kinds of coins as long as they can be mined with graphics cards, but this rule does not apply to ASIC miners. For example, ASIC miners that mine Bitcoin (SHA256 algorithm) cannot be used to mine Zcash coins (Equihash algorithm ) . This is because the two coins use different algorithms. Miners that mine SHA-256 algorithm currency are not good at mining other algorithms. This is important to keep in mind.
So it is best to make sure you have a mining machine that is suitable for extracting the coins you want to mine . You also need a stable network connection that stays up and running. Stability is the key, not speed . Additionally, a stable and low-cost electrical power supply is required . Since electricity prices greatly affect profits, so it is necessary to find the cheapest electricity.
Cryptocurrency mining process and rewards
In the cryptocurrency mining process, the hardware is placed at the service of a network of cryptoactives such as Bitcoin, Ethereum , or any other type of cryptocurrency. What this hardware does is provide its power to confirm that the transactions carried out on the network by its users are valid. Once the validation of these transactions is done, they are grouped into blocks. These blocks are then added to the blockchain . Basically this is the process of mining cryptocurrencies.
The reward for mining bitcoin or any other crypto is generated every time a new block is added to the chain. This reward is made up of two parts: The commissions paid by the participating users of the transactions that make up the new added block and the new digital currencies put into circulation. That is why it is so attractive for miners to make large investments in machines and systems in order to mine cryptocurrencies. Currently each Bitcoin miner receives 6.25 BTC for each completed block.
In short, the process of mining cryptocurrencies such as Bitcoin, Ethereum, and others, consists of validating and grouping the transactions, made by users within the determined network, into blocks that will later be joined to the chain of blocks known as Blockchain. This process, in addition to generating a new amount of digital coins that will be granted to the miner, together with the commissions paid by those who carry out the transactions that make up the added block, also provide security to the network.
What types of mining exist?
In the process of mining digital currencies we find two types:
PoW, (Proof of Work) which in our language would be proof of work . It is the most used system in the mining of currencies such as Bitcoin, Ethereum, Litecoin and Monero . This type of mining requires high powered machines capable of solving a series of hash puzzles . Until these puzzles are solved, a new block cannot be proposed to add to the Blockchain chain. Nor can the new miner’s reward digital coins be generated.
PoS , (Proof of Shake), which translated meansproof of participation. This model is based on the purchasing power of the miner. That is, the more cryptocurrencies you have in your possession, the more you can mine. And, it is a motivation mining model. And it was created as an alternative to PoW seeking to solve the drawbacks that it has presented. Currently there are many cryptocurrencies that use the PoS system because it helps maintain their value in the market.
What is cloud mining?
It is the procedure by which anyone can start mining cryptocurrencies without having the necessary hardware . It is done through a remote and shared data processing center, located in what we call the cloud . In this way, whoever wants to venture into this field can do so without having to face the high costs involved in acquiring the necessary equipment, as well as electricity costs, paying only what corresponds to the service provided to the provider.
How to mine Bitcoins?
One of the most famous cryptocurrencies is bitcoin and, therefore, mining Bitcoins becomes an appealing idea for many people. But how to mine Bitcoins? The process can take place in two ways, it can be done in the cloud or with your own hardware. To do it through the cloud, you only need to choose a company and a mining package, then associate it with your wallet, so that the mined bitcoins reach it. Without a doubt, this is the easiest process and, although the profitability may be lower, it is a great way to achieve profitability soon.