Crypto mining might be a foreign concept, or it might be something you’re interested in learning more about. Either way, we’ve put together a little guide to everything you need to know about crypto mining and how it works.
Looking to learn more about the basics of Crypto? Check out our Crypto terms every investor should know.
What is Crypto Mining?
In short, crypto mining is a complicated process and involves a lot of guesswork to arrive at the right solution. Overall, it refers to the process of adding cryptocurrencies to the blockchain. Most people have heard of Bitcoin mining, as this is the most popular form of crypto mining, but it refers to various types of cryptocurrencies.
Crypto mining occurs when a transaction is made – a miner then updates the blockchain, by ensuring the validity and authenticity of the information involved and adding it into the system. This is done by targeting the ‘hash value,’ which is unique to each piece of data that needs to be added to the blockchain. Cracking the hash value takes time, and a lot of false starts and extremely powerful computers need to be involved.
Several crypto miners exist out there, and the competition is crazy, miners compete to crack the block containing any transaction data whenever one is made, which may involve a lot of complex equations, and a lot of time and computer power. They need to work fast to target hash value and come up with a unique digit.
Crypto miners always earn small amounts of currency whenever they crack the code and add the transaction info into the blockchain. Basically, they authorize the transactions when one is placed, and are paid for doing so, while being required to beat out other crypto miners.
How Does Crypto Mining Work?
Being a crypto-miner puts a person in a unique position where they are involved in the auditing process, authenticating transactions and ensuring that no two data are the same in the blockchain. Similarly, miners are the primary way new cryptocurrencies are introduced into the circulation because cracking a block adds it to the chain. They can get paid over 12 Bitcoins for every single time they crack a hash value before another miner.
Because of this, crypto miners ensure that double spending does not occur. This is a real problem in the digital world because currency does not actually exist, and has no physical form or value, so it has the potential to be used again and again and again. This is why the blockchain itself exists in the first place, to track down and record transactions, and there are many crypto miners out there who ensure everything tracks properly.
Proof of work, or POW, is involved to ensure that the right crypto miner gets rewarded for cracking a block. Each block contains 1MB of transaction data; once this data is verified, a miner is eligible for a reward.
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