Cryptocurrency Mining: All You Need To Know About
The age of digitalization has changed every single aspect of our daily routines. We have unlimited access to countless things now thanks to technological advancements. A product of technology, the internet has granted many possibilities and opportunities to all of us. Everything is just one single click away. Thanks to the internet, we now have access to Blockchain. It was introduced a year ago as an innovative creation. This introduction completely revolutionized the business world. It is now being implemented in every field and industry of work. Whether you belong to a medical field or a business field, you have certainly heard about cryptocurrency everywhere.
So what is cryptocurrency?
Cryptocurrency is digital money. Plain and simple. The concept of blockchain, due to digitalization, created cryptocurrency as a way of payment and transactions. Digital wallets count as cryptocurrency. Rather than carrying loads of cash, coins, and cards, you now have everything stored electronically.
Since cryptocurrency is gaining popularity day by day, people prefer switching to using cryptocurrency. There’s a huge difference between regular currency and cryptocurrency.
- cryptocurrency is a network of terminals running on open-source code. Regular currency is issued by the government.
- Cryptocurrency is available in some countries depending on the accessibility, technology, and capability whereas regular currency is easily accessible to everyone
- Cryptocurrency is highly secure as every transaction is recorded, verified and stored on the internet. Government and banks moderate transactions to a limited extent.
Bitcoin is the most popular cryptocurrency currently. It was introduced back in 2008.
it is so much simpler to divide, store and secure transactions now.
What is Cryptocurrency mining?
It is known as the process where all transactions are verified between users. These transactions are stored in the blockchain public ledger. The process also introduces new coins and maintains the operations of having a decentralized network. Through this process, cryptocurrencies are allowed to work together as a decentralized network without needing a third party to authorize transactions.
Bitcoin is a popular example of a mineable cryptocurrency. Since not all cryptocurrencies are mineable, Bitcoin mining is taken seriously. Mining works by implementing an algorithm called Proof of Work.
How does it work?
A node in the network that collects transactions is called a miner. This miner organizes the transactions into blocks. The rest of the network nodes are used to verify the validity of the transactions made. After verification, the miner node collects all the transactions from the pool and assembles them into a single block known as a candidate block.
The first step is to hash each transaction individually. Pick them from the memory pool and hash them separately. The miner node makes a transaction of sending themselves a mining reward also known as a block reward. This transaction is called a coinbase transaction. This is where coins are created out of nothing and the first transaction is recorded in a separate block.
After hashing every individual transaction, the hashes are organized a hash tree or a Merkle tree. This happens by organizing several transaction hashes into pairs first and then hashing them. The process is continuous until “the top of the tree” is reached. The root hash or the top of the tree is a single hash that symbolizes all previous hashes that were processed to create it.
The root hash is assigned a random number and is called a nonce. This nonce is added to the block’s header. Later the block header is hashed that creates an output based on root hash, previous block’s hash, and nonce. The block hash will act as an identifier of the new block known as the candidate block. To be as a valid output, the block hash needs to be less than the value determined by the protocol. The block hash should start with some specific number of zeros.
The hashing difficulty or the target value is created and regulated by the protocol on a regular basis considering the rate at which new blocks are generated. The rate should be proportional to the amount of hashing done.
Whenever new miners join the network, the hashing difficulty increases as the competition increases which doesn’t allow the average block time to decrease. if miners leave the network, the competition decreases so the hashing difficulty will drop too which maintains the block time constantly.
The whole process needs the miners to regularly hash the block header until a valid block hash is produced by a mine. The node will regulate the block to the network once the valid node is found. The other nodes will verify the validity of the hash and add the block into their copy of the blockchain before mining the next block.
Incase 2 miners broadcast a valid block at the same time, there will be 2 blocks broadcasted to the network. Based on the first block they receive, the miners will mine the next block. The competition between the blocks will increase until the next block is mined. An orphan block is an abandoned block. The miners in charge of the orphan block will mine the chain of the winner block.
Mining pools solve the problem of distributing mining power throughout the network. All the resourced pooled by the miners will result in equally split rewards to everyone in the pool. the probability of choosing and finding hash is equal to the limited supply of total mining power on the network. The rewards equal to the work they do in contributing to finding a block.