Mining, in particular, plays a crucial role in this ecosystem. It is the process by which cryptocurrency transactions are verified and added to the blockchain, the digital ledger that records all transactions. This process is fundamental to maintaining the integrity and transparency of the blockchain, ensuring that each transaction is unique and avoiding double-spending.
Those of us reading this article probably had an mp3, downloaded music from napster (the older ones), ares, torrent (the more advanced ones). What we used to do was to copy a file and multiply it by the amount we want, save it in any USB, floppy disk, hard disk or wherever.
Now let’s replace that ‘.mp3’ song with a banknote, a Dollar, a Euro, a Peso… a Bitcoin. The main problem that arises is that it would be ‘something with value’ that can be copied infinite times… and as proven in history… IT LOSES VALUE!
With blockchain we can make that ‘something with value’ to be spent only once without a single entity or institution controlling that.
This begs the question: Is it possible to eliminate the institutions that have caused so many reliability problems in recent years? The answer is BLOCKCHAIN.
The reason lies in the nature with which the network is created: DECENTRALISATION.
Miners, who today are using powerful computers, solve complex mathematical puzzles to validate blocks of transactions. As a reward for their work, they receive an amount of the cryptocurrency they are mining, for example bitcoin. This incentive not only motivates miners to continue their work, but also brings new coins into circulation, a key aspect for the growth and sustainability of cryptocurrency.
In addition, mining contributes to the decentralisation of the network. By distributing the process of validation and block creation among multiple independent miners, it avoids concentration of power and protects the network against manipulation or attacks. This is essential to maintain trust in cryptocurrencies and their perceived value.
What is Mining?
Cryptocurrency mining is more than a technical process; it is at the heart of many cryptocurrency networks, ensuring the security and creation of new coins. In the case of the Bitcoin blockchain, this process uses the Proof of Work algorithm, which requires specialised equipment.
Mining is not just a way to earn cryptocurrencies; it is an integral component that sustains and protects the cryptocurrency ecosystem, ensuring its efficient functioning and long-term security. Mining can be a lucrative activity, although it is not without challenges such as energy costs and market volatility.
How transactions are verified and added to the blockchain.
When a Bitcoin transaction is made, it is not immediately added to the blockchain. First, it needs to be verified. Miners on the Bitcoin network take pending transactions and compile them into a block. For a block to be valid, miners must solve a complex mathematical problem, known as a proof of work. This process requires a significant amount of computational power.
The Role of the Proof of Work
Proof of work is what ensures the security of the Bitcoin network. By solving these mathematical problems, miners validate transactions and prove that they have invested considerable effort in the process. This effort deters malicious actors, as tampering with the blockchain would require an uneconomical amount of computational resources.
Adding Blocks to the Blockchain
Once a miner solves the mathematical problem, the new block is added to the blockchain. This block contains a group of recently verified transactions. The addition of the block to the blockchain is what makes the transactions official and permanent. Each added block contains a reference to the previous block, thus creating a continuous and secure chain of blocks, hence the term blockchain – “block” Block – “chain” Chain.
Rewards for Mining
As an incentive for their work in verifying and adding transactions to the blockchain, miners receive a reward in the form of new bitcoins. This reward is halved approximately every four years in an event known as “halving”, which helps to control inflation of the currency.
How much is earned by mining bitcoins?
To give you an idea, this is the historical past, present and future rewards, as they were predefined at the time of its genesis, more than 15 years ago:
Since the beginning of bitcoin in 2009 => 50 btc
On 28/11/2012 with the first 210.000 blocks => 25 btc
On 09/07/2016 after the 420.000th block => 12,5 btc
In May 2020 the 630.000 block was reached => 6,25 btc
By 2024 maybe block 840.000 will be reached => 3,125 btc
In 2028 the 1,050,000th block => 1.5625 btc will possibly be mined.
In total there will be 32 halvings, but it is difficult to know when the last one will take place (approximately in the year 2154).
The verification and addition of transactions to the Bitcoin blockchain is a fundamental process that ensures the transparency, security and efficiency of the network. Through mining and proof of work, Bitcoin maintains a decentralised and reliable system, essential to its operation and value as a cryptocurrency.
Equipment needed for Mining – Mining Hardware
- CPU (Central Processing Unit): CPU mining is the most basic method and uses the computer’s processor. Although popular in the early days of Bitcoin, CPU mining is no longer viable for most cryptocurrencies due to its low efficiency and high energy demand.
2. GPU (Graphics Processing Unit): GPU mining uses graphics cards, which are more efficient than CPUs for the mining process. GPUs are preferred for their ability to solve complex algorithms faster and more efficiently. They are especially popular in mining cryptocurrencies such as Ethereum.
3. ASIC (Application Specific Integrated Circuit): ASICs are devices designed specifically for cryptocurrency mining. They offer much higher performance than CPUs and GPUs, but are more expensive and are designed to mine a specific cryptocurrency, which makes them less flexible.
Software Requirements and Basic Configuration
In addition to hardware, cryptocurrency mining requires specific software. This software is responsible for connecting the mining hardware with the blockchain and the mining network. Some important aspects to consider are:
– Mining Software: There are different mining software depending on the type of hardware and the cryptocurrency to be mined. Some examples include CGMiner, BFGMiner and NiceHash. These programs allow miners to control and monitor their mining activity.
– Mining Configuration: Configuration involves adjusting the software to the hardware specifications and needs of the cryptocurrency network. This includes setting the address of the digital wallet to receive rewards and adjusting parameters such as mining intensity and temperature limit.
– Connecting to a Mining Pool: Since individual mining can be less profitable due to high competition and difficulty, many miners opt to join mining pools. These pools combine the processing power of several miners, increasing the chances of solving a block and receiving rewards, which are then distributed among the pool members.
Cryptocurrency mining is a complex but essential process, which ensures the transparency, security and efficiency of the Bitcoin network. Through mining and proof-of-work, Bitcoin maintains a decentralised and reliable system, fundamental to its operation and value.
