Mining For Crypto Gold

Please Pick Your Crypto Level

2 min read

Mining For Crypto Gold

Cryptocurrency mining celebrates its 10th year of existence this year. What is mining though? It’s somewhat misunderstood as the process of “finding coins”, but it’s more complicated than that.

Each of the hundreds of cryptocurrencies in existence relies on the main concept of the blockchain. Cryptocurrency was designed to be decentralized, secure and unalterable – so every transaction is encrypted. Once that encrypted transaction happens, it’s added to a “block” until a fixed number of transactions have been recorded. That block then gets added to a chain which is publicly available, formally known as a blockchain.

Because of the power of decentralization, the location of the transactions and the person behind them can’t be found so that things can’t be manipulated or controlled by one person or entity.

Since these blocks are heavily encrypted, they’re sort of like complicated math puzzles that only powerful compute-capable hardware can solve. That’s where you need CPU, or Radeon and GeForce graphics cards*. Overall, the process of solving the math puzzles on these blocks and adding them to the public blockchain (think of it as a ledger) is roughly what mining is.

*Reminder: you can’t mine crypto-coins with your laptop or an average computer, they are not powerful enough. To learn more about requirements for mining, switch to the Genius article.

Miners verify the transactions, ensure they aren’t false, and keep the infrastructure humming along. The reward for doing so is a payment in that block’s coin (usually called a miner’s fee). The payment is based on how much their hardware contributed to solving that puzzle.

Where do the coins come from? By design, that’s exactly how the coins are created. The block is solved and coins and distributed fairly to miners. Thus increasing the coin’s supply.

THE GREATEST ANALOGY: GOOGLE DOCS

In 2016, William Mougayar wrote an exceptional piece explaining blockchain technology by leveraging something we all know about: word processing programs. He reminded us that when Microsoft Word was the only game in town, a person had to create a file, open it, then send it to another person to have it edited or updated. The similarity to banks is striking, and makes it clear why blockchain technology was created in the first place:

That’s how databases work today. Two owners can’t update the same record at once. That’s how banks maintain money balances and transfers; they briefly lock access (or decrease the balance) while they make a transfer, then update the other side, then re-open access (or update again).

With Google Docs (or Google Sheets), both parties have access to the same document at the same time, and the single version of that document is always visible to both of them. It is like a shared ledger, but it is a shared document. The distributed part comes into play when sharing involves a number of people. Imagine the number of legal documents that should be used that way.

~William Mougayar, Coindesk.com

3 min read

Mining For Crypto Gold

THE MODERN GOLD RUSH

Mining for a digital asset sounds pretty counterintuitive, I mean how is it even possible to mine something that only exists virtually? This is because mining in the context of cryptocurrency doesn’t require a hard hat or a pickaxe, but instead relies on powerful computer processors and large amounts of storage space. Mining is the process of authenticating cryptocurrency transactions by solving puzzles and producing new blocks on the blockchain to store this information.

It is absolutely essential for the survival of most popular cryptocurrency networks since it’s the underlying process that allows them to act as a medium of exchange. Without mining, none of it would be possible, which is why most cryptocurrency networks offer miners an attractive incentive. Therefore, if you possess the right amount of computing power and electricity, mining can be a profitable endeavor.

WHAT IS CRYPTOCURRENCY MINING?

Mining has become a cornerstone of the cryptocurrency world and has sparked growth in several different computing industries. Since the popularity of mining goes hand in hand with the popularity of cryptocurrency, the bullish crypto markets of 2017 really helped mining take off on a large scale. The essential purpose of mining is the verification of blockchain transactions.

How this is accomplished can be a little complicated, but the basic method requires the solution of complex mathematical problems to produce a cryptographic message which meets specific criteria. If a miner accomplishes this, then the participants of the network are notified and a new block containing the transaction data is added to the blockchain. The miner is subsequently rewarded with a coin for their efforts of verifying the transaction data.

DIGGING UP THE DETAILS

This is a very simplified version of mining, so let’s go a little deeper. To truly understand how mining works, we should first define some important terms. Let’s start with hash functions. Hash functions are simple to understand. Their main purpose is to take a string (like a number + transaction info) and produce a hash value, which is a cryptographic series of numbers and letters that represent the underlying information.

Mining requires the nodes (any device linked to the blockchain) competing to produce the next block to come up with a number known as the nonce. A nonce is a number that only appears in a database once. When combined with the transaction data and run through a hashing function, the first to produce a particular hash matching the criteria set by the rest of the network is awarded the task to produce the next block on the chain. This person is known as the miner.

Miners are constantly competing to produce a hash that contains a valid nonce value. When a miner successfully determines a number which produces the correct hash, the remaining miners are notified to move on and a block containing the transaction data and cryptographic hashes is generated and added to the blockchain. The miner then receives a block award for their efforts which is usually a coin or token associated with the blockchain.

CONCLUSION

Mining plays a very fundamental role in what makes cryptocurrencies so revolutionary. They provide a trust-less way to exchange valuable assets over the internet. The underlying concepts may seem confusing, but in general terms, mining is a very essential process.

The incentives surrounding mining are also very appealing, but it is important to consider these in conjunction with the high energy and hardware costs before attempting to run a full mining node.

All in all, understanding these technical concepts of cryptocurrencies and blockchain can help differentiate these assets from one another, ultimately allowing for more informed investment decisions.

4 min read

Mining For Crypto Gold

BITCOIN MINING: THE ART OF DIGITAL COIN MAKING

From the rise of cryptocurrency, the word mining has adopted a completely different meaning. Once upon a time, mining was what the dwarfs did when they left Snow White at home alone, now it refers to nodes on a blockchain network competing to earn the task of processing transactions in exchange for digital rewards. Welcome to mining in the 21st century!

Essentially, the “crypto” part of cryptocurrency requires that all sensitive information associated with a transaction be encrypted. This encryption is achieved through the use of hash functions. These functions produce a random string of letters and digits called a hash, that represent some meaningful underlying information. Regardless of what is put in through a hash function, a completely unique hash will be produced. The limit is the length of the hash produced by the function.

The purpose of mining is to produce a hash for the transactions in a block, which can then be verified by the network and added to the growing chain. A potential miner will try to accomplish this by taking the transaction information that needs to be encrypted and pairing it with a special number known as a nonce. This combination is then run through a hash function. The hash that is produced must then be less than or equal to a value that has been predetermined by the network based on the difficulty of this task.

The first miner able to produce a valid hash is assigned the responsibility of generating the next block of transactions to be added to the blockchain. In exchange, they earn coins or tokens associated with the network. This is how new coins enter circulation. At this point, the rest of the network is notified to move on to the next set of transactions waiting to be encrypted and added to the distributed ledger.

EVOLUTION OF MINING TECHNOLOGY

It is important to realize that mining is a very energy exhaustive effort, especially as certain networks, like Bitcoin, become larger by the day. This makes it more difficult to come up with the correct hashes, and therefore, the incentives for being successful are more appealing. These costs and incentives of mining have transformed mining today from what it was when Bitcoin first launched in 2008.

Miners are required to install a full node on their device, which is basically an open software launched by the blockchain network. Since this has a full copy of the blockchain database along with the capability to relay information to several other nodes; running it can be resource heavy. Furthermore, the more powerful a processor, the better it will be at coming up with the correct hash values and receiving the incentive involved.

Over the years, GPUs (graphical processing units), a processor used to produce visual graphics on a computer, have proven to be great at solving hashing functions. This has made the prices for GPUs almost double within the last year, with the stock prices of companies that make GPUs, like NVidia, rising in correlation. Furthermore, companies like Butterfly Labs have started commercially producing computer chips known as ASICs (Application Specific Integrated Circuits).

These are dedicated computer chips that are designed to mine crypto. Not to mention cloud mining technology, where mining power can be purchased over the cloud, is gaining more traction as demand for crypto increases.

WHAT DO I NEED TO MINE?

As stated earlier, mining is a very resource heavy effort and can often require high energy inputs. Therefore, a lot of necessary hardware is required to be able to mine, including:

A coin wallet. Coin Wallets are important for mining since this is where you will receive the rewards of your work.
Full node software, which is usually open source and available to download from the website of the crypto project, and access to an online mining pool, where you can connect to other miners and share computing power for increased profits.
Dedicated laptop or computer. For mining to be feasible and profitable, it is important to have a laptop or computer dedicated to mining, otherwise the necessary amount of processing power is not going to be available if your machine is being used for other applications.
GPU or ASICs, which as mentioned above, help solve the complex hashing functions.
Cooling system, since such energy intensive computing will generate a lot of heat, threatening to overload your system and shut it down without proper cooling devices.

Do you know
CoinSmart’s GetSmart Hub?

Your Destination for Crypto Knowledge & Learning Tools.