Have you ever wondered how each transaction on a blockchain network is actually verified and recorded? You probably know that transactions made within a blockchain network are fully secured, but why and more importantly how is all of that made possible? The answer to these questions is what’s commonly referred to as crypto mining, or mining. Let’s go over what mining is, how it works, and why it’s so important for cryptocurrency as a whole.

This is not financial investment advice.

This article will touch on key aspects of mining and the mining process.

In this article

Mining Terminology

Of course, we always have to go over some important words and phrases which will help you understand all that is to come.

Mining: Mining is the process by which transactions are verified and added to the public ledger, known as the blockchain, and also the means through which new bitcoin are released. Anyone with access to the internet and suitable hardware can participate in mining.

Block: Blocks are files where data pertaining to the Bitcoin network is permanently recorded. A block records some or all of the most recent Bitcoin transactions that have not yet entered any prior blocks. Thus a block is like a page of a ledger or record book.

Graphics Processing Unit (GPU): A Graphics Processing Unit is a chip or electronic circuit capable of rendering graphics for display on an electronic device. The GPU was introduced to the wider market in 1999, and is best known for its use in providing the smooth graphics that consumers expect in modern videos and games.

ASIC (Application-Specific Integrated Circuits): An application-specific integrated circuit (ASIC) is a piece of computer hardware that is designed for one particular use, such as running the hash algorithms used in bitcoin or litecoin mining.

Hash Function: A hash is a function that converts an input of letters and numbers into an encrypted output of a fixed length. A hash is created using an algorithm, and is essential to blockchain management in cryptocurrency.

Familiarize yourself with the aforementioned terms to gain a better understanding of how mining works.

What Is Mining?

Now that we’ve reviewed some important vocabulary, let’s get into what mining is really all about. Put simply, crypto mining is a process in which transactions for various forms of cryptocurrency are verified and added to the blockchain digital ledger. As blockchain technology and cryptocurrency begin to heat up in terms of popularity and discussion, so have the conversations surrounding the mining process.

Think about mining in the context of coins which use blockchain technology to facilitate all of its transactions. Whenever a transaction goes through, a cryptocurrency miner is responsible for ensuring the authenticity of information and updating the blockchain with the transaction. You can probably guess why mining has become so popular lately, given the exponential rise in popularity for cryptocurrency over the last few years. The incentives for mining attract many people to the industry, as a matter of fact.

The mining process itself involves competing with other cryptominers to solve complicated mathematical problems with cryptographic hash functions that are associated with a block containing the transaction data. So what’s in it for the miner then? Well, for each block that is successfully mined, miners receive block rewards usually in the form of a new coin from the network. This system of incentivized action allows for miners to gain a reward each time they help mine a block, along with the creation of new coins.

Crypto mining is a process in which transactions for various forms of cryptocurrency are verified and added to the blockchain digital ledger. As blockchain technology and cryptocurrency begin to heat up in terms of popularity and discussion, so have the conversations surrounding the mining process.

History of Mining

Before we go over the intricacies of crypto mining, let’s briefly discuss how mining has evolved over the past decade. Bitcoin mining was the first instance of mining in cryptocurrency, emerging in 2009 following the network launch. During this time, these miners would use simple I7 Intel processors and their stock graphics card to mine for new coins. For those of you who aren’t programmers or don’t know exactly what that entails, it’s actually extremely inefficient when compared to today’s technology. Processors could only be powered at about 1 to 10 watts per megahash per second. To put this in perspective, the total computational power of all miners combined today is over 1.5 billion GH/S.

In the beginning, miners also only conducted mining for the sake of the concept itself. It wasn’t until people started to realize that high-end GPU’s could process cryptocurrency hashes at a much faster rate. So, as more mining technology continued to advance, mining farms started to pop up despite how much they cost to run. Essentially, mining farms were supported by a single CPU and motherboard that would run the 6 high-end GPU processors at once.

Butterfly Labs was the first to announce a line of bitcoin mining ASICs, followed by the Chinese company ASICMINER. Profitably mining bitcoin with GPUs quickly became impossible. Other bitcoin ASIC manufacturers include AntMiner, Avalon, Spondoolies and RockMiner.

Today, miners still use an updated version of this technology and have even begun experimenting with cloud mining. This allows individuals to purchase mining power over the cloud and enjoy a share of the profit. What makes this so revolutionary is that it eliminates the need for internet connectivity and makes mining more available for the technological layman. The industry continues to evolve and many more advances in processing and GPU power promise a bright future for cryptocurrency mining.

Bitcoin mining was the first instance of mining in cryptocurrency, emerging in 2009 following the network launch. Today, miners still use an updated version of this technology and have even begun experimenting with cloud mining.

Mining Explained

So how does mining exactly work then? Well, a crypto miner acts as one of many nodes in the overall network. Anyone can run a node, all you have to do is download the free bitcoin mining software. The only drawback is that it consumes energy and storage space. Nodes spread all transactions around the network by relaying information to a few nodes who relay that information to more.

Some nodes which are considered mining nodes group outstanding transactions into blocks and add them to the blockchain. This is executed by solving a complex mathematical puzzle that is part of the program. What kind of question exactly, you may ask? Well, the puzzle is to find a number that — when combined with the data in the block and passed through a hash function — produces a result that is within a certain range. This is actually a lot harder to do than it may sound, since the hash function makes it impossible to predict what the output will be. To solve this, miners guess the mystery number and apply the hash function to the combination of that guessed number and the data in the block.

The first miner to find a resulting hash within the desired range announces it to the rest of the network. Once all of the other miners get note of this, they immediately stop working on that block and start trying to figure out the mystery number for the next one. As a reward for the work, each miner that successfully mines a block receives the block reward and more importantly a coin from the network. The most popular reward happens to be a Bitcoin for those who are Bitcoin miners. Thus, you can now see why mining is so important to cryptocurrency and why many people have become interested in it lately.

A crypto miner acts as one of many nodes in the overall network. Anyone can run a node, which you can use to solve hash functions required to execute and record a transaction into the ledger.

How To Start Mining

There are a few things you’ll need before you can start mining Bitcoin yourself:

Get a coin wallet: First, before you even consider mining, you’ll need a coin wallet to keep track of and store all of your block rewards. Without this, you won’t be able to start. Download Mining Software: Next, you’ll need mining software and a membership to an online mining pool where you can connect with other miners and share computing power to increase profitability. As you attempt to mine more or try to take on more mining power, you’ll have to start adding more tools. Get A Computer Dedicated To Mining: One of these tools is a desktop or custom-built computer designed for mining. A separate dedicated computer is ideal, as using a laptop or gaming console to mine will not be effective enough to generate income. Purchase a GPU: Also, you’ll need an ATI graphics processing unit (GPU) or a specialized processing device called a mining ASIC chip. These chips will essentially be responsible for providing the accounting services and mining work. Obtain A Cooling System: Remember, mining generates substantial heat, so having a cooling system for the hardware is critical for your success.

Conclusion

Mining is one of the lesser-known yet immensely significant components of making cryptocurrency work. Without miners, the very idea of cryptocurrency would not function properly as their role is an integral part to its functionality. As you’ve read, mining is a relatively complicated process that you can actually start doing yourself. As long as you have the drive, right tools, and ample internet connectivity, you can become a crypto miner yourself and become a part of one of the largest emerging industries today.