Mining probably makes you think of pickaxes, diamonds, and lots of hard work. Cryptocurrency mining is completely different from traditional mining. However, it does involve a lot of hard work—hard work that is done by computers.
Cryptocurrency mining is a process that creates new currency and confirms the validity of transactions. There are two major components here:
Confirming validity of transactions.
At first, creating currency was one of the biggest problems with the idea of digital money. In theory, it seemed impossible to stop counterfeiting because digital things are much easier to copy than physical things. Bitcoin was the first kind of digital money to use mining and the first solution to the problem of counterfeit digital currency. Additionally, it prevented other financially destructive actions like using one coin multiple times. (This is called double spending.)
Mining also confirmstransactions as valid. When you buy something with traditional money, your transactions are processed by companies and financial institutions. This is how counterfeit money is detected. Since cryptocurrency is not linked to companies or banks, it needed a unique way to do this without fuss or fraud.
How it Works
Mining works by using computer power all over the world to solve an insanely difficult math problem. In crypto-lingo, usually people are called miners. But the miners are really the computers that do the mining. People who mine cryptocurrency just download a program that uses their computer as a powersource for mining.
The math problem is more like a guessing game than a math problem you’d do in school. Each group of transactions, also known as a block, has to be verified. The way this happens is that a random, 64 digit number called a hash is associated with the block and must be guessed. The computers are used to perform guesses as fast as possible in order to verify the block, and the first computer to guess the number receives cryptocurrency as a reward. Miners also have the choice to join a mining pool that shares the reward proportionally among all the miners.
This is secure because every group of transactions has a public history. If someone submits a fraudulent claim, it will be rejected by the miners because their transaction history will show that something doesn’t add up. Perhaps they claimed to receive $20 but there was no history of another user sending them $20 at the time.
How You Can Benefit
Miners earn cryptocurrency by doing so. However, mining is a much more expensive endeavor than it used to be. Getting a computer suitable for mining will cost between $3,000-$10,000.
With that being said, it can be a very profitable endeavor for those who make the investment.
Mining is also one of the processes that helps make cryptocurrency secure. Without mining, there would be no automated way to reject forged transactions. By making computers do the work to solve hashes and validate transactions, human input isn’t needed to verify authenticity.
Cryptocurrency mining is important because it creates new currency and helps ensure that transactions are valid.
By rewarding users with cryptocurrency, others are motivated to lend their computer power to the process of verifying transactions.
Mining benefits everyone, either by profits or peace of mind.