Your simple guide to mining crypto

In the heady days of 2017, anybody who knew their crypto was aware of the importance of ‘mining’. These days, the term – and concept – has fallen out of fashion somewhat, a combination of ecological concerns and novel transaction verification methods pushing crypto mining out of the limelight.

Despite this, mining is still an integral part of Bitcoin - the world’s biggest and best-known crypto – and remains the preferred method for both producing new tokens and verifying transactions for a number of high-profile cryptocurrencies.

What is it, why is it important and how does it work?

Simply put, crypto mining involves large, decentralised networks of computers that leverage their processing power to verify and secure blockchains. As a reward for committing energy and processing resources, miners receive new coins. This reciprocal relationship is vital for maintaining the security and integrity of blockchains: the blockchains need miners to validate and secure blocks, allowing them to operate without third-party oversight; unlocking new tokens incentives miners to keep it up.

Obviously, the actual process is a little more complex. In a blockchain like Bitcoin, each block contains a set amount of cryptocurrency. To unlock the crypto in a block, miners use computers to solves extremely complex mathematical problems known as cryptographic hashes. The first miner to solve the problem receives the rewards. As well as generating new coins, this also validates the block and adds it to the larger chain.

Back in the halcyon days of the original Bitcoin boom, anyone with a modern-enough laptop or desktop computer could mine cryptocurrency. As cryptographic hashes became increasingly complex, the processing power needed to solve them increased drastically. These days, only large numbers of computers working in parallel have the requisite power to unlock blocks and most mining is performed by networks or companies rather than individuals.

Dip a toe!

Which brings us on to ‘mining pools’. Because of the way crypto mining works, the chances of being the first to solve the cryptographic hash that secures a particular block are tied irrevocably to the amount of processing power any one miner is capable of wielding. This means that individual miners are extremely unlikely to unlock the next block working alone. By coordinating with other miners (or third-party organisers), miners can combine their processing power to guarantee a steady flow of crypto, with payouts shared amongst the pool.

The downside

So much electricity is required for crypto mining operations that it has become a genuine ecological issue, with increasing numbers of blockchain projects looking to mitigate the environmental impact of mining by introducing less power-hungry processes or using alternative methods to secure and validate blocks. Check out our recent post for more info on ‘green’ cryptocurrencies.

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