Cryptocurrency mining: What is cryptocurrency mining and how does it work?
To understand clearly what cryptocurrency mining is and how it works, it is petinent to first know what cryptocurrency is and the different types of cryptocurrency and features of cryptocurrency as a whole.
What is cryptocurrency?
Cryptocurrency is simply a digital asset or digital money designed to serve as medium of exchange that uses strong cryptograph to secure financial transaction, control the creation of additional units and verify the transfer of assets. It is an internet based medium of exchange that utilizes cryptographic functions to conduct financial transaction.
What is the main feature of cryptocurrency?
The main feature of cryptocurrency is that it is decentralized. That is to say, it is not subject to any government or institutional interference or management. Two parties can transact with cryptocurrency directly without the need of any third party unlike the normal local currency where transactions require the approval and interference of the financial institutions like banks.
What are the types of cryptocurrencies?
There are so many cryptocurrencies. However, the most widely recognized and used ones are ;
- Bitcoin cash
- Ethereum classic
- Ripples etc
It should be noted that of all the above mentioned, Bitcoin is the most recognized and accepted cryptocurrency. Bitcoin was invented by Satoshi Nakamoto in 2009. At the time of invention, Satoshi Nakamoto never intended to invent a currency but to develop a platform for online transaction using a digital asset by way of peer to peer transaction.
What is cryptocurrency mining?
Crptocurrency mining or crypto mining is a process in which transactions for various types of cryptocurrencies are verified and added to the blockchain digital ledger . Cryptocurrency mining includes two functions, namely;
- Adding transactions to the blockchain(securing and verifying)
- Releasing new currencies
It is expected that individual blocks added by miners should contain a proof of work.
What is cryptograph?
It is a process used to convert legible information into an almost unbreakable code to help track purchases and transfer.
How does cryptocurrency work?
Cryptocurrency runs on a blockchain which is a shared ledger or documents duplicated several times across a network of computers. Transactions and ownership of every cryptocurrency is recorded on the blockchain.
Miners speciufically run blockchain. Their function is to update each time a transaction is made and also ensure authenticity of information, thereby ascertaining the security and the safe process of every transaction.
Miners are rewarded with cryptocurrencies as fees by vendors or merchants of each transaction.
Mining as an act involves two functions, securing and verifying by adding transactions to blockchain and releasing new currencies.
To mine, a miner needs a computer and special program.Mining has an attractive effect on many interested investors because miners are rewarded with crypto tokens for their work.
The bitcoin reward that miners receive is an incentive which motivates people to assist in the primary purpose of mining: to support, legitimize and monitor the Bitcoin network and its blockchain.
Cryptocurrencies can be transacted on directly between two parties through the use of private and public keys. These transfers can be done with minimal processing fees, allowing users to avoid the huge fees charged by traditional financial institutions.
cryptocurrencies have emerged as a highly recognized form of payment and investment, particularly for those that do most of their shopping online.
For a transaction to be considered valid and go through, there is need for verification of such transactions by other users on the network. This verification process is fundamental to the integrity of bitcoin and safety of bitcoin owners and transactions, as it avoids the issue of ‘double spending’ – where individuals would try and initiate multiple transactions using the same bitcoin.
Cryptocurrency mining is effectively a process of rewarding network users with bitcoin for validating these transactions. Just the same way blockchain holds records of every transaction,each network user or ‘node’ does same. Whenever a node is informed of a new transaction, they are able to perform a series of validation checks to make sure the transaction is legitimate. These include checking that the unique cryptographic signature attached to the transaction, which is created at the moment the process is initiated, is indeed a valid one.
The next step is to successfully solve a numeric problem, known as ‘proof of work’.