Cryptocurrency mining is a process through which certain blockchains approve transactions by minting new coins. This is majorly associated with cryptocurrencies using a consesnsus mechanism known as proof of work for verification of transactions. Besides buying cryptocurrencies from decentralized and centralized exchanges, cyptocurrencies can also be earned through mining.
Mining typically involves adding new blocks of data which contains cryptocurrency transactions to the blockchain. To add a block of new transactions to the chain, miners must compute the correct random numbers that solve a complex equation generated by the blockchain system. This entire process is known as proof of work mechanism and it was first associated with bitcoin in 2009.
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HOW DOES CRYPTOCURRENCY MINING WORK?
Cryptocurrency mining has gotten more difficult and expensive over the years as a result of the wide adoption of cryptocurrencies. The process of mining involves miners computing the correct random numbers that solve a complex equation generated by the blockchain system. The first computer to successfully provide the correct answer to the equation is rewarded with cryptocurrency.
The first mining process took place on the 3rd of January 2009 when the Bitcoin founder, Satoshi Nakamoto mined the genesis block of bitcoin with a reward of 50 bitcoins. Formally, anyone with a decent home computer could successfully mine bitcoin but as the blockchain grew and became widely adopted, the computational power needed to maintain it increased over time. Virtually all mining is now done by big companies or group of people with access to large pool of resources.
Mining is done using sophisticated computer hardwares that solve extremely complex computational math problems generated by the blockchain. Miners use very expensive and complex mining rigs to make these computations and the more computing power, the easier it is to mine cryptocurrencies.
Once a miner finds the answer, a new block is added to the ledger and the miner is immediately rewarded with cryptocurrency and any fees for the new transactions added to the ledger. Then the process begins again until someone finds the answer to the next equation to add a new block to the blockchain.
BENEFITS OF MINING CRYPTOCURRENCIES
Mining is important for maintaining the proof of work model. It is a very important process which is why a good number of big companies are actively taking part in it. It is both beneficial to the miner and the blockchain.
- Miners earn cryptocurrency without having to invest money in it.
- Mining helps to verify transactions and add new blocks to the blockchain.
- Mining helps to prevent the double spending problem.
- Mining helps to release new cryptocurrencies into circulation.
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Mining is a very important process for cryptocurrencies based on the proof of work model because it helps to confirm transactions and add new blocks to the blockchain. Due to the cost of mining and the amount of energy consumed, mining is been replaced by a more cost efficient consensus mechanism known as staking. The process of staking is only available to cryptocurrencies that utilize the proof of stake mechanism for verification of transactions.