“What are Cryptocurrency Miners?”
“How does Cryptocurrency Mining work?”
What are Miners?
Cryptocurrencies and fiat currencies differ in the way that new coins/cash
are generated and issued in their respective ecosystems.
Fiat currencies are printed by government-sponsored mints in response
to a state authority’s direct orders, while cryptocurrencies are issued by a
blockchain network according to a set of predetermined algorithms.
Blockchain networks that create tokens based on Proof of Work schemes
require mining, a complicated process.
In brief, participants use hardware to run algorithms on specific software
to verify transactions on the blockchain, add those transactions to the
public ledger and in exchange receive the reward of a newly-created coin.
We will break the mining process down step by step below.
Cryptocurrency Mining Step by Step
When a transaction is made over a blockchain (for instance, when one user sends a few coins to another user’s address), the transaction
information must be recorded and is thus put on a block. This block needs security and encryption, and is up for grabs by all of the
contributing miners on the network.
To encrypt this block, miners must solve a cryptographic puzzle through a guess-and-check method in order to find the proper
cryptographic hash for the block. Miners typically need large rigs of reliable, application-specific hardware to actually have a decent chance
at being the first to verify and secure the block.
Once a miner secures the block, the block is then added to the blockchain and must be verified by other nodes (computers) on the
network in a process known as consensus. If a miner successfully verifies and secures the block, the miner is rewarded with a
newly-created con. This process of reward for work is called Proof of Work.
Cryptocurrency Mining and Profitability Concerns
Mining is called mining because it is a process in which
volunteers contribute a great deal of effort in the hopes
of receiving ‘a gold coin.’
It makes sense that most miners who wish to contribute
to blockchains are in the game for a profit.
The biggest concern for miners has always been the
ever-increasing difficulty of the computational puzzles
involved in securing the blocks.
That’s right ; as more puzzles are solved, the difficulty
of the next puzzle increases greatly, sometimes even
To make mining profitable, organizations have invested
a great deal into research and development of more
advanced solution algorithms and more efficient pieces
Some organizations have gone so far as to move their
mining rigs to rural dams and countries where electric
power supply is less expensive.
In terms of hardware, some organizations with significant
capital have made investments in ASICs, or.
This class of hardware is designed to complete very
specific tasks, namely mining. In the early days of
Bitcoin mining, miners could make profits off of just
using a home computer central processing unit, or CPU.
The issue with CPUs is that they are designed to juggle
multiple computational tasks simultaneously, like
running multiple programs on your computer screen
Unfortunately for the hobbyists, using conventional
CPU’s is simply not profitable in most blockchains
It’s important to note is that most coins on most
successful blockchains that use Proof of Work
schemes will become profitable for mining only
if individuals are willing to make large investments
in hardware rigs, electric power supplies,
or some combination of the two. Corporations are
already aware of this fact, entering the mining
arena with full force in order to take large cuts
of the mining profits.
Likewise, smaller organizations and individuals
are currently struggling to compete in the space.
The big issue here is the increasing centralization
of mining ; if the process for coin creation becomes
controlled entirely by a handful of centralized
powers, then how will the blockchain continue
to bring decentralized solutions to users?
In response to these concerns with mining centralization, newer blockchains
and altcoins have been adopting more complex mining algorithms and
proof schemes to limit the influences of ASICs and large corporations.
Some investors in blockchain technology who saw great success in the early
days of mining have created mining funds to support small-scale, international
miners. This is an effort to decentralize the mining process for blockchains that
require Proof of Work. And while Proof of Work schemes favor the biggest
hardware rigs, new schemes like Proof of Stake and Proof of Burn have made
an appearance. Newer schemes reward miners based on a different set of factors.
Another big concern that has been well-addressed by Ethereum, Ethos and
other gas-powered blockchain systems is wasted mining efforts / mining
inefficiency. For example, if many miners attempt a block at once and only
one miner gets the block, or if the miners attempt an unsolvable, infinitely
complex puzzle, miners are forced to waste an abundant amount of
The solution? Gas powered blockchain systems require developers to
attach gas to a transaction, and that gas will supply the transaction’s
computational power until either the transaction is completely validated
or until the gas runs out. This creates a safer way for miners to contribute
their efforts towards solving new blocks. Without the risk of wasting
unnecessary computational energy, miners are guaranteed a quicker
and more efficient maintenance of the blockchain.