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Cryptocurrency Mining Guide for Beginners – What Should You Know?

Even though the past few years had seen new cryptocurrencies emerging with new token creation (baking, minting), cryptocurrency mining continues to be one of the most popular in the market. It is the most crucial process that not only keeps blockchain functional but at the same time, generated new digital coins to serve the needs of miners and the wider public. Is cryptocurrency mining still uncharted territory? In that case, the latest guide for beginners should clarify all the necessary aspects.

cryptocurrency mining for beginners

Source: https://avesta.io/en/cryptocurrency-mining-pros-cons-and-benefits/

What is cryptocurrency mining?

Cryptocurrency mining is the process leading to the verification of transactions made on any given blockchain (public or private ledger) between users. Due to the mining process, new coins are introduced into circulation, as a reward for miners responsible for “mining” successfully new blocks. It is a key element allowing cryptocurrencies to work as peer-to-peer decentralized networks, without the need for a central authority controlling the system. 

The main goal of cryptocurrencies is to democratize how the financial industry works and get rid of the central banks’ monopoly, which have control over the money supply and thus how the value of money fluctuates. 

In case how to start trading Bitcoin is not an unknown subject, then you know Bitcoin is the most popular mineable cryptocurrency, working on a consensus mechanism called proof-of-work. Ether, Litecoin, and Monero are other tokens created using similar mining processes. 

Popular consensus mechanisms

Since blockchains operate in a decentralized way and based on self-regulating systems, these publicly shared ledgers need some reliable mechanism that should be efficient, functional, secure, and fair. This will ensure all transactions made in the network are genuine and the participants agree on that based on a consensus on the ledger status. 

The consensus mechanism represents a set of rules deciding on the contributions by the various participants of the blockchain. The most common consensus algorithm is PoW or Proof-of-Work, used by cryptocurrencies such as Bitcoin or Litecoin. Based on its rules, a participant node must prove that the work done and submitted qualifies it to receive the right to add new transactions on the blockchain. 

Another popular consensus mechanism is PoS or Proof-of-Stake, which evolved as a low-cost and low-energy consumption alternative to PoW. The responsibility to maintain the public ledger is allocated based on the number of tokens held by each participant node. Despite energy efficiency, this approach comes with a big flaw. It promotes crypto saving, as opposed to crypto spending, which is the main goal of crypto. There is a Proof-of-Burn (PoB) combining both PoS and PoW to partially overcome their negatives. 

Lastly, Proof-of-Capacity (PoC) allows the sharing of memory space to the participant nodes part of any given blockchain. More rights to maintain the public ledger is ensured to nodes based on the of the memory space held. 

Although it might look like a difficult process to understand, the rules by which cryptocurrency mining works are relatively simple. Without mining, there won’t be enough liquidity to keep blockchains running and the demand for crypto will not be met.

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