In traditional fiat currency systems, government simply prints more money when they need to. But in case of Cryptocurrencies, money isn’t printed at all – it is discovered, it is “Mined”, just like Gold. Computers around the world “Mine” for cryptocurrencies by competing with each other. In this article we explain our readers about Cryptocurrency Mining in detail.
So what is Cryptocurrency Mining?
Lets start with an example of banking system. Suppose a person named Virat has paid some X amount to Sachin through banking channels, what is the proof that the transaction has taken place? Who confirms that transaction has been made at all? Bank!! Ofcourse, we all know that.
Bank, as a centralized authority confirms the transaction and records it in it’s ledger and then these are again shown in bank statements/passbooks ,thus it can be assured that transaction has taken place.
But what in the case of “Decenteralized Cryptocurrencies” or in case of Bitcoin for say where there is no central authority?
Here,Miners come into the picture. Through cryptocurrency mining, miners confirm all the transaction that has taken place and records it in the public ledger called Blockchain, and passes it to other cryptocurrency miners for validation and in return gets a reward (Bitcoin, in case of Bitcoin mining). The first cryptocurrency miner to validate the transaction will be rewarded.
Because of the reward, more miners would be attracted. Hence more the number of cryptocurrency miners, more validation of transaction and more secured is the transaction.
Who are Cryptocurrency Miners?
Cryptocurrency Miners are simply computers,or “Nodes” to be specific in Cryptocurrency terminology, which are connected to each other in the Bitcoin network or other cryptocurrency network. These computers are placed by humans or large organizations into the network.
Detailed Explaination about Mining (in case of Bitcoin)
People are sending Bitcoins to each other over the Bitcoin network all the time, but unless someone keeps a record of all these transactions, no one would be able to keep track of who had paid what and how much. The Blockchain technology takes care of it by collecting all of the transactions made during a set period into a list, called a Block. It’s the miners’ job to confirm those transactions, and write them into a general public ledger.
This general ledger comprises of a list of blocks, known as the ‘Blockchain‘. It can be used to review any transaction made between any Bitcoin addresses, at any point on the network. Whenever a new block of transactions is created, it is added to the Blockchain, and is stored there permanently. A constantly updated copy of the block is given to every new Bitcoin miner who participates, so that they they are upto date with the previous set of transactions.
But the general ledger has to be trusted, and all of this is stored online!!!! How can one be sure that the Blockchain stays intact, secured, and is never tampered with? This is where the role of cryptocurrency miners come in.
When a block of transactions is completed, miners processes it. They take the information in the block, and solve a mathematical equation, converting it into something new. This something new is a shorter, seemingly random sequence of letters and numbers, like a code , known as a “Hash”. This hash is stored along with the block, at the end of the Blockchain at that point in time.
Here is why Hashes are interesting and how it makes Bitcoins so secured!
It’s easy to produce a hash from a collection of data like a Bitcoin block, but it’s practically impossible to work out what the data was just by looking at the hash, because it is just a random sequence of numbers and letter without any meaning. And while it is very easy to produce a hash from a large amount of data, each hash is unique. If you change just one character in a bitcoin block, its hash will change completely. Thus, this encryption of Blockchain data into hash, makes it more safe and secured.
Cryptocurrency Miners don’t just use the transactions in a block to generate a hash. Some other pieces of data are used to build the hash of the last block stored in the Blockchain and forming a chain of blocks.
This feature of blockchain technology confirms that this block – and every block after it – is legitimate
If someone tries to fake a transaction by changing a block that had already been stored in the blockchain, that block’s hash would change. As the hash would be changed, it will not be in alliance of hash of next block and thus will break the whole blockchain.
Because each block’s hash is used to help produce the hash of the next block in the chain, manuplating with a block would also cause errors in the next block’s hash .
After reading all of this I am sure you might be curious and fascinated about cryptucurrency mining and getting your hands ready for cryptocurrency mining to earn bitcoins as a reward. Well, so was I but first you need to understand the technicalities of mining and how cryptocurrency mining is done.Click here to Read- How To Mine Cryptocurrencies?
For more latest updates about Cryptocurrency Mining, visit our Mining Section.
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Rohit Kukreja is a Commerce graduate with Financial Markets expertise involving Stocks, Forex, Futures & Options Market and now Bitcoins & Cryptocurrency Markets. Blockchain Enthusiast but not a techie, Rohit is an active member of various Blockchain & Crypto communities all over India.