So what is cryptocurrency mining? In cryptocurrency networks, mining is a validation of transactions. For this effort, successful miners obtain new cryptocurrency as a reward. The reward decreases transaction fees by creating a complementary incentive to contribute to the processing power of the network. To put it simply, what is cryptocurrency mining is a process of solving complex mathematical problems. As more and more miners join in, the problems automatically become more difficult to solve, which means more time and computational power is required to solve them and the rewards become smaller.
Bitcoins are created as a reward for a process known as mining, record-keeping service done through the use of computer processing power. Bitcoins produced by differed kind of computer equipment all around the world using free and easily accessible software. Mining is a distributed consensus system that is used to confirm pending transactions by including them in the block chain.
The process enforces a chronological order in the blockchain system. As a results it protects the neutrality of the network, and allows different computers to agree on the state of the system. Simply put – for each Bitcoin transaction, a computer owned by a Bitcoin miner solves a difficult mathematical problem. The miner then receives a fraction of a Bitcoin as a reward.
The first Bitcoin was mined in January 2009, it is considered the beginning of mining phenomenon. The maximum amount that can ever be mined or produced is 21 million bitcoins, there won’t be any more supply once bitcoin reaches its maximum supply cap. There are now 17 million Bitcoins in existence — only 4 million left to mine. Which makes more than 80 percent of the Bitcoins that will ever exist have already been mined.
Ethereum, like all blockchain technologies uses an incentive-driven model of security. Consensus is based on choosing the block with the highest total difficulty. Miners produce blocks which the others check for validity. A block is only valid if it contains proof of work (PoW) of a given difficulty. Miners are essentially the cornerstone of any cryptocurrency network as they spend their time and computing power to solve those math problems, providing a so-called ‘proof of work’ for the network, which verifies Ethereum transactions.
To be more specific, the miners take the block’s unique header metadata, which includes a time stamp and a software version, through a hash function, which generates a fixed-length string of case-sensitive random numbers and letters. This string is called hash, and if the miner finds a hash that matches the current target, the block will be considered mined and will be broadcast to the whole network for other nodes to validate and add the transaction to their copy of the Blockchain.
Non-minable digital coins
Not every digital currency is mineable like Bitcoin, Litecoin or Etherum. Some crypto currencies are created with the entire supply released all at once, in which case the total supply is either held or in circulation and there is no way to mine or mint new coins. Some examples of non-mineable digital currencies are – Ripple, IOTA, NEM, NEO, and EOS.
Miner who had started mining Bitcoins back in 2009, probably have earned thousands by now. At the same time, there are plenty of ways they could have lost money, too. If you are thinking of starting cryptocurrency mining, bitcoins are not a good choice for beginning miners who work on a small scale. The current up-front investment and maintenance costs, not to mention the sheer mathematical difficulty of the process, just doesn’t make it profitable for consumer-level hardware. Now, Bitcoin mining is reserved for large-scale operations only. You can start with Ethereum or any other mineble altcoin.