In the previous article, we discussed basics of Cryptocurrency. In this article explains everything about Mining in Cryptocurrency.
Mining in Cryptocurrency
In traditional financial systems, new banknotes are simply printed by the governments of countries when they need it. But digital currencies appear differently. They are generated by computers, and this process is called mining.
In most systems, the number of units of cryptocurrency is fixed and determined in advance. This rule does not always apply, in Ethereum, Ripple, Namecoin and some other digital currencies, the final number of tokens is not specified and may increase as the market needs.
As for the emission itself, the most well-known method of its implementation is the mining (PoW) used in the Bitcoin, Lightcoin, Dogecoin networks and many others (in some systems it may be absent, and emissions are produced by ICF, ICO, or PoS) ).
What is CryptoCurrency Mining?
Mining in simple words is a process during which mathematical puzzles are solved, as a result of which new blocks of information are released. This brings a certain amount of electronic money, which is entered into the common piggy bank and registered in the public ” ledger ” ( blockchain ). Also at this time, transactions with already existing coins are processed. They are checked on the computing devices of participants in the P2P network and added to the chain of blocks.
During the mining process, the last transactions are checked for authenticity and compiled into blocks. The participant who first solves this problem receives a reward. This approach was specially conceived as an incentive for those who sacrifice the computing power of their computers to maintain the network and extract new coins. For the first time such a method was applied in the digital currency Bitcoin and at the moment most of the other crypto currency acts according to similar principles.
Everything is arranged in such a way that the complexity of the calculations steadily increases, which requires a constant increase in the computing power of the network. In the first months after the appearance of Bitcoin, Mein effectively it can be almost any computer, cycling only the CPU, but very soon complicated network so that even on the top PC with a powerful processor to do it became unprofitable.
Then, powerful video cards began to be used for this purpose, and the hardware manufacturers began actively producing motherboards with 3, 4 and even 5 PCI-Express slots for installing top-end graphics adapters in SLI or Crossfire mode. On the basis of powerful video cards, amateur luminaries began to collect so-called “farms” – special computers intended for the commercial development of crypto-currencies.
However, as the Bitcoin network became more ccomplex, even powerful farms became less and less profitable and associated it for several reasons:
First, the emission protocols at the heart of Bitcoin are structured so that the reward for mining is not distributed evenly, and the most powerful machines are preferred;
secondly, after calculating every 260 thousand blocks, which occurs approximately every 4 years, the size of the reward for calculating one block is reduced by a factor of 2 (“halving” occurs).
So, initially, the reward was 50 BTC per block, from 2013 to mid 2016, 25 BTC, after that – only 12.5, and by 2020 it will decrease to 6.25 BTC, which makes mining less and less profitable. The solution was to pool users into pools to increase the efficiency of cryptocurrency production, while all the profits are distributed among the participants according to the power of their computers. A new word in the mining was the appearance in 2013 of ASIC-modules, and special industrial computers based on them, designed to calculate hashes.
Today, the mining of cryptocurrency without money is practically impossible. Especially this concerns Bitcoin mentioned earlier – it’s impossible to join there with your computer; the power of whole servers, the so-called bitcoins-farms, is directed to the mining of bitcoins. What to say – the largest bitcoin-farm located in China, for electricity alone, spends $ 80,000 monthly.
This is just the introduction to Mining in Cryptocurrency. In the coming articles, we’ll understand what all stuff you need to do Mining in Cryptocurrency and how to do it.