What is Cryptocurrency Mining? [Guide for Beginners]

You must have heard about cryptocurrency mining. But do you know what is meant by mining? Well, mining a cryptocurrency is basically a process to keep a check on the block chain data. Let us discuss in detail about cryptocurrency mining.

To understand about mining, you should know the basics of a cryptocurrency. These currencies work on the block chain mechanism, where each and every transaction is recorded on the block chain. These block chains are a database which is usually maintained by a community. These are not maintained by any centralized entity like banks.

Mining is a term which is used for the process of recording and validating new transactions on a block chain.

Let us take a deep insight into cryptocurrency mining and understand different parameters of the same.

In this Cryptocurrency Mining Blogs

1. What is a Block Chain?
2. Incentivizing the Miners
3. Mining Computers

‍

1. What is a Block Chain?

Block chains consists of several blocks, each of which is a chunk of data. Every block has some relevant data which has to be added to the database. It can be anything from the summary of transaction in the last few minutes to last few hours. Every block mandatorily has the ID of the block preceding it in the block chain.

This IDs help to chain the blocks in proper order. These blocks are chained to the first block, which is all the way back to the beginning. Adding a block to the block chain requires to get through various computational puzzles required to encrypt block’s data. This process of solving these puzzles and adding blocks is Mining.

The first miner who encrypts the block to make it safe to share across the internet is awarded cryptocurrencies for their work. The result is shared with all other miners who verify the encryption and mark the block safe. This process is known as proof of work.

2. Incentivizing the Miners

Creating new blocks for the block chain and validating new transactions is a very tedious task and is not at all easy. Therefore, it requires a planned and lucrative incentive to convince random people to engage in this task.

There is a separate incentive system for every other cryptocurrency. For instance, in case of Bitcoin, the most popular cryptocurrency newly minted Bitcoins are awarded to successful miners. This gives a transparent and permanent inflation strategy which boosts the confidence of miners.

3. Mining Computers

Cryptocurrency Mining requires significant computational power. The basic rule of mining is that those with the fastest computers extract the most amount of money. This has given birth to a computational arms race across the world.

Any computer can mine a cryptocurrency but to actually earn profit, the system should be efficient enough. The reward should be more than at least the cost of electricity required to attain it. Therefore, computers with great computational power and efficient electricity consumption have the highest mining power.

Conclusion

Cryptocurrency mining is not for a task and is not for everyone. It requires high end rigs for mining which are very expensive. You can easily invest in real estate with that much amount of money and earn substantial profits in the form of rent and value appreciation. Therefore, it is better to have a look at other investment options as well and then figure out the best one for your needs. A certified investment advisor can help you in figuring out the best investment option for your needs based on your risk profile analysis and other factors.Happy Investing!

‍