What is mining and who are the miners?
The cryptocurrency market has been gaining massive momentum since the Bitcoin boom in 2017. There are more than 2900 cryptocurrencies on the market today. The growth of these cryptocurrencies is encouraging people not only to invest in them, but also to do mining on their own. Bitcoin mining is no longer profitable, however, there are many more mining opportunities with other cryptocurrencies.
Fiat coins are minted and controlled by a single central authority: the Central Bank or government. Banks decide when to print new money and decide to destroy the old currency when needed. In complete contrast, cryptocurrencies can be initiated and produced by anyone without any regulation so far. Anyone who has a computer can produce their own cryptocurrency. But there are some caveats about it. In this article we will see what mining is and who are cryptocurrency miners using the example of Bitcoin mining.
How does the Bitcoin network work?
On the Bitcoin network, all transactions made are stored in a public ledger, which is visible to everyone on the network. These transactions are grouped into blocks, and these blocks are chained using encryption techniques. Hence the name Blockchain. For these transactions to be valid and settled, each transaction must be verified before being posted to a block. This validation check ensures that there is no double expense, i.e. the same Bitcoins are not being used multiple times by the same person. In addition, this validation keeps network integrity intact. The people who do these validations are called miners. The system generates new bitcoins as a reward for miners for validating transactions. This motivates miners to continue the validation process and earn more Bitcoins.
The mining process
The Bitcoin network is a peer-to-peer (P2P) network, and computational devices, also called nodes, connect to P2P. Miners perform work on these network nodes to perform validations. Miners must perform two tasks to obtain Bitcoins as a prize. The user must validate a certain number of transactions (the number of transactions that the user must verify continues to change because the size of the Bitcoin block continues to change) and find the nonce for the block.
The nonce of the block is the solution to the mathematical challenge that the network poses to the miner based on the proof of work of the consensus algorithm. The complexity of the nonce increases as the number of blocks increases on the blockchain. The nonce calculation is a random process, and must be calculated until the complexity of the given block is achieved. The first to resolve the nonce value will be rewarded with Bitcoins. Therefore, the more computing power the more likely nonce is to resolve before other miners.
There is a cap on a number of Bitcoins that can always be generated. There can only be 21 million Bitcoins, and so far 18 million have already been generated. Therefore, more and more computing power is required to extract the rest of Bitcoins.
As the number of coins to mine decreases, there is a chance that the cost of mining may be greater than the reward. In addition, only one miner will be rewarded while all the energy and energy consumed by the other nodes is completely wasted. As a result, miners often join groups or associations to multiply their computing power and share rewards. That's how Bitcoin mining works.
→ We all create Bitcoin!
In the traditional monetary system, when a government needs more balance they simply print it. In the Bitcoin system, it is not created, it is discovered. This fact is called mining.