What Is Mining Cryptocurrency?
If you’re interested in cryptocurrencies, you’ve probably heard of Bitcoin and its Blockchain’s underlying technology. But you may also have heard of mining. Like the Blockchain, mining may seem complex at first glance. Yet, mining is the key concept in the world of cryptocurrencies. This is because it is the process by which transactions for a number of crypto-assets (including Bitcoin) are made and validated. So how does cryptocurrency mining work? We’ll take a look at it all together in the following article.
What is cryptocurrency mining?
Mining refers to the process of earning cryptocurrencies by solving complex cryptographic equations using the computing power of computers. This solving process allows for verifying a block of data and its addition and registration to the Blockchain.
The miner is the person who takes care of this process by providing the computing power of his computer to solve these equations and validate the transactions. To reward him for his participation in the smooth running of the network, the miner receives payment with the mined cryptocurrency. For example, by mining Bitcoin, you will receive Bitcoin.
The complexity of solving these equations to complete the transaction’s validation relies on the number of people mining a given cryptocurrency. Thus, the more miners there are, the greater the difficulty and the greater the computing power required. For each validated transaction, the miner receives a payment in the particular cryptocurrency. However, this reward system is different depending on the crypto asset.
For example, the reward can be degressive like it is done with bitcoin. Indeed, every four years, the reward given to the miner who has validated transactions is divided by two. This is called “halving.” This makes it increasingly difficult to “mine” Bitcoin over time. The reward can also be known in advance. That is, it will be the same for each validated transaction.
There is also a reward creation system. Indeed, some crypto-assets provide that a predefined percentage will be created at each validation of a transaction in order to reward the miners. We can also find a mining model that relies on taking a commission on transactions. Thus, a percentage of each transaction made with the cryptocurrency is intended to reward the miners. Finally, there is a hybrid system that mixes the two last-mentioned reward systems.
How does mining work?
When a user wants to make a cryptocurrency transaction with another user, he is completely free to register it in the Blockchain, even if he does not have the necessary funds. All transactions registered within the Blockchain at the same time are grouped together in the form of a block. The size of the blocks differs according to the cryptocurrencies but is predefined by the system. It is usually a few megabytes.
Once the block has been created, the miners come into action and must validate it in order to register it definitively in the continuity of the Blockchain. This is how the mining process begins. It consists of verifying the validity of the transactions requested by the users: the operation has been signed by the various people involved, and the accounts of the said people have the necessary funds.
However, the mining does not stop there. The system of cryptocurrencies foresees that the integration of new blocks can only take place on precise periods of time, spaced out from a few seconds to a few minutes. For example, for bitcoin, this period is set at ten minutes. Therefore, mining also involves solving complex mathematical calculations, requiring some computer power to ensure that miners only validate blocks every ten minutes.
This process is called proof-of-work. To solve these calculations, miners must create a cryptographic hash. This is a set of mathematical formulas based on the information of verified transactions and all previous blocks integrated into the Blockchain. These conditions prevent the creation of blocks “ex nihilo” and greatly reinforce the security of the cryptocurrency system. Miners are thus competing with each other (whether they work alone or in groups) to validate the blocks as quickly as possible.
Indeed, as soon as a miner has validated a block, the mining work on it ends for all miners, who can move on to the next block. Once a block has been validated, it is then submitted to the verification of the entire blockchain network, which checks the validity of the protocol used and the transactions entered. Finally, the block is integrated into the Blockchain, and all members have this new block within their own copy of the Blockchain.
Mining Cryptocurrency on the Mobile Phone
Mining cryptocurrencies with your smartphone may seem unthinkable when you know the demands of bitcoin or Ethereum. However, it is quite possible, and several projects have been underway for some time now. In most cases, a few minutes spent on the application allows validating transactions on the Blockchain. Since the number of users is growing daily, millions of transactions can be validated every day.
You could use 4 different applications in this field whose projects are more or less advanced. And that’s the whole point: by joining these projects now, the gains can still be very interesting. You should know that most cryptocurrencies apply what is called a “halving,” as we have already mentioned: at certain predefined periods of time, the gains from mining are divided by two. Thus, the more time passes, the more difficult it will be to produce this virtual currency.
Bee Network is a new blockchain innovation that offers a fun experience for users to earn Bee right from their phones. By taking on the roles of Miner, Sponsor, and Verifier, Bee Network “players” earn rewards in the form of Bees. In order to give value to the Bees, Bee Network is specifically designed as a network of serious people, which allows players to exchange goods, services, and skills in real life with their Bee balance and subsequently register Bee in major cryptocurrency markets to be exchanged for fiat currency.
Pi Network is very similar to Bee, both in the motivation of the project and how it works, which does not require the app to be open, and does not consume any battery or data. It is not new since it appeared in 2018. Currently, in phase 2, with more than 14 million users, the project has had several “halving” so that the output is now only 0.10 Pi/hour. Not yet available on the exchange platforms either, the project should also go into its final phase at the end of the year. Some estimates see the PI at around 20$ by then, but it is always only speculation. Nothing is sure until the Pi is tradable on the exchanges.
Time Stope works on a slightly different principle since the goal here is to value your time. This is done through a calendar, on which you have to put a stamp each day to “prove” your participation. Each stamp gives you two points. You start the adventure with a balance of 100 points. However, if you forget to stamp a day, you will lose 3 points. If you fall to 0, your account is closed. This requires a certain discipline to come back each day. For each day you stamp, TimeStope’s mining continues and is displayed at the top of the screen.
Is Mining Cryptocurrency Legal?
The short answer is that it depends on where you live or where you intend to mine cryptocurrencies, as each country has its own laws and regulations. The fact that mining cryptocurrencies like bitcoin are a waste of energy means that there is a constant struggle over whether mining is really worth it. Instead, regular updates from Beijing have indicated the possibility of considering a ban on mining in China. Jurisdictions that partially or fully ban cryptocurrencies and crypto mining today include Ecuador, Morocco, Kyrgyzstan, Nepal, Bangladesh, Algeria, Paraguay, and China.