Ecosystem Landscape of the Bitcoin and Cryptocurrency Mining Industry

This article was originally published on my personal blog — Crypto Mining 101 — Overview & Landscape of the Mining Industry.

A short snippet of the full post is below:

As of July 2019, Bitcoin miners generate $6B+ in revenues (mining rewards + transaction fees) on an annualized basis.

Mining and the underlying hardware that secures Bitcoin and other cryptocurrency projects is an often overlooked market within the cryptocurrency sector. However in conjunction with the exchange landscape, mining is one of the core markets which generates significant revenues.

In this post I will share an overview of the Bitcoin & crypto mining space, the underlying hardware which powers mining, an ecosystem landscape, and dive into the revenue & market size of the space.

How Cryptocurrency Mining Works

Proof-of-work (mining) is the process in which new transactions are added to the Bitcoin blockchain and how the correct order of such transactions are agreed upon (consensus).

One of my favorite analogies of the process is to think of it like a sudoku puzzle. It’s a puzzle that takes a lot of brainpower to solve, but once it’s solved it’s very easy for everyone else to verify that you have found the correct answer.

This video below gives one of the best visual representations to more intuitively understand how blocks are created, chained together, how transactions are added into the blockchain, and how mining plays a central role in this process:

Essentially, miners (computers geographically distributed around the world) compete to solve a computationally intensive puzzle which verifies the next block in the blockchain (in addition to the underlying transactions within the block). The miner who solves this puzzle first is the person who is able to claim the reward (the “ coinbase reward” + transaction fees). Once the next block is found all of the miners on the network are able to verify that the block is correct, and move onto solving the next block in the chain.

The Role Miners Play in the Bitcoin & Crypto Ecosystem

All of the computers around the world racing to solve the next puzzle are the participants that make up the mining ecosystem. The collective computational resources are one of the core ingredients which provides the underlying security guarantees Bitcoin provides.

Through this network, Bitcoin participants are able to expect:

• Their transactions will be confirmed on the Bitcoin blockchain.
• Their transactions will be in the correct order (protect against double spends).
• The history of the Bitcoin blockchain will stay intact ( immutability).

In return miners are compensated both in newly minted Bitcoin (“ coinbase rewards “) + the transaction fees associated with each transaction. If participants want stronger guarantees on when their transaction will be added to the Bitcoin blockchain, they can increase the transaction fees they are willing to pay for their transactions.

Mining Ecosystem Landscape

Below is a graphic of the mining sector in its totality, from the chips to the end user services:

To view this post in full visit the original post here: Crypto Mining 101 — Overview & Landscape of the Mining Industry.

Originally published at https://www.chrismccann.com on July 10, 2019.