Blockchain Blog 09- Blockchain and the Mining

Aakash S
Coinmonks

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From the previous 2–3 blogs, we understand security, wallets, and blockchain. So now we will talk about mining. Now in the world of cryptocurrencies, it is very important to have an understanding of mining. So in general what is mining? As Wikipedia shows: Mining is the extraction of valuable minerals or other geological materials from the Earth, usually from a deposit. The exploitation of these deposits for raw material is based on the economic viability of investing in the equipment, labor, and energy required to extract, refine and transport the materials found at the mine to manufacturers who can use the material.

During the California Gold Rush 1848–1855, it is said that people who actually got rich were not the people who actually owned gold but the ones who sold the tools which helped in the mining process. Similarly, when it comes to cryptocurrencies, whether you are interested in investing or mining cryptos, it is important to know how the entire process works so that you are able to figure out where the actual opportunity of earning a good fortune is there.

Now mining in the crypto world is similar to digging for gold or oil or extracting natural resources, in the beginning, it is relatively easy to do so as not many people are looking for it but when there is competition, and the commodities are scare then mining process becomes difficult as time passes. Years ago, when bitcoin was very new, the bitcoin can be mined using the microcontrollers like Raspberry Pi. It did not require a lot of processing power, the electricity required for the mining process was lesser.

Raspberry Pi Micro-controller

During the initial days of the gold rush, the tools required for the mining of goldfield were not that huge and extraordinary

Similarly to pump out the oil from the earth’s crust also did not require the buildings of huge rigs over the oceans and lands

In the case of bitcoin, massive data centers were used to mine a bitcoin as now small raspberry pi was enough. As most people tried to get into bitcoin mining, the people not owing expensive computer units for mining did not have a chance to mine. Bitcoin mining is a fiercely competitive industry, and profitability is hard to maintain. Factors such as geography, energy costs, weather, and political jurisdiction can all harm or benefit Bitcoin miners.

Graphics Processing Unit — GPU

GPU became the building block of these massive data centers. A graphics processing unit (GPU) is a specialized electronic circuit designed to rapidly manipulate and alter memory to accelerate the creation of images in a frame buffer intended for output to a display device. GPUs are used in embedded systems, mobile phones, personal computers, workstations, and game consoles.

The graphics processing unit, or GPU, has become one of the most important types of computing technology, both for personal and business computing. Designed for parallel processing, the GPU is used in a wide range of applications, including graphics and video rendering. Although they’re best known for their capabilities in gaming, GPUs are becoming more popular for use in creative production, artificial intelligence (AI), and Bitcoin Mining.

So what does it mean to mine a cryptocurrency?

If we take the first bitcoin block, the genesis block, for example, let us say that it was not much secure enough, so a bunch of people worked to make it more secure, so if we incentivized people (i.e. miners) to crack the code, then the new security layer added was much better than the previous one. So it is a mathematical problem that miners had to crack and when they crack the security grows back to much stronger. So it was easy to do crack the code for the genesis block. The genesis block was made secure by using SHA256, if you wrote a program that cracked the special piece of code in a first block, your solution would be used to secure the first block and the others below. Your solutions would be used to secure the future blocks. And each time a block is secured the ones behind it will be much more secure than the previous one. So the future bitcoin blocks went on becoming much and much secure, and whoever helps to secure the block, will get incentivized in form of bitcoins. This kind of reward system of the bitcoin blockchain is referred to as Proof Of Work (PoW)

As more and more blocks were added, the mathematical algorithm became much stronger, the reward became lesser and lesser. The rewards get cut in half after every 210,000 blocks are mined. It is said that by the 2030s the reward for mining will only be 1 Bitcoin.

Once the mining of all bitcoins is done, the people will make money on transaction fees. It was written on the bitcoin whitepaper.

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