We do know it still can be difficult to understand some ideas related to cryptocurrencies, however popular they may be right now. As we strongly believe that blockchain and crypto are our future, we want everyone to be educated on some tricky questions.
That’s why we decided to launch a new blog series dedicated to the basics of this brave new world.
In the first installment, we want to shed some light on and introduce our readers to the concept of mining. Here we go!
Where do we get cryptos from?
With fiat money, a government decides when to print and distribute money. But what about cryptocurrencies that don’t have any central authority?
Right, digital money has to be mined. Mining is a smart way to “print” new coins, and we’ll get into how it works a bit later. But mining is not only about creating more bitcoins or other coins, as it happens with gold when it is mined: there is no goal beyond the discovery of new gold.
What else is mining needed for?
Ok, first, tell me: What is so cool about crypto payments? It’s easy-peasy and widely adopted? Well, not really. The best thing about transacting in crypto is that you need no middlemen, like banks or payment operators. A beautiful picture, right? But if there are no intermediaries, who will verify and record the transaction?
Here comes the main purpose of mining — transactions are verified by the cryptocurrency miners. Mining is the mechanism that allows the blockchain to be a decentralized system.
How it all works?
So, we’ve figured out that miners are those who verify crypto transactions and create new coins. But how do they do that? To put it simply, miners need to solve a mathematical problem, that is to find a block that can legally follow the previous block. To remind you, blockchain is a growing list of records, called blocks, which are linked using cryptography.
Firstly, you need to know that miners as human beings don’t actually do anything, except for operating their computers. The thing is, the mathematical tasks that need to be solved were never intended for humans: their solution requires significant computing powers.
To solve a block, these powerful computers (also called “nodes”) need to make the maximum number of guesses as soon as possible. When a miner finally solves the puzzle, they inform the whole network so that other computers could validate their solution. Unlike solving, it requires less computing power and is relatively easy.
Why do miners do that?
If it’s so power consuming, it must be very expensive. Do miners do that for free? Of course, they don’t.
For their effort, miners are rewarded with newly created coins. In order to get them, miners compete to be the first to find the right solution, and that means they need more mining power to be the winner. That and the constant complication of the mining process gave rise to so-called mining farms, data centers technically equipped to mine cryptocurrencies.
