The meaning of “mining” in the context of cryptocurrencies

Cryptocurrencies have gained a lot of acknowledgment in the past couple of years. Since the emergence of Bitcoin in 2009, thousands of cryptocurrencies have been created and some of them are already being used with the same purpose as money -having a real monetary value but without the physical aspect that money has. Currently, there are three blockchain generations: Bitcoin, Ethereum, and Stellar.

Each one of the three blockchain generations has its advantages and disadvantages. The first generation, Bitcoin, was the pioneer in this technology and the one that set the ground rules. When a Bitcoin transaction is made (or any other altcoin created on this blockchain), it has to pass through a verification and approval process in order for it to be processed and complete. As it is a first-generation blockchain, this process is manual and it is carried out by a person -who is called a “miner”.

In order for this miner to verify and approve a Bitcoin transaction, he or she has to solve complicated mathematical problems and algorithms so that the block that will form the transaction is created. Once the miner completes this process, the transaction is integrated into the blockchain and approved. In return and as a payment, this miner receives a fee from the recent transaction that was mined. But being a miner isn’t easy.

The miners need to have advanced knowledge when it comes to complicated mathematical equations and algorithms because they have to solve them. This is one of the reasons why Bitcoin transactions are secure. Because the only way for the transaction to be approved is that all factors that involve the transaction (such as real liquidity from the sender or the previous blocks mined) are real. Otherwise, it would try to deceive the system, and this would be represented in the mathematical equations that miners resolve making it impossible for them to solve them. And the transaction wouldn’t be done.

Another factor to take into account is that miners need to have a sophisticated computer equipment to mine a transaction. Currently, miners own rooms full of computer equipment to perform their jobs. And the energy consumption that is required for this equipment is very high. Resulting in a lot of expenses.

Basically, mining cryptocurrencies means, among other aspects, to solve mathematical calculations for verifying and approving digital currency transactions with a processing power from high-tech computer equipment. And in exchange for the job done, the miners receive a payment in cryptocurrencies (a fee from the one they mine), which they can keep or exchange for Fiat money. It is a hard job but very well rewarded.