What Is Crypto Mining? How Cryptocurrency Mining Works
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Although crypto mining has only been around since Bitcoin was first mined in 2009, it’s made quite a splash with miners, investors and cybercriminals alike. Here’s what to know about cryptocurrency mining and how it works…
Crypto mining (or “cryptomining,” if you’d prefer) is a popular topic in online forums. You’ve probably seen videos and read articles about Bitcoin, Dash, Ethereum, and other types of cryptocurrencies. And in those pieces of content, the topic of cryptocurrency mining often comes up. But all of this may leave you wondering, “what is Bitcoin mining?” or “what is crypto mining?”
In a nutshell, cryptocurrency mining is a term that refers to the process of gathering cryptocurrency as a reward for work that you complete. (This is known as Bitcoin mining when talking about mining Bitcoins specifically.) But why do people crypto mine? For some, they’re looking for another source of income. For others, it’s about gaining greater financial freedom without governments or banks butting in. But whatever the reason, cryptocurrencies are a growing area of interest for technophiles, investors, and cybercriminals alike.
So, what is cryptocurrency mining (in a more technical sense) and how does it work? Let’s break it down.
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What Is Crypto Mining? Cryptocurrency Mining Explained
The term crypto mining means gaining cryptocurrencies by solving cryptographic equations through the use of computers. This process involves validating data blocks and adding transaction records to a public record (ledger) known as a blockchain.
Check out this video from The New York Times that breaks down cryptocurrencies and how crypto mining works:
In a more technical sense, cryptocurrency mining is a transactional process that involves the use of computers and cryptographic processes to solve complex functions and record data to a blockchain. In fact, there are entire networks of devices that are involved in cryptomining and that keep shared records via those blockchains.
It’s important to understand that the cryptocurrency market itself is an alternative to the traditional banking system that we use globally. So, to better understand how crypto mining works, you first need to understand the difference between centralized and decentralized systems.
Traditional Banks Are Centralized Systems
In traditional banking, there’s a central authority that controls, maintains, and updates a centralized record (ledger). That means that every single transaction has to go through the central banking system, where it’s recorded and verified. Plus, it’s a restricted system — only a small number of organizations (banks) are allowed to connect to the centralized banking system directly.
Cryptocurrencies Use Decentralized, Distributed Systems
With cryptocurrencies, there’s no central authority, nor is there a centralized ledger. That’s because cryptocurrencies operate in a decentralized system with a distributed ledger (more on this shortly) known as blockchain. Unlike the traditional banking system, anybody can be directly connected to and participate in the cryptocurrency “system.” You can send and receive payments without going through a central bank. That’s why it’s called decentralized digital currency.
But in addition to being decentralized, cryptocurrency is also a distributed system. This means the record (ledger) of all transactions is publicly available and stored on lots of different computers. This differs from the traditional banks we mentioned earlier, which are centralized systems.
But without a central bank, how are transactions verified before being added to the ledger? Instead of using a central banking system to verify transactions (for example, making sure the sender has enough money to make the payment), cryptocurrency uses cryptographic algorithms to verify transactions.
And that’s where bitcoin miners come in. Performing the cryptographic calculations for each transaction adds up to a lot of computing work. Miners use their computers to perform the cryptographic work required to add new transactions to the ledger. As a thanks, they get a small amount of cryptocurrency themselves.
Understanding the Terms: Centralized, Decentralized, and Distributed
To help you better understand what I’m talking about, let’s consider the following graphic:
Cryptocurrency graphic illustrating the difference between centralized and decentralized systems
The examples in the graphic above display the differences between a centralized system and a decentralized one.
In the left half of the graphic is an illustration of a centralized system. The traditional centralized currency system in the U.S. operates through the use of computers, networks and technologies that are owned, operated and maintained by financial institutions. So, whenever you send money to a family member or a friend, that transaction goes through your bank.
A decentralized system, on the other hand (as illustrated in the right half of the graphic), operates using a network of separately owned, operated and maintained devices. They lend their resources to create this decentralized network and share the responsibility of verifying transactions, updating and maintaining redundant versions of the ledger simultaneously.
Crypto mining graphic: It shows a distributed ledger in cryptocurrency mining
A distributed network in terms of ledger management and update responsibilities.
Here, there’s no singular centralized authority that maintains a single ledger (like there would be in a centralized system).
So, when we talk about distribution, what do we mean? Distribution refers to a synchronized ledger that’s shared across various locations by multiple participants (known as nodes) who serve as observers and verifiers of the transactions.
Is Crypto Mining Legal?
In general, the answer is yes. Determining whether crypto mining is legal or illegal primarily depends on two key considerations:
Your geographic location, and
Whether you mine crypto through legal means.
However, where you start to tread into the territory of illegal activities is when you use illicit means to mine cryptocurrencies. For example, some cybercriminals use Javascript in browsers or install malware on unsuspecting users’ devices to “hijack” their devices’ processing power. This type of cyber attack is known as cryptojacking. We’re going to publish a separate article on that topic later this month, so stay tuned.
But it’s important to note that cryptocurrency mining is viewed differently by various governments around the globe. The U.S. Library of Congress published a report stating that in Germany, for example, mining Bitcoin is viewed as fulfilling a service that’s at the heart of the Bitcoin cryptocurrency system. The LOC also reports that many local governments in China are cracking down on Bitcoin mining, leading many organizations to stop mining Bitcoin altogether.
Furthermore, some countries view cryptocurrency mining profits as being taxable while other countries view the fruits of such activities as non-taxable income.
We’ll talk more about what makes cryptocurrencies and crypto mining so appealing in a bit. But first, let’s break down how cryptocurrency mining actually works. To do this, we’ll explore the technologies and processes that are involved in it.
In this sense, Bitcoin’s terminal money supply growth (inflation) rate of absolute zero is the ultimate monetary Schelling point — a game-theoretic focal point that people tend to choose in an adversarial game. In game theory, a game is any situation where there can be winners or losers, a strategy is a decision-making process, and a Schelling point is the default strategy for games in which the players cannot fully trust one another (like money)Shares are a tricky concept to grasp. Keep two things in mind: firstly, mining is a process of solving cryptographic puzzles; secondly, mining has a difficulty level. When a miner ‘solves a block’ there is a corresponding difficulty level for the solution. Think of it as a measure of quality. If the difficulty rating of the miner’s solution is above the difficulty level of the entire currency, it is added to that currency’s block chain and coins are rewarded.WalletsCryptocurrency Scamsкраны ethereum monero обменять Stefan Thomas, a Swiss coder and active community member, graphed the time stamps for each of Nakamoto's 500-plus bitcoin forum posts; the resulting chart showed a steep decline to almost no posts between the hours of 5 a.m. and 11 a.m. Greenwich Mean Time. Because this pattern held true even on Saturdays and Sundays, it suggested that Nakamoto was asleep at this time, and the hours of 5 a.m. to 11 a.m. GMT are midnight to 6 a.m. Eastern Standard Time (North American Eastern Standard Time). Other clues suggested that Nakamoto was British: A newspaper headline he had encoded in the genesis block came from the UK-published newspaper The Times, and both his forum posts and his comments in the bitcoin source code used British English spellings, such as 'optimise' and 'colour'.Eliminate the need to run individual verification checks on potential employees—blockchain transactions can store data regarding identity and employment historyбудущее bitcoin mine monero Over the years, many have voiced concern around the high amount of energy consumed in producing Bitcoin. Satoshi Nakamoto himself addressed this concern in 2010, saying:DOCTRINES THEN AND NOWPutting 1-5% of a portfolio into Bitcoin can potentially improve risk-adjusted returns as a non-correlated asset. In the most bullish case, it could go up 10-20x or more, including in an environment where stocks and many other assets decrease in value. In a bearish case, it could lose value or even go to zero.Peer-to-peer networking avoids centralized serversсбор bitcoin bitcoin trojan bitcoin spend flash bitcoin уязвимости bitcoin bitcoin прогноз перевести bitcoin