What Is Mining?

Understanding the Concept

Mining is an essential process for the creation of new cryptocurrencies. It is a special software that uses computer power to solve mathematical problems, allowing miners to verify transactions and add them to the public ledger, the blockchain. As a result, new cryptocurrencies are issued and miners are rewarded for their work. 

Importance of Mining

Mining was developed to create and validate transactions, consequently the most important aspect is security. For the process to be complete, it needs to be verified by other miners, to assure the legitimacy of it. So, by getting more people involved in the systems it increases the security and makes it more difficult to subvert or corrupt the network.

How Does It Work?

The mining process requires a Proof-of-Work, which is a method to ensure that the information (the new block) was difficult (costly and time-consuming) to be made. Miners need resources: hardware, energy and time to complete the procedure.

Mining Evolution

In the beginning, there were a few people involved in the mining ecosystem, which allowed miners to use their own computers and laptops to complete the transactions. However, with the reward and incentives, the competition expanded and the process became more complex. The mathematical problems increased difficulty, forcing miners to use more resources and more efficient hardware to verify the same amount of information (here is an example of the bitcoin difficulty chart throughout the years).

Nowadays, the mining process is well developed and miners cooperate and work in mining pools, which are groups of people who agree to share block rewards in proportion to their contributed mining hashing power. Additionally, they realized that to gain competitive advantage, cheap electricity and special hardware were important factors to succeed.

In the latest Techcruch’s video, we can observed how this business has grew, and how China has become one of the main countries doing it. Here, miners can meet all the conditions to be the most efficient players in the system, creating huge installations around the country, where the majority of the cryptocurrencies are currently mined.