Introduction to Cryptocurrency Mining

Aug 28, 2018   |   by Max Villagomez   |   Basics & Beyond

One of the main characteristics of cryptocurrencies is that they are decentralized. This means that cryptocurrency networks are kept alive by the individual users in their communities. Miners are the groups within these communities who use their computer resources to verify if transactions between users are legitimate. They are the decentralized workforce that keep cryptocurrencies running.

Anyone who owns computer hardware that is computationally strong enough to run cryptocurrency mining software can start mining themselves and people who do so are rewarded newly minted coins for their service. This is how cryptocurrency networks entice people into mining. The rewards from mining vary depending on the coin being mined. Bitcoin, for example, currently gives a miner who finds the next block 12.5 bitcoins as a reward.

The mining process can be difficult to understand at first, but most people compare it to a puzzle. Miners attempt to verify values in order to add a block to the blockchain. Blocks are groups of transactions. If the values lineup, then a miner can propose that a block is legitimate. Each legitimate block is followed by another block and so on, which is where the name blockchain originates from. All transactions are recorded on the blockchain.

When many miners are on a network, the value that they are trying to find will be harder to find. This is referred to as the difficulty. The higher the difficulty, the less likely a miner will find the block and receive the block reward. However, if fewer people mine, then the difficulty decreases. Mining pools developed because mining difficulties tend to be high. They consist of multiple people who come together to share their computing power and split the rewards. The compensation received individually will vary depending on the amount of work a miner contributed to the process.

Max Villagomez