Cryptocurrency Mining
Cryptocurrency Mining is the process of cryptocurrency generation by solving mathematical equations.
Frequently, this process is compared with the real mining operation through which precious metals are discovered and extracted. Thus, we can say that cryptocurrencies (BTC / LTC / DOGE / etc..) act like cash but they are mined like gold.
Frequently, this process is compared with the real mining operation through which precious metals are discovered and extracted. Thus, we can say that cryptocurrencies (BTC / LTC / DOGE / etc..) act like cash but they are mined like gold.
For the most cryptocurrencies users, it is not necessary to understand how the mining process in itself works, but it is fundamentally important to know that there is a mining process in order to create the virtual currency.
Unlike currencies as we know them today, where governments and banks can simply choose to print unlimited amounts (not saying they do so, just a point), cryptocurrencies have to be mined by users through a mining program, which solves sophisticated algorithms in order to release blocks of coins that can go into circulation.
This part is the one that makes the cryptocurrencies unique, as there is nobody who can simply press a button and get unlimited coins.
Everybody can compete equally, while mining coins, by buying the same equipment.
Unlike currencies as we know them today, where governments and banks can simply choose to print unlimited amounts (not saying they do so, just a point), cryptocurrencies have to be mined by users through a mining program, which solves sophisticated algorithms in order to release blocks of coins that can go into circulation.
This part is the one that makes the cryptocurrencies unique, as there is nobody who can simply press a button and get unlimited coins.
Everybody can compete equally, while mining coins, by buying the same equipment.
The different cryptocurrencies use different types of algorithms in order for the blocks to be released and it is not something to use your computer for. Some cryptocurrecies, like BTC, require specific equipment to mine and it will provide you with a huge electricity bill compared to the profits you will be able to make from it. It is also important to note that the more coins that have been mined from a cryptocurrency, the more difficult it becomes to release new blocks and thus to get new coins.
The algorithms have been made this way to ensure that all the coins will not be mined instantly, leave room for the currency to stabilize, and not be over populated from the beginning, thus not having any significant value for anyone besides the miners.
In general, cryptocurrencies have a limited amount of coins that can be mined and once they have been mined all, there will be created no more coins. For example, when all 21 million Bitcoins have been mined, they will be the only coins in circulation forever and no further Bitcoins will be added to the system. Same goes for almost all the other cryptocurrencies. That is why many people see them as a good alternative to the currencies we have today, which are based on nothing but goodwill between countries in order to ensure that the value of the currencies do not fluctuate. There are, of course, exceptions like DOGE coins, where there is no limit in the total number of coins that can be generated through the DOGE mining process.
The algorithms have been made this way to ensure that all the coins will not be mined instantly, leave room for the currency to stabilize, and not be over populated from the beginning, thus not having any significant value for anyone besides the miners.
In general, cryptocurrencies have a limited amount of coins that can be mined and once they have been mined all, there will be created no more coins. For example, when all 21 million Bitcoins have been mined, they will be the only coins in circulation forever and no further Bitcoins will be added to the system. Same goes for almost all the other cryptocurrencies. That is why many people see them as a good alternative to the currencies we have today, which are based on nothing but goodwill between countries in order to ensure that the value of the currencies do not fluctuate. There are, of course, exceptions like DOGE coins, where there is no limit in the total number of coins that can be generated through the DOGE mining process.
To have a clearer understanding about how the mining process takes place, let us give an example: Mike wishes to buy a desktop from Jane for 1 Bitcoin (BTC), so he initiates a transaction for this. In order to make sure Mike's Bitcoin is a genuine bitcoin and to certify the transaction, miners begin to verify the transaction using complex cryptographic equations. It is not just this transaction miners are verifying; all the transactions are gathered into a "box" with a virtual padlock on it — called "blockchain". Miners run the software to find the key that will open that padlock. Once their computer finds it, the "box" opens and the transactions are verified. For finding the "needle in a haystack" key, the miner gets a reward of 25 newly generated Bitcoins. The reward depends on the total number of such "boxes" solved until now and soon will be halved to 12.5 Bitcoins, as the Bitcoin's specification requires.
For each cryptocurrency has been made a decision regarding which algorithm it uses to mine the coins. There are two different algorithms that are used for almost all the coins that exist today: the SHA-256 and Scrypt algorithms. They are both very difficult to mine with, becoming increasingly difficult once more coins have been mined.
For each cryptocurrency has been made a decision regarding which algorithm it uses to mine the coins. There are two different algorithms that are used for almost all the coins that exist today: the SHA-256 and Scrypt algorithms. They are both very difficult to mine with, becoming increasingly difficult once more coins have been mined.
- SHA-256
- Scrypt
Scrypt is seen as a better algorithm for miners as you can buy equipment that will significantly improve your performance compared to the SHA-256.