Cryptocurrency mining for dummies: how it works?

There are some cryptocurrencies buried in the deeps of the Internet, by chance? We don’t think so, but yes, we know what “mining” means in the physical world: “removing minerals from the ground”. It should be the same but on Internet with the cryptocurrencies, right…? Not exactly.

We’ll need Internet if we want to mine some cryptocurrencies, but these coins aren’t there specifically. And they’re not “coins-coins” like the cent inside your pocket, but pieces of informatics code. Like 0s and 1s ordered in digital files, that’s it. With a lot of cryptography (very complex math) building and protecting them.

So, what’s up with the “mining” stuff? Why the cryptocurrencies can be “mined”? Well, that comes from the Proof of Work (PoW). This one is an algorithm, and by “algorithm” we mean a set of steps and methods that are built -with math- to achieve a specific result or solve a problem. That’s exactly what the PoW does: develop a difficult math problem or riddle you must solve in order to verify virtual transactions and win some cryptocurrencies.

You, the “miner” (and mostly your computer and related equipment), should dig into the riddle to “find” the digital coins, and that’s why the cryptocurrencies are mined. The crypto-mining is the mathematical process a decentralized blockchain can use to verify its transactions and mint new coins at the same time. Don’t forget it!

Who can be a cryptocurrency miner?

And don’t worry if you don’t know much about these computer things, you always can learn. Because there’re zero official requisites to become a cryptocurrency miner, at least with decentralized coins. That’s the whole point of “decentralization”: the more people participate on the network, the better.

They help to maintain the network (the blockchain) in a good state, with fast and cheap verifications for every transaction and new coins in the wild. They’re cool. And you can be part of it.

What do I need to be a miner?

In any case, these are common ingredients: electricity, powerful hardware, and a very stable Internet connection. The energy (a lot of it) in combination with your computer or your specialized equipment will be the one to solve the mathematical riddle (it’s not you directly, just in case). And yeah, there is specialized equipment for crypto-mining. They’re called ASIC machines (from “application-specific integrated circuit”) and they’re not usually cheap at all (+1.000 USD), especially if they’re designed to mine bitcoins.

At this point, Bitcoin (BTC) is the hardest cryptocurrency to mine, because the system’s mathematical difficulty increases as more miners participate (to increase the security too). According to Bitnodes, there are more than 10K nodes (miners) of Bitcoin all around the world. Hence the need for ASICs… and mining pools.

The mining pools, basically, are groups of miners who join through a webpage or company to accumulate more computer power together and have more possibilities to get the system’s reward. This happens because if you’re mining alone, your not-so-much-significant machine and power in the huge ocean of machines and power will give you a reward in about… two years. And that’s sad.

On the other side, we have cryptocurrencies like Monero (XMR). You can mine it with your CPU (and probably a pool as well) because its system is different and aims to be more inclusive. But wait: the crypto-mining is an exigent process that takes a lot of energy, hardware, and software resources. Even if you mine with your CPU, you should know it’ll probably be at its full capacity (which means it’d be very difficult using it with other purposes) and your energy bill will rise.

What a miner do on an average day?

In the average day, a crypto-miner can go everywhere they want, to do anything they want. Of course, they must pay some daily attention to the wellbeing of their equipment and software and rarely disconnect them from the energy and the Internet. That would mean monetary loss.

Another thing: they should pay attention to the cryptocurrency markets and news. Like every cryptocurrency user, to be honest. This is the only way to take care of your capital.

What happens inside the mining system?

Once it’s checked, the node writes the new transaction on its own copy of the blockchain, receives the reward in the form of new coins and share the result with the network. The other miners repeat this process to register the new transfer in their own copies of the blockchain, therefore, increasing the security of the network.

And that’s it! Cryptocurrency mined successfully.

Not everything it’s crypto-mining around here

But, well, that’s a story to tell later!

Originally published at https://blog.alfa.cash on August 25, 2020.

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