What does it mean to mine cryptocurrencies?
If you stumbled across this blog post, it probably means that you are either expanding your knowledge or thinking about starting to mine cryptocurrencies. You have come to the right place for either of these.
In this blog post, we will explain how mining works.
To answer this blog question, you must first understand the basics of blockchain.
What is blockchain and how does it work?
Bitcoin runs on blockchain technology. Blockchain can be visualized as a chain made of blocks. Each X amount of time, a new block gets created and added to the previous block. This is a continuously ongoing process. The Bitcoins block time is 10 minutes. Every 10 minutes a new block gets created which contains 1 MB of information about all the past 10 minute transactions that have been made. Each block also contains a reward for the miner who solves it first. "Solving a block" is all about finding a special number called a "nonce". If you want to understand how nonce is an essential part of mining, we suggest you watch this brilliant visualization.
At the time of writing, the block reward is 6.25 BTC per block created.
Illustration of blockchain. Each square block represents one block.
What does it mean to mine cryptocurrencies?
Cryptocurrency mining or Crypto mining is a process where miners confirm transactions on the blockchain. This is also called Proof-of-Work or PoW. When miners are confirming transactions, they prevent double-spending on the network (spending a Bitcoin value twice). When sending or receiving Bitcoins (creating transactions), you will most likely have to wait for 3 or 6 confirmations before Bitcoin is deposited into your wallet. Behind the curtains, miners are making sure that the transaction is valid and included in the new blocks (3 confirmations will take approximately 30 minutes).
Miner
Miner is a device (computer with CPU/GPU or an ASIC) that is solving mathematical problems. Bitcoin miners are solving a hash function based on the SHA-256 algorithm. Whoever “finds” a solution first (a correct nonce), receives the block reward. This can also be said to finding a block.
Speed
Speed is measured by how many hash functions are solved in a second (Hash/s). At the time of writing, the total Bitcoin network (all the miners currently mining Bitcoin) hashing speed is around 120,000,000 TH/s.
Block Time & Difficulty
The Bitcoins block time is on average every 10 minutes. This means that every 10 minutes new Bitcoins are created. These Bitcoins are rewarded to the first miner who solved the mathematical problem (found a nonce). The average time to solve the mathematical problem is regulated by the difficulty which is increased or decreased, depending on the total network hashrate (more hashrate = higher difficulty). The difficulty is adjusted every 2016 blocks. This equals to 20160 minutes or 14 days.
Pools
Because the current Bitcoin network hashrate is 120,000,000 TH/s, it is impossible for an individual to mine competitively and expect to be lucky enough to find a block. Currently, an average ASIC performs with 50 TH/s, which gives the individual miner a 0.00004% chance to find a block every 10 minutes. That is why miners normally join a pool. Pools are a group of miners who act as single miner on the blockchain network. This gives them a higher probability of finding a block. Once they find a block, they split the reward among the contributors of hashing power according to the amount of hashing power one contributed. Read this post if you want to know more about how pools distribute rewards.
Coins & Algorithms
We can divide the coins by whether they are mined with GPU, CPU or ASIC. Below are the most common coins and algorithms that can be mined with GPU, CPU or ASIC.
Note that these are not all the coins and algorithms, these are just a few of the most common ones. Also, remember that each of the coins offers something unique. For example faster block time, anonymity, ASIC-resistant…
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