What is Cryptocurrency mining? Mining is the process by which a computer checks other people’s transactions and adds them to a lengthy public list of all transactions known as the blockchain. In return, they are rewarded with cryptocurrency.
Anyone with a computer and internet connection can be a miner. However, it should be pointed out that mining is not always profitable. Depending on several factors, such as the cryptocurrency you are mining, the speed of your computer, and the electricity bill in your area, you will spend more on mining than what is earned on cryptocurrencies mining.
To start mining, cryptocurrency miners must provide GPU chips or application-specific integrated circuits (ASICs) for dedicated hardware, adequate hardware cooling, and a permanent Internet connection. You will need a connection, a legitimate cryptocurrency mining package, and membership in an online cryptocurrency exchange, and online mining pool.
Aspiring cryptocurrency miners should also know that competition has increased significantly as the popularity and value of cryptocurrencies have increased, and organizations and businesses now have fewer resources than most individuals can compete with.
Blockchain rewards change between blockchains and fluctuate over time on the same blockchain. However, the purpose remains the same. In other words, minors are encouraged to participate in computing competitions. All blockchains not only rely on miners to generate new coins but also rely on miners for transaction verification and network security.
Mining and institutional investors
The cryptocurrency mining market is more mature. If prices don’t start rising sharply like in 2017, you can’t expect excess profits from cryptocurrency mining. Today, the equipment market is saturated. Manufacturers have learned to increase sales quickly and flexibly.
Institutional investors are playing an increasingly important role in the development of the industry, and electricity costs are the decisive factor for investment success. Capacity using less than 0.03 kWh will not only be profitable but will continue to operate in almost any market situation. Stable regulations and legal transparency in the mining industry are essential to investors. Only professionals with deep expertise can obtain this condition with high capacity and low electricity bills.
This year, in 2020, China’s mining industry share is expected to decline gradually. In the near future, the main growth areas are Kazakhstan, the United States, and Canada. North America is a region with investment protection regulations and mechanisms and is primarily interested in more cautious investors. At the same time, Kazakhstan may be becoming the most profitable digital mining country in Eurasia. This is an area governed by British law, the government actively supports IT companies, and Kazakhstan has always been a foreign investor.
If only 21 million Bitcoins have been created, why is it impossible to accelerate the issuance of bitcoins due to the enhancement of operating hardware functions?
The performance was constrained by difficulties. It is an algorithm that adjusts the pressure of the proof-of-work problem based on the speed with which blocks are resolved within a certain period of time (every two weeks or all blocks in 2016). Deployed hash functions increase and decrease difficulty, and the average time between blocks stays around 10 minutes. In most of Bitcoin’s history, the average blockade time is about 9.7 minutes. As prices continue to rise, mining energy is injected into the network at high speeds, resulting in faster blocks. However, in most cases, in 2019, the blocking time is about 10 minutes. Indeed, the price of Bitcoin has been stable for most of 2019.
Cryptocurrency mining validation
During the validation process, each miner tries to find a specific number called a “nonce” or “number used only once.” More specifically, minors are looking for random numbers that meet conditions known to the public. The state is that when the random number is pushed through a cryptographic hash function containing five other vital data, it will generate a block hash below the defined “target” number. This process can be a bit confusing, so let’s dig into it.
Establishing the right Nonce
Each block in the blockchain contains a so-called “block-header.” The block header consists of six essential data.
Version: Extract the version of the codebase that was activated when blocked.
Bit: compressed representation of the target number.
Timestamp: data that records the exact time the block was retrieved.
Merkle root: transaction identification number of all chopped blocks through the Merkle tree.
Previous block: Block hash of the last block in the blockchain.
Nonce: Number of variables sought by cryptocurrency miners.
These six data make up the block-header, and when they are hashed together, the resulting data string is called a “block hash.” When extracting a block, the miner must find the block hash below the target.
Note that five of the six data are predetermined. In other words, they cannot be adjusted. The only number that can be changed is a random number.
As mentioned earlier, the purpose of extraction is to find nuncios that only meet one condition. The condition is to combine the current with the other five data in the block header, and the execution of the password hash function will produce a block hash that is less than or equal to the target (which is itself the target) or even six of the data fragment block headers) one.
Since only random numbers can be changed, miners try to mine the block by gradually adjusting the random numbers. There is no fundamental difference in trying to guess randomly generated numbers, but there is an infinite number of assumptions.
Recall that there is an entire network of cryptocurrency miners, all guessing simultaneously. It’s necessarily a race to find the correct Nonce before any other miner.
When a miner finds a nonce that satisfies these conditions, it will broadcast the random number and its block hash corresponding to the rest of the network. Each node verifies if the Nonce has generated a hash below the target. When an agreement is reached across the entire peer-to-peer network, the block will be added to the blockchain.
Hash rate refers to the total processing power generated by extracting cryptocurrencies on the blockchain network. It measures the size and scale of peer-to-peer blockchain networks.
More specifically, the hash rate measures the number of hashes per second. In this case, the hash is the only guess. All assumptions with sufficient random numbers are called hashes because the block header (including the random number itself) must be hashed as a new block hash. If the block hash is greater than the target, the miner adjusts the random number, reassembles the block header, and compares it with the goal. If it is still incorrect, readjust, and guess again.
Of course, the computer used for cryptocurrency mining is potent and can be executed several times per second. In addition, the hash rate of the blockchain network is not just an approximation of minors. Instead, it is the sum of all assumptions made by all miners in the system.
The hash rate of a network can be expressed in several different ways.
- 1 kh / s is equivalent to 1000 (1000) hashes per second
- 1 MH / s is equal to 1,000,000 (million) hashes per second.
- 1 GH / s is equal to 1 billion (billion) hashes per second.
- 1 TH / s is equal to 1,000,000,000,000 (Mega) hashes per second.
The more miners there are on the blockchain network, the more satisfying the estimated random number per second. The more assumptions per second, the higher the hash rate. But why is this indicator important?
The hash rate metric matters for two reasons:
- because it has a reciprocal relationship with the price of the coin;
- and because the hash rate is a direct measure of the security of a Proof of Work blockchain.
Let’s discuss the relationship with market prices first.
At very high hash rates, there is a “floor price,” below which the price of the component usually does not fall. This dynamic occurs because miners typically don’t try to sell coins for less than the cost of extraction. In addition to the time factor, expensive mining equipment and miners who pay for it have inherent break-even costs. The high hash rate reflects high production costs, which indicates that miners are reluctant to trade or sell these tokens at a price below the production cost.
However, the digital asset market may fluctuate. If the price of cryptocurrencies in the spot market drops, some mining platforms will be unprofitable. In other words, the market value of the product may be less than the cost of producing a mining machine. As a result, some users may have to close the cryptocurrency mining platform or mine another coin until the price recovers.
In theory, this situation will reduce the network hash rate, thereby reducing the difficulty of the algorithm and reducing conflicts. However, if the hash price is not reduced by the spot price and the behavior often shown on the Bitcoin network, an imbalance will occur. Young miners are at a disadvantage because the competition is always high, and the chances of getting a return are low. Check out the top 10 bitcoin wallet list
The Future of Cryptocurrency Mining
Although mysterious to many people, cryptocurrency mining is just a term for validating transactions on the blockchain network. Based on the decentralized network, mining is critical to maintaining the unreliable operation of the PoW blockchain network.
Without a central authority, the PoW blockchain relies on the use of cryptographic hash algorithms to reach agreements. In contrast, the PoS blockchain does not require any mining. Instead, these networks rely on stackers to ensure the continued security and integrity of the network.
Anyone who wants to enter the world of cryptocurrency mining needs to consider many factors. Hash rates, continued market fluctuations, local energy rates, and the price of mining equipment are all factors that make mining operations successful. In addition, optimizing the operation of miners and generating higher profits through block rewards requires a basic understanding of the PoW algorithm.