Crypto Mining

In the cryptocurrency industry, crypto mining means adding new blocks of data to a blockchain. Cryptocurrency miners have to find a solution to a complex mathematical problem before they can create a new block. They are then rewarded with newly-created coins of cryptocurrency.

When blockchains first emerged, miners could use ordinary desktop computers. But as blockchain’s popularity grew, the difficulty and cost of mining increased. Today, a single desktop computer is no longer enough and solo mining is not nearly as effective as it used to be. Most miners use enormous purpose-built systems and combine their computing power in mining pools.

Crypto Mining Essentials

• The process of adding a new block of data to a blockchain by solving a cryptographic puzzle.
• Miners receive a reward for mining new blocks.
• Miners charge a fee for adding transactions to the blockchain.
• The total amount of most cryptocurrencies to be mined is often limited.
• Mining secures the network as it requires a lot of energy.

Why is it called crypto mining?

There is a reason why it’s called crypto mining: the process of mining cryptocurrency is similar (in a way) to mining minerals. With most major cryptocurrencies, the amount of coins is limited, just like there is a limited amount of gold hidden underground. And just like a gold miner strikes lumps of rock to find a gold vein, a cryptocurrency miner (that is, their computer) hits the algorithm with potential solutions to mine a new block. In other words, what cryptocurrency miners do is extract units of cryptocurrency from the protocol.

Miner usually refers to both the hardware used to tackle mining cryptocurrency, as well as the person operating that hardware.

But what exactly does the mining process look like? In essence, miners try to find a number called a nonce. When combined with the block data and passed through the hashing algorithm, this nonce will produce a certain result required by the blockchain’s code. The tricky part is finding the nonce, and the only way to find it is to guess. There is a huge amount of possible nonces, which means miners need to guess billions and billions of times before they get it right. While it is often referred to as solving a puzzle, it in fact relies more on computing power, time and also luck.

Crypto mining rewards and fees

To further spice things up, mining is a race. All miners compete against one another in guessing to find the nonce. Only the first miner to find any given nonce receives a mining reward (or block reward) for mining a new block. In the Bitcoin protocol, this reward currently amounts to 6.25 BTC and is cut in half every 210,000 blocks mined, or approximately every 4 years. Other cryptocurrencies have different block reward sizes.

Miners also receive a mining fee for adding new transactions to the blockchain. This fee is paid by users whose transactions are added to a new block. It functions as a compensation for the work of the miners. The higher fee you offer, the faster the miners will pick your transaction and include it in their block (historically, Bitcoin fees have averaged in a range of 0.1 to 10 USD per transaction, but can spike during high traffic). Once a solution to the latest block is found, the winning miner announces their victory by propagating the mined block to the network. The entire mining community then moves on to mine the next block.