Since the last decade cryptocurrencies have become one of the most popular terms. Cryptocurrency essentially refers to the digital money meant for carrying out transactions equivalent to physical currencies (at least assumed to be). Designed to be highly secured and anonymous, cryptocurrencies run by a technology called cryptography during which information is converted into uncrackable code to help track of purchases and transfers.
While cryptocurrencies promise to completely negate the need to go to banks, it is still looked upon with a lot of scepticism. Nevertheless, it is still interesting to know about the technology and how it works. Some of the cryptocurrencies that have picked up in terms of popularity are:
How Cryptocurrency Works
For the uninitiated, cryptocurrency runs on a blockchain. It is a shared ledger or document duplicated several times across a network of computers. Every single transaction of every single cryptocurrency is recorded in the blockchain.
This blockchain is run by miners, in a process called cryptocurrency mining, during which they update each and every transaction to ensure its authenticity, and that it is being done in a secure, proper and safe manner.
What Is Crypto Mining?
As mentioned above, crypto mining or cryptocurrency mining is the process of verifying transactions of cryptocurrencies using powerful computers. Each of the cryptocurrency mining has defined names like bitcoin mining or altcoin mining, etc. Every time a transaction is made, a miner is responsible for ensuring the authenticity of information and updating the blockchain with the transaction.
To understand in simpler words, when a payment is made using credit cards, there is a third party company that certifies and records the transaction. But in case of cryptocurrency transaction, there is no central or third party to verify it so far. Therefore, miners are needed who are competing with other crypto-miners to solve complicated mathematical problems with cryptographic hash functions that are associated with a block containing the transaction data.
How Crypto Mining Works
Hardware: Some of the most important requirements for cryptocurrency mining are specialised and powerful computers, strong internet connection, constant electricity flow to name a few. The computers have to be very powerful as mining uses a lot of computing power. In a nutshell, the mining kit usually consists of graphics cards, processor, power supply, memory, cabling and a fan. Miners usually use application specific integrated circuits or ASICs. They also need to find a good mining app, install in PC and leave it on.
There are many transactions that are happening at the same time. The transactions that happen at the same time are put into groups called blocks. It is these blocks that miners must verify. As one block is verified it is added into a chain of blocks that have already been verified, and hence the name blockchain.
Software: As the miners run software that connects them to the blockchain to solve mathematical problems, they attempt to solve a block having the transaction data using cryptographic hash functions. Hash value is nothing but a numeric value of fixed length that uniquely identifies data. Miners try to zero down to hash value less than the target and whoever is the first to crack it would be considered as the one who mined the block and is eligible to get a reward.
With each block of transactions, the problem that they must solve is different. Lot of miners try to solve problem at the same time but the miner that solves it first is the one who is rewarded with the new cryptocurrency. They must keep data of all the past transactions that has ever happened to create a database. During each mining process, the miner check this database of old transactions to verify it. This makes sure that you have not spent the same currency in any of the past transactions. During the process they also check if you have enough currencies. If a user doesn’t have enough currencies, the transaction is not verified.
Cryptocurrency mining has become a popular profession as they can earn as much as 12.5 bitcoins for a bitcoin mining as a reward, and it is interesting to note that anybody with electricity, good internet connection and computing hardware can get started as a cryptocurrency miner. However, cryptocurrencies are often a matter of debate and has witnessed a turbulent growth. So we would like to warn you to have a thorough understanding of its current state before investing into mining.
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Srishti currently works as Associate Editor at Analytics India Magazine. When not covering the analytics news, editing and writing articles, she could be found reading or capturing thoughts into pictures.