What Is Cryptocurrency Mining?

In a nut shell, cryptocurrency mining is a verification process. It is a

mathematical process in which transactions for many kinds

of cryptocurrency are VERIFIED and then added to the blockchain.


You may have already learned that the blockchain is a form of a “digital ledger”

sort of similar to an accounting ledger but implemented in a digital format

and accessible on a computer network.


The word “mining” in cryptocurrency mining becomes apparent when

compared to silver or gold mining. For example, in both methods of mining,

the miners put in the effort and are rewarded or paid with an asset. In gold

or silver mining, precious metal that was not part of the economy is

excavated and becomes part of the gold or silver moving within the economy.


In cryptocurrency mining, effort is also performed, and the process ends up

with the production of new cryptocurrency and added to the blockchain digital ledger.


Obviously the cryptocurrency miner’s effort is very much different from that

of a gold or silver miner but the outcome is much the same. They both sell

the asset and make money. All the hard work takes place in a specialized

computer hardware (a mining rig) for cryptocurrency mining and no horses,

donkeys, or gold/silver panning is required.


In both cases, after miners receiving their reward, the mined precious

metal or the newly produced cryptocurrency is usually sold to the public for

profit after recouping their mining (operating) costs placing the new

currency into circulation in the economy.


In the verification process, a cryptocurrency miner is responsible for

ensuring the accuracy or validity of a cryptocurrency transactional

information as well as updating the blockchain with that specific

transaction. To be exact, the miner’s specialized and powerful computers

are the ones performing that complicated and super-fast process taking

only milliseconds to accomplish.



TWO METHODS OF MINING


1. Proof of Stake (PoS) : In this method of mining, the software

chooses one of the cryptocurrency nodes to add the newest block.

However, to be considered in the process, nodes must have a stake,

which means they must own a defined amount of the cryptocurrency.

The miner who will add the next block to the blockchain is chosen by

the cryptocurrency network based on random choice and the amount

of stake. Similar to a lottery, the more you own or the more you

stake, the more likely you will win.


2. Proof of Work (PoW) : In this method of mining, the cryptocurrency

miner has to perform a task or work. The first miner to successfully

complete the work is given the authorization to add the latest block to

the blockchain and receives the block reward which consist of the

block subsidy and transaction fees. For example, Bitcoin, Ethereum,

and Litecoin use the Proof of Work method. There are a few

cryptocurrencies considering to switch to the Proof of Stake method.


Ethereum has been considering this option for some time now.

In the final analysis, Cryptocurrencies have no central bank printing or

producing new money. In its place, cryptocurrency miners unearth new

currency rendering to a predetermined number of coins to be issued based

on a schedule and release it into circulation in a verification process known

today as CRYPTOCURRENCY MINING or CRYPTOMINING.