Mining

In the blockchain area, mining is the creation of new blocks, confirmation of transactions and, as a result, an increased cryptocurrency amount in the network. To confirm the transaction, the computer needs to solve a mathematical task. For solving this problem, the miner (a person who is engaged in mining, or a device on which mining is carried out) receives an award in the form of a cryptocurrency. So, the amount of cryptocurrency on the blockchain network is increasing. If we are talking about the bitcoin blockchain, then to solve such a problem, the power of one computer is not enough. Computers are grouped and perform operations together. The reward is distributed among all participants.

Initially, the mining process depended on the processing power of the computer. Later, the new software made possible to use the power of the video card. This led to the emergence of mining farms – special equipment for mining. Now mining farms can occupy entire data centers.

Mining difficulty

The difficulty determines the amount of reward and depends on the Proof of Work (PoW) algorithm, which checks whether the miner made the necessary calculations.

Transactions in the blockchain are combined into blocks. To determine the validity of a transaction, the miner calculates a hash – an alphanumeric sequence with encrypted data. The hash stores information about the transaction and a lot of miners try to pick it up simultaneously. The first one gets the reward.

The profitability of mining is determined by its complexity, which consists of the hash rate and the time for finding the previous blocks. Hashrate is the number of hashes that a miner can count per second. The more processing power you have, the more coins you get. The growth of the number of miners leads to the growth of the hash rate and the complexity of the calculation becomes higher. To increase the chances of finding a hash for a block miners connect in the minings pools. Also, miners receive additional income from transaction fees.

Risks

In some countries, mining isn’t regulated at the legislative level, and in some, it is completely prohibited (for example, Taiwan, Vietnam, Ecuador, Romania, Kyrgyzstan). If you’re planning to start mining, it is better to clarify all the details before starting crypto activity.

Wrapping up, we can say that mining is a complex and costly process necessary to maintain the economic system of most cryptocurrencies. At the same time, the complexity of mining is growing almost every day.

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