Topics on Bitcoin, Ethereum, World Causecoin, and other related cryptocurrencies are not news to us anymore. You might have heard or read of these terms several times, and while at it you might have come across the term crypto mining and it probably left you befuddled.
Crypto mining has been happening since the introduction of Bitcoin since the first-ever bitcoin was mined in 2009. Today we see more miners, investors, and cyber-criminals, who cannot be left behind, quite interested in this whole process.
Crypto mining is the act of validating cryptocurrency transactions, intending to release more crypto coins into circulation. The process involves verifying and validating Blockchain transactions. The mining process also helps to keep the Blockchain network secure, since the mining process requires intense computational resources. If the miners are honest and successful, they are rewarded with the newly mined cryptocurrencies in addition to the transaction fees incurred through the transaction.
Unlike the traditional banking system which is centralized, meaning that transactions need to go through a central bank for validation and recording, cryptocurrency is decentralized. There is no need for a central party as the transactions can be validated by anyone as they are public and are recorded and stored in various computers. This means that anybody can directly connect and participate in the cryptocurrency system.
Since there is no central bank involved with cryptocurrency transactions, mining is then done to verify and record the transactions. Through their computers, the miners do the cryptographic work that records the new transactions in ledgers.
So how does crypto mining work?
Once a new Blockchain transaction is made, it is sent to a memory pool, where the mining node will collect and assemble, the pending transactions in the memory pool, into a candidate block. The miners will then convert the candidate block into a valid and confirmed block. The conversion of the candidate block requires the miners to find the solution to a complex mathematical problem and the process requires a lot of computational resources. If successful the miners will then be rewarded the cryptocurrency that is created plus the transaction fees.
Step 1; creating hashes.
Pending transactions from the memory pol are submitted one after the other via a hash function. The piece of data through the hash function generates an output of a fixed size called the hash. The hash in each transaction is made up of letters and numbers that operate as an identifier. The transaction hash is a representative of all information in that transaction.
Step 2; create a Merkle tree.
After the hashing process, the hashes are then organized into a Merkle tree or a hash tree. This is done by organizing the hash transactions into pairs and hashing them again. The newly formed hashes are then organized into pairs and hashed over again. The hashing process is repeated until a single hash is finally formed. The last hash is called a root hash and is used to represent the previous hashes that generated it.
Step 3; finding a valid block header (block hash)
A block header or block hash is used to identify individual blocks. To generate a new block hash, miners combine the hashes of previous blocks with the root hash of their candidate block to get a new block. An arbitrary number, nonce, is added to these two elements. Since the previous blocks and the root hah cannot be changed, miners change the nonce until they get a valid hash.
Step 4; broadcasting the mined block.
Once the valid block hash is found, the miner broadcasts the block to the network and other nodes will verify if the block and its hash are valid. If valid the new block is added to the nodes’ copy of the Blockchain. All other miners will then discard their candidate blocks after confirming the validity of the block. The whole process starts over again for the pending transactions in the memory pool.
Sometimes two miners might broadcast a valid block at the same time and the network ends up with two competing blocks. Miners will then start mining the next block based on the block they received first causing the network to split into two different versions of the Blockchain (temporarily).
The competition between these blocks will continue until the next block is mined, on top of either one of the competing blocks. When a new block is mined, the winner will be the block that first. The other will be abandoned and is referred to as the orphan block. Miners who picked this block will then switch back to mining the chain of the winner block.
Mining is one of the parameters that ensure there is steadiness in the issuance of new coins and that the network is safe. The mining process is usually affected by several factors such as market prices and electricity costs. Miners are not either guaranteed that they will make profits, so before diving into crypto mining it is vital to first do due diligence. Evaluate the risks associated with the mining activity. However, crypto mining can be a good source of income.
