Here we are going to consider all the little details of the mining process and understand its purpose. This article will be useful not only for crypto-involved people but for those who want to be aware of new technologies as well.
Learning from the beginning: What is a cryptocurrency and how do they work on the blockchain system?
Every person that has access to a computer and Internet surely have heard about the mining. Most of them didn’t even get what it means, how it works and why do people need this. Here we are going to consider all the little details of the mining process and understand its purpose. This article will be useful not only for crypto-involved people but for those who want to be aware of new technologies as well. So let’s start from the very beginning.
A cryptocurrency is a form of digital money created for being anonymous, decentralized and secure. Cryptocurrencies use a special technique, which is called cryptography. Cryptography is a process of converting legible information into an almost unhackable code. This makes every action in the system encrypted. Cryptography was invented during World War II to transfer information securely. It uses computer science and mathematical theory elements for creating special codes.
A cryptocurrency works due to the blockchain system. A blockchain is a shared ledger, it duplicates all documents several times across the whole computers connected to the network.
Each transaction and each change made on the blockchain system is recorded on every computer of the network. This job is done by miners.
The history of mining
This year (2019) the cryptocurrency mining will mark its 10th year. It all started with the leading cryptocurrency Bitcoin. At the very beginning, every single person could become a miner. The algorithm was not so heavy and a simple PC could handle this job. But when the popularity of the Bitcoin increased, more and more people started to make actions with this cryptocurrency and the Bitcoin faced to a problem of scalability, the algorithm became more complicated and now only specifically technically equipped machines can do the mining job.
The process of mining
If you are new to this sphere the first thing you need to learn is how blockchains work. So there are several concepts you need to learn: blockchain, the creation of a block, hashing and mining.
The principal thing that makes all these processes real is the blockchain. The blockchain is a system of the connected blocks that keep the information about all actions made in the system.
Every single block stores information about several transactions. For example, when A transfers 2 Bitcoins to B and B transfers 1 Bitcoin to C this information is stored in the block, but the block can be completely created only if it is verified.
Something that helps the process of the verification is called hashing. Hashes are special codes that verify every block, for clearly understanding the process you can think of a hash as a name of the block. Every block has its own hash and stores information about the previous block’s hash. This hashing system makes the blockchain more private and secure.
Also, every single person in the system has a privet key (hash), which is used to verify identity while making transactions. These hashes are created because cryptocurrency transfers are anonymous, but as they are also secure there’s a need for something that can verify and approve the transaction.
So the transactions are made A shared coins with B and B shared them with C. This block is going to something called mining pool (will talk about this later). Miners take blocks from this mining pool and start the process of verification. This verification process is something like solving a complex mathematical puzzle. When this process is completed the block is added to the blockchain and the miner is rewarded for his job. This reward is something like a fee in usual banks.
Summing up, the mining is the process of taking blocks from the mining pool and verifying them for adding to the blockchain.
What is the mining pool?
Let's imagine that some cryptocurrency has 120 nodes connected to the chain. It means there are only 120 miners in this system. And there are 200 transactions made in every two minutes through this blockchain. Every verification takes approximately 3 minutes. There’s no need to be a great mathematician to understand that 120 miners can’t handle this work at once. That’s why mining pools were created. Mining pool looks like waiting hall in the airport. Every block waits for its queue to be verified and supplemented to the chain.
How to become a miner?
There are several required things. The first one is to have a computer with a special GPU (graphical processing unit) or ASIC (application-specific integrated circuit). The second one is a cooling mechanism for the computer’s hardware. The third is always connected internet. And the last one is a cryptocurrency mining software and membership in an online exchange and mining pool.
This is all you need to become a miner, but the question is if it's worth it? If it will become a hobby, it’s okay. Because having a simple PC with some additions will not make your computer as powerful as it is needed to earn huge amounts of money by mining. But this hobby can give you several dollars a day.
Mining as a profession
There are a lot of firms that made a business from coin mining. They have bought special equipment for computer and they have a huge staff working on this. These companies are mining and are giving us an opportunity to mine on our own. Now we will talk about several largest companies that dedicated themselves to mining.
The first one is the Slush Pool. It is the first public mining pool, which launched in 2010. Slush pool has users that can create an account and start mining by themselves. With Slush Pool you can mine Bitcoin and Zcash. Since its creation Slush Pool has mined over 1 million Bitcoins.
The second company we want you to learn about is F2Pool. This is a mining pool that is designed for mining Ethereum and Bitcoin. It is based in China and was formerly known as DiscusFish. The company bought 215 000 ETH in 2017 and became the second greatest single holding of ETH all over the world. F2Pool is also the sixth in the top of 10 largest Bitcoin mining pools in the world.
And the last large company we want to talk about is Antpool. It was founded in 2013 by Jihan Wu and Micree Zhan. Antpool runs by Bitmain Technologies Ltd. and considered to be the largest private Bitcoin mining company. Jihan Wu was the first, who translated Bitcoin’s white paper into Chinese. Antpool is the richest Bitcoin-mining firm in the world, which also produces ASICs (Application Specific Integrated Circuits). Estimated revenue of the firm in 2017 was $2.5 billion.