What is crypto mining and is it dangerous?

Jan 2022
What is crypto mining and is it dangerous?

When talking about cryptocurrencies like Bitcoin and Ethereum, the topic of crypto mining is often brought up. While most users probably have an idea of what mining means, those who are just navigating the vast ocean known as cryptocurrencies do not understand the ins and outs of cryptocurrency mining.

This article will discuss everything related to crypto mining and how it works. You will also learn about the various dangers associated with mining cryptocurrencies.

How do cryptocurrencies work?

A cryptocurrency is a virtual asset used as a form of payment in online transactions. The blockchain database containing ownership records, transaction details and coin creation information uses mathematical encryption functions to protect the data.

Before talking about crypto mining, one should know how cryptocurrencies like Bitcoin and Ethereum manage transactions and issue new coins.

Centralized and Decentralized Systems

Unlike fiat currencies, cryptocurrencies are not managed by a centralized financial organization that keeps records of transactions. A central system, such as a bank, records transactions and manages them using a ledger that only a few other organizations have access to.

On the other hand, decentralized systems do not require organizations to manage transactions. Instead, a "distributed" ledger called a blockchain stores records. Any user who wishes to be part of the system can access the ledger and view transactions.

Where are transactions stored?

As mentioned above, the blockchain is responsible for storing transaction records related to cryptocurrencies. Multiple transactions are chained together to form blocks, which are then added to the distributed ledger. These blocks also contain other information, such as the previous block's header data and hash.

Let us understand this with an example. David wants to buy a motorcycle from Alice using Bitcoin, his preferred cryptocurrency. He logs into the cryptocurrency wallet of his choice and completes the transaction.

A record of transactions linked with multiple other transactions forms a block and needs to be verified before being added to the blockchain.

What is crypto mining?

In simple terms, in order to keep the blockchain adding new blocks, miners need to solve complex mathematical "puzzles" to validate a block. Each block contains a nonce value (a number that is used only once), which miners use to generate the hash. Miners can change the value of the nonce to find a solution to the block.

Example of a hash value:


The ultimate goal is to find some random number whose hash value starts with a certain number of zeros. Once they validate the block by finding the correct nonce, they are rewarded with a fixed amount of cryptocurrency.

As mentioned earlier, cryptocurrency transactions use encryption to secure blocks of data. Additionally, these blocks are immutable, meaning once created, no one can modify or tamper with the transaction records. Therefore, it is nearly impossible to hack the blockchain and change transaction records.

Currently, miners are rewarded with 6.25 bitcoins each time they validate a block of bitcoin transactions. About every four years, this reward is halved, a process known as the Bitcoin halving. The next Bitcoin halving will take place in 2024, which will reduce the reward amount to 3.125 BTC.

Crypto mining is responsible for the creation and distribution of cryptocurrencies. Therefore, you can conclude that cryptocurrency is a self-sufficient currency.

Can anyone start mining cryptocurrency?

Crypto mining is a flexible process that anyone can perform. You can even set up the system to mine cryptocurrency from your home. Certain countries have restrictions on mining, so keeping track of new cryptocurrency-related regulations in your country is critical.

Crypto miners are required to submit PoW or proof of work that they have successfully verified the current block. Other miners on the network validate the solution to approve the addition of blocks to the blockchain.

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