The concept of mining was always confined to physical entities like gold and oil. It might not be easy to link the concept of mining to currency. However, with the advent of cryptocurrencies like Bitcoin and Litecoin, mining has become closely related to cryptocurrencies.
When we talk about mining, we immediately conjure up memories of picking up an axe and digging up in a place to find the element that needs to be mined. However, mining cryptocurrency is a tad bit different. In the oncoming lines, let us learn about the nuances of cryptocurrency mining.
Understanding The Blockchain
To understand cryptocurrency, we have to first understand the basics of blockchain. Blockchain is the technology that governs cryptocurrency. Blockchain is a digital ledger that records transactions of each cryptocurrency and makes it available to everyone in the network. In this process, the blockchain copies itself and sends the copy to every computer or every node in the network. Each node constantly checks with the other nodes to see if the copies are uniform. If one of the copies is not the same, the network rejects that particular transaction.
It might seem simple on paper but this aspect of each node being checked for consistency brings in decentralization and security. This protocol ensures that the ledger is not altered in any way to unfairly benefit a network user.
To update the blockchain with new transactions, a new block needs to be created and added to the chain. However, to append the block to the chain, it needs to be validated. This validation process is done by answering a complicated mathematical problem that demands a lot of computational and electric power.
Bringing In Mining
In an endeavor to solve the math problem, a lot of groups or individuals or even businesses use a high-power computing system. They are called mining rigs. These validators who solve the problem are called miners. These miners help maintain the consistency of the blockchain.
The reward for solving the math problem and investing the computational and electric power involved is called the block reward. It is for this incentive that miners are on a constant quest to solve the math problems and validate the block. The reward for validating one megabyte worth of Bitcoin transactions is 12.5 tokens. Given the fact that one bitcoin is equal to about $8566, a successful miner can earn about $133750 in a day.
Why Mining?
We have already discussed that it is this activity of mining that keeps the blockchain consistent and growing. Mining releases Bitcoins into circulation. The greater the number of Bitcoins in circulation, the greater the probability for them to be accepted as mainstream instruments of transaction.
The Dark Side
The concept and the activity of mining cryptocurrency are surely beneficial to the miners. However, the computational power and the proportional electricity it consumes is considered harmful to the environment. As more people start to mine cryptocurrency, the math problem gets more and more complicated. This results in a lot of computational power being consumed. It is said that people who mine Bitcoin consume as much electricity as the entire country of Argentina if not more.
The evolution of cryptocurrency mining has also taken a heavy toll on the users who were the first consumers of high-power processing hardware - gamers. The demand for computational power has increased or rather inflated the prices of graphic cards from top producers like Nvidia and Radeon.
Mining lesser-known cryptocurrencies and carrying out mining activities from low-cost power regions might be a short term solution. Also, altcoins that use Proof-of-Stake (PoS) rather than Proof-of-Work (PoW) ensure that not too many ‘miners compete for verifying the same block. In the PoS system, the chance to verify a transaction is given to a single ‘staker’ than a group of miners.
The Conclusion
It cannot be denied that cryptocurrency mining is what keeps the concept of cryptocurrencies fresh and active. If not for mining, we would not have seen open economies like Malta accepting cryptocurrencies and the stock exchanges of countries like Australia considering blockchain for its transactions. Although it might have detrimental effects on the environment, we can expect solutions for those in the long-term.
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