[Originally published by Ben Jones from benzinga.com]
The mining of cryptocurrencies has been around since 2009, which is also the exact amount of time people have been confused about what it is. Whether you’re new to the world of crypto and looking to learn, or an experienced online stock trader and want to get into another investing field, mining is an essential process to understand. That’s why we’re detailing the basics you need to understand for mining cryptocurrencies, specifically Bitcoin.
1. Bitcoin used in a transaction is stored in a public ledger called blockchain
When bitcoin is used to purchase anything, that transaction is stored in a block. Multiple blocks make up a blockchain which comprises the public record of all bitcoin usage. Though you cannot see who is making the purchase, the availability of this information is meant to keep each party honest. Anyone can access this through the process of mining.
2. People verify these transactions by mining the blockchain
Bitcoin’s survival lies in the honesty of transaction. Therefore, miners do what they do in order to unlock the specific transactions from the blockchain to verify purchases. They provide a check on the system which keeps it running efficiently. They are giving back to the system that provides them the bitcoin currency.
3. Miners do not code their way into the blockchain
One of the most confusing elements of mining is what the process actually entails. You don’t need to be a computer expert or coder to mine bitcoin. It actually, at its core, is a lot of guesswork. To unlock a block, miners have to figure out a 64 digit hexadecimal code that is either less than or equal to the value assigned to the transaction. The person (or group called a mining pool) who can figure out this number in the shortest amount of time wins.
4. Miners are rewarded for their work
Blockchain represents a system that values truth and rewards people who help promote this. Therefore, if you are a blockchain miner, it means you’re working towards proving the authenticity of purchases. When you successfully mine a block, you are rewarded with a specified amount of bitcoin from that purchase, making some sort of profit.
5. Rewards are diminishing on mining
Mining has been happening for 9 years and, with a cap at the amount of bitcoin to exist being 21 million, we are nearing the end. Since mining is the only way to get more bitcoin into existence, it is diminishing with each successfully mined block. Additionally, as competition to mine had increased over time, this has also contributed to diminishing rewards.