What is Crypto Mining?
Traditional financial systems introduce new fiat currency units by simply printing and issuing more of them to the public. In cryptocurrency networks, there is no centralized entity responsible for the creation and issuance of new coins or confirming transactions. Instead, crypto networks use a process called mining or minting for this purpose.
Crypto mining is the process through which transactions are gathered, verified, and included in a blockchain network. It is also a way of generating and issuing new crypto units. Mining is an energy-intensive process used in proof-of-work (PoW) blockchains like Bitcoin and other altcoins. Its alternative is minting, often associated with proof-of-stake (PoS) and other consensus mechanisms.
The individuals involved in the mining process are known as miners or mining nodes. The miners are tasked with confirming transactions from their mempool and organizing them in a new block. A block reward, made up of transaction fees and block subsidy, is used to incentivize miners for successfully mining a block.
How Does Crypto Mining Work?
Cryptocurrency mining involves miners packaging transactions into batches and competing to solve a complex mathematical puzzle using specialized hardware. The winning miner gets the opportunity to add a new block to the blockchain and receives a block reward in the form of the respective blockchain’s native currency.
To further put this into context, take Bitcoin mining for instance. When a user sends some BTC to a friend, the transaction is assigned an “unconfirmed” status and broadcast across the network. The unconfirmed transaction is then added to a queue (waiting or temporary area) of unconfirmed transactions called mempool or memory pool. Every miner basically has their own mempool.
Miners pick unconfirmed transactions from the waiting area and package them into batches or candidate blocks. An average block on the Bitcoin network fits around 2,000 transactions, which is approximately 2MB. The actual mining process begins after the transactions are packaged into a candidate block. The miners compete to find a valid hash, which has to be less than or equal to a predetermined value (the target value). Finding the valid hash allows the miners to fully verify their candidate blocks, which are then added to the blockchain. The miners then update their mempools to remove the confirmed transactions. The process repeats itself every 10 minutes on the Bitcoin network.
Why is all this laborious process necessary?
Mining secures the crypto networks from spam transactions and attempts to manipulate or take control of the network. Thus, it is a necessary process for maintaining a PoW blockchain’s integrity.