What you need to know about cryptocurrency mining
Cryptocurrency mining, also named creation, is the method used by the Bitcoin system and cryptocurrencies to issue a new coin. The bitcoin network keeps the performed transactions in its memory, thanks to data structures which are usually called “blocks”.
To add a block to the vast public database containing all the bitcoin transactions, and therefore to the blockchain, a processor must “close” the block by using a special code. The only way to find the code is to make attempts and use mathematical algorithms.
This operation crystallizes the block and prevents future modifications, the person who finds this code is rewarded with about 12.5 bitcoins. The operation is named cryptocurrency mining – mining because this activity compares itself to miners who dig for gold. In this case, it is not physical labor, but it involves “digging” with proper machines.
The bitcoin network
Before cryptocurrency mining, when the bitcoin network had been created, its creator wondered how to issue new coins.
The standard world coin systems issue coins by means of the central banks that set the value of the coins in circulation and base it on the value of gold and the market. But the Bitcoin differentiation needs a method to generate coin that is also different. What solution should be taken?
A system was designed that awards bitcoins to the network participants who make available the processing power necessary to structure and strengthen the network itself. These awards are assigned according to a casual and specifically studied system in order to give back proportionally the bitcoins according to the computational power supplied by the user.
Cryptocurrency mining starts from using very powerful servers that need high amounts of energy and then the miner will make the calculations to find the algorithm.
The evolution of cryptocurrency mining
In the beginning, when bitcoin had little value and little use and mining was a sort of donation for the good of the project, the only way to carry out cryptocurrency mining was to allow the original client to enable the “coin generation” function. This allowed the use of all the CPU’s free time to try closing the blocks.
Because the era of cryptocurrency mining was just in its infancy and there were only a few participants, they could generate thousands of bitcoins per day by letting their PC work 24/7.
Today the bitcoin generation system is structured to self-regulate and modify the difficulty of the needed work to close a block. Consequently, the whole network generates on an average of 6 blocks per hour.
Recently, more and more people have approached the bitcoin and mining world and this has added additional processing power to the network while, at the same time, causing the system to increase its difficulty and decrease the average daily earnings.
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A single machine has gone from thousands of bitcoins each day to just a few cents. Miners had to gather in a “Glide” or a Pool to ensure higher and more consistent earnings compared to the mining of an individual.
There are also positive aspects; the increase in difficulty has caused the birth of a demand and a market and consequently the bitcoin has achieved a real value and some liquidity. Therefore, “professional” mining was born, meaning powerful machines were created to run 24/7 doing “Mining RIGS” and resell the proceeds to the market.
The future prospects of Bitcoin are yet to be seen, but this coin has gone a long way since it was created in 2009 by an anonymous inventor known under the pseudonym Satoshi Nakatamoto.
Financial experts don’t consider Bitcoin a currency, but as a highly volatile means of exchange. Unlike traditional currencies, Bitcoin doesn’t use a central body or sophisticated financial mechanisms. Its value is simply determined by the ratio between supply and demand.
The Bitcoin system uses a database that, being distributed among the network nodes, keeps track of transactions and takes advantage of the cryptography for the management of functional aspects such as generating new coins and giving bitcoins properties.
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An important aspect of Bitcoin is that it allows the anonymous transfer of coins.
Bitcoins can be transferred easily by the Internet; you just need a “bitcoin address” and some bitcoins, obviously. It is a peer-to-peer structure that makes it impossible for authorities to block transfers or seize bitcoins.
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