Mining, what the heck is mining?! I’m so glad you asked! Mining might seem a little too complicated to understand, but it really is not and the beauty of understanding mining is that once you learn it for one coin (i.e. bitcoin) then you learn it for most coin out there!
To understand mining first we have to quickly talk about digital transactions and how they work. I am not talking about cryptocurrency transactions here, I’m talking about transactions you make with with your credit cards or online transactions.
So let’s say I am in the market of buying a soccer ball, I either go to a sports store and buy the ball or order it online. When I go in the store to buy I have two options:
Pay with Cash
Pay with a Credit or Debit card
Online I have the option of buying it with a credit or debit card. When I make the purchase (in this case lets say for both examples I use a credit or debit card) I swipe my card, or insert my chip and walk out with my brand new soccer ball. The question is what happens when I swipe the card or insert that chip?!
Well that is when you tell your bank that pay this merchant x amount for this transaction. The bank then goes ahead and pays the vendor the x amount and either increases your credit card balance by x or reduces your bank balance by x if you paid by credit. And for doing all this the bank charges the vendor a certain percentage (could be 2% or could be 5%) per transaction.
Now lets think about bitcoin and other cryptocurrencies. These currencies are not backed by a bank so who is responsible for ensuring transactions are legitimate and confirmed? The Miners!
Miners are users who provide their computers processing power, either via their CPU or their GPU (your graphic card) to the cryptocurrency network. You probably have a couple of questions like: what does the cryptocurrency do with that processing power or why would miners provide their processing power?
Great questions! Lets get into them one by one –
What does the cryptocurrency do with that processing power?
The cryptocurrency uses the processing power to validate transactions on the network. If we look at bitcoin as an example, what bitcoin does is that it takes all transactions that occur in a thirty minute period and add it to a “block.” After thirty minutes this block is then waiting to be added to the blockchain. The way it is added is when the network solves a complex mathematical problem and the remaining miners validate the transactions. Whoever solves the problem first is gifted bitcoins for solving the transaction.
Why would miners provide their processing power?
Providing processing power obviously will cost you money via the energy you use to keep your computer turned on. So why would you do it? Well the incentive that the cryptocurrency network provides is the cryptocurrency itself! Let’s take bitcoin as an example. Every time a person or a group of people successfully validate transactions they are gifted bitcoin as their reward. This does two things: 1) introducing new bitcoin to the world 2) maintain a network of miners
There are two types of mining that you can do. You can buy the physical hardware to create a mining rig or you can join others in cloud mining. For bitcoin I highly advise that you get into cloud mining because setting up your own mining rig will cost you a lot of money as well as requiring a lot of technical knowledge to set it up. My favorite cloud mining is below.
Now if you are thinking about mining other cryptocurrencies besides bitcoin then it makes more sense to mine these coins yourself. Below is a site that I love. It lets you mine a variety of cryptocurrencies from Ethereum to Monero to many more! Take a look at both options and see what works for you best.