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how does mining work cryptocurrency

Mining ensures that only legitimate transactions are verified in the blockchain of any given cryptocurrency. Mining is the process of providing a stable. Crypto mining is the process by which crypto miners use computers, data, codes, and calculations to validate crypto currency transactions and earn. Every 10 minutes or so, the network generates enough transactions to make a new “block,” which is basically a package of transactions that is. BTC EXPRESS JOBS

Each miner who validates a block of transactions is rewarded with a certain amount of Bitcoin. Why do Bitcoins need to be mined? Mining is the system Bitcoin uses both to make new Bitcoins and to validate transactions in pre-existing ones. If no one validated transactions, the decentralized nature of the blockchain could allow fraudsters to spend Bitcoins, and other cryptocurrencies, more than once at the same time.

Is Bitcoin mining profitable? Why do people mine Bitcoin? Because it can be profitable—if you earn more than your mining costs. However, your profit depends on many factors, including the upfront cost of equipment and the ongoing operation expenses, such as electricity.

How much do Bitcoin miners earn? What can you earn in return for these costs? For every block you successfully validate and add to the blockchain, you currently receive 6. But be warned—this amount halves roughly every four years or so! As of December , 6. What do I need to start mining cryptocurrency? But how can you get started with mining cryptocurrency?

There are some core aspects to consider, whether you opt for Bitcoin or Ether. Some options, like CGMiner, are open-source and free to use, whereas others, like Awesome Miner, are fee-based. Depending on what approach you decide to take, you might also need to set up a mining pool membership. Solo mining vs. Not in this case. Solo mining is when a miner acts alone. But in pool mining, a miner works together with other miners and shares their resources and proceeds with the other members of the pool.

Bitcoin mining is usually a large-scale commercial affair done by companies using data centers with purpose-built servers. Mining farms can have many mining computers held in warehouses. Because of this, farms are often located near energy sources like dams, oil and gas wells, solar farms or geothermal sources. How to Mine Bitcoin at Home High costs put home miners at a disadvantage to institutional miners, who can source low-cost power and save money with bulk purchases of Bitcoin mining rigs.

Even people with an ASIC mining machine at home tend to pool their computing power with other ASIC owners and share the Bitcoin reward based on their contribution to the pool. While you can successfully mine a block solo, that feat is often compared to winning the lottery.

You can also consider cloud mining, where you buy or lease hardware or rent computing power hosted by a third party. But that single Bitcoin is most likely shared between many miners worldwide. It can take a single miner a very long time to mine one Bitcoin, says William Szamosszegi, CEO of Bitcoin mining platform Sazmining, which connects individual retail miners with existing green Bitcoin mining facilities. Those results take a lot of computing power. For this reason, with such fierce competition, most Bitcoin miners work together as part of a mining pool.

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It summarizes the movements in that block that will enter the blockchain. The transactions in the tree are consistently paired with each other until one single hash can identify everything within the same tree. Powerful hardware to calculate complex mathematic equations. Calculating and confirming the timing of each transaction on a blockchain is necessary to ensure that the data in the Merkle tree is percent correct.

The challenge? Confirming blockchain transaction computations requires powerful computers. Confirmation from other nodes on the blockchain. Instead, the solution is sent out so it can be confirmed with all other nodes or computers on the blockchain network. When these four steps have been successfully completed, all transactions in the initial Merkle tree will be bundled together, and a new block enters the blockchain. When that happens, the first miner whose hardware has successfully computed the hash puzzle receives their reward: some amount of cryptocurrency.

The reward value varies but typically entails a specific number even fractions of cryptocurrency coins or tokens. Miners receive smaller rewards, with the rules varying over what the blockchain ledger states. The mining process is necessary as the blockchain ledger is decentralized.

With no central authorities to confirm transactions, multiple miners must access the blockchain to participate in the confirmation process. Proof of Work Versus Proof of Stake There are two approaches to the mining process: Proof of Work Proof of work permits miners to receive cryptocurrency rewards if they are responsible for supporting the mining effort. Although many people attempt to mine currencies, only one miner will receive the applicable reward for producing a new block on the chain.

This system requires fast computers that operate at their top capacity 24 hours a day, 7 days a week. Anyone working on the mining process could get the reward, but those who put in more work tend to be more likely to get the coins. Proof of Stake As of this publication, the popular blockchain Ethereum has just moved to a proof of stake system. Proof of stake requires all miners to purchase their own coins as a stake in the cryptocurrency that they seek to mine. Miners who invest, or stake, more cryptocurrency and perform more blockchain validation work receive higher rewards.

That saves energy costs. Proof of stake requires miners to invest substantially in cryptocurrency, however. How to Mine Multiple Tokens Crypto miners are free to mine as many coins or tokens as they like. Much depends on whether a miner is working in a proof of stake or proof of work system: that determines a miner's upfront and ongoing costs. The possible rewards are set at specific values based on what the blockchain ledger says and, in the case of the Ethereum blockchain, what the founder has set as a maximum percentage.

In short, crypto mining is how new units of cryptocurrency —usually called coins—are created. Real currency, the kind backed up by governments, can be created by turning on a money printer, so it stands to reason that crypto could do the same. Without an authority like a central bank—an institution that regulates the flow of currency—it becomes very tricky to manage the supply of any currency. This issue confounded the creators of digital currencies for decades until Satoshi Nakamoto most likely a pseudonym invented something called the blockchain.

In this metaphor, each link is a block, and each block contains a set amount of cryptocurrency. For example, one block has 6. To unlock a new block you need to solve a complicated mathematical equation, which validates the block and adds it to the chain. The ledger also shows when a coin changed hands, and who was involved in the transaction, putting the lie to the claim that Bitcoin is anonymous.

To summarize, the ledger records the creation and movement of coins in the blockchain. Mining is validating new blocks and gaining access to the coins within. Interestingly enough, since the blockchain has to be finite, it also means that most cryptocurrencies have a hard limit to how many can exist: Bitcoin for example has a cap of 21 million.

How Crypto Mining Works To unlock a block in the chain, you need to validate it by solving a complicated equation, usually in the form of something called a hash.

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What is Bitcoin Mining and how does it works- What is Cryptocurrency - #learnwithsumbal

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In other words, miners have some degree of influence on the decision-making process for matters such as forking. The more hash power you possess, the more votes you have to cast for such initiatives. When bitcoin was first mined in , mining one block would earn you 50 BTC. In , this was halved to 25 BTC. By , this was halved again to On May 11, , the reward halved again to 6. Not a bad incentive to solve that complex hash problem detailed above, it might seem.

To keep track of precisely when these halvings will occur, you can consult the Bitcoin Clock , which updates this information in real time. Interestingly, the market price of Bitcoin has, throughout its history, tended to correspond closely to the reduction of new coins entered into circulation. This lowering inflation rate increased scarcity and, historically, the price has risen with it. If you want to estimate how much bitcoin you could mine with your mining rig's hash rate, the site CryptoCompare offers a helpful calculator.

Other web resources offer similar tools. What You Need to Mine Bitcoins Although individuals were able to compete for blocks with a regular at-home personal computer early on in Bitcoin's history, this is no longer the case. The reason for this is that the difficulty of mining Bitcoin changes over time.

In order to ensure the blockchain functions smoothly and can process and verify transactions, the Bitcoin network aims to have one block produced every 10 minutes or so. However, if there are 1 million mining rigs competing to solve the hash problem, they'll likely reach a solution faster than a scenario in which 10 mining rigs are working on the same problem. For that reason, Bitcoin is designed to evaluate and adjust the difficulty of mining every 2, blocks, or roughly every two weeks.

When there is more computing power collectively working to mine for bitcoins, the difficulty level of mining increases in order to keep block production at a stable rate. Less computing power means the difficulty level decreases. At today's network size, a personal computer mining for bitcoin will almost certainly find nothing. Mining hardware All of this is to say that, in order to mine competitively, miners must now invest in powerful computer equipment like a graphics processing unit GPU or, more realistically, an application-specific integrated circuit ASIC.

Some miners—particularly Ethereum miners—buy individual graphics cards as a low-cost way to cobble together mining operations. Today, Bitcoin mining hardware is almost entirely made up of ASIC machines, which in this case, specifically do one thing and one thing only: Mine for bitcoins. Today's ASICs are many orders of magnitude more powerful than CPUs or GPUs and gain both more hashing power and energy efficiency every few months as new chips are developed and deployed.

An analogy Say I tell three friends that I'm thinking of a number between one and , and I write that number on a piece of paper and seal it in an envelope. My friends don't have to guess the exact number; they just have to be the first person to guess any number that is less than or equal to it. And there is no limit to how many guesses they get. Let's say I'm thinking of the number There is no "extra credit" for Friend B, even though B's answer was closer to the target answer of Now imagine that I pose the "guess what number I'm thinking of" question, but I'm not asking just three friends, and I'm not thinking of a number between 1 and Rather, I'm asking millions of would-be miners, and I'm thinking of a digit hexadecimal number.

Now you see that it's going to be extremely hard to guess the right answer. If B and C both answer simultaneously, then the system breaks down. In Bitcoin terms, simultaneous answers occur frequently, but at the end of the day, there can only be one winning answer.

Typically, it is the miner who has done the most work or, in other words, the one that verifies the most transactions. The losing block then becomes an " orphan block. Miners who successfully solve the hash problem but haven't verified the most transactions are not rewarded with bitcoin. Here is an example of such a number: fcccfd95e27ce9fac56e4dfee The number above has 64 digits.

Easy enough to understand so far. As you probably noticed, that number consists not just of numbers, but also letters of the alphabet. Why is that? To understand what these letters are doing in the middle of numbers, let's unpack the word "hexadecimal. This, in turn, means that every digit of a multi-digit number has possibilities, zero through In computing, the decimal system is simplified to base 10, or zero through nine.

In a hexadecimal system, each digit has 16 possibilities. But our numeric system only offers 10 ways of representing numbers zero through nine. If you are mining Bitcoin, you do not need to calculate the total value of that digit number the hash. I repeat: You do not need to calculate the total value of a hash.

Remember that analogy, in which the number 19 was written on a piece of paper and put in a sealed envelope? In Bitcoin mining terms, that metaphorical undisclosed number in the envelope is called the target hash. What miners are doing with those huge computers and dozens of cooling fans is guessing at the target hash. Miners make these guesses by randomly generating as many " nonces " as possible, as quickly as possible.

A nonce is short for "number only used once," and the nonce is the key to generating these bit hexadecimal numbers I keep mentioning. In Bitcoin mining, a nonce is 32 bits in size—much smaller than the hash, which is bits. The first miner whose nonce generates a hash that is less than or equal to the target hash is awarded credit for completing that block and is awarded the spoils of 6.

In theory, you could achieve the same goal by rolling a sided die 64 times to arrive at random numbers, but why on Earth would you want to do that? The screenshot below, taken from the site Blockchain. You are looking at a summary of everything that happened when block No. The nonce that generated the "winning" hash was The target hash is shown on top. The term "Relayed by AntPool" refers to the fact that this particular block was completed by AntPool, one of the more successful mining pools more about mining pools below.

As you see here, their contribution to the Bitcoin community is that they confirmed 1, transactions for this block. If you really want to see all 1, of those transactions for this block, go to this page and scroll down to the Transactions section. Source: Blockchain. All target hashes begin with a string of leading zeroes.

There is no minimum target, but there is a maximum target set by the Bitcoin Protocol. No target can be greater than this number: ffff The winning hash for a bitcoin miner is one that has at least the minimum number of leading zeroes defined by the mining difficulty. Here are some examples of randomized hashes and the criteria for whether they will lead to success for the miner: Note: These are made-up hashes.

Mining pools are comparable to Powerball clubs whose members buy lottery tickets en masse and agree to share any winnings. A disproportionately large number of blocks are mined by pools rather than by individual miners. In other words, it's literally just a numbers game. You cannot guess the pattern or make a prediction based on previous target hashes. At today's difficulty levels, the odds of finding the winning value for a single hash is one in the tens of trillions.

Not great odds if you're working on your own, even with a tremendously powerful mining rig. Not only do miners have to factor in the costs associated with expensive equipment necessary to stand a chance of solving a hash problem, but they must also consider the significant amount of electrical power mining rigs utilize in generating vast quantities of nonces in search of the solution.

All told, Bitcoin mining is largely unprofitable for most individual miners as of this writing. The site CryptoCompare offers a helpful calculator that allows you to plug in numbers such as your hash speed and electricity costs to estimate the costs and benefits. The miner who discovers a solution to the puzzle first receives the mining rewards, and the probability that a participant will be the one to discover the solution is equal to the proportion of the total mining power on the network.

Participants with a small percentage of the mining power stand a very small chance of discovering the next block on their own. For instance, a mining card that one could purchase for a couple of thousand dollars would represent less than 0. With such a small chance at finding the next block, it could be a long time before that miner finds a block, and the difficulty going up makes things even worse.

The miner may never recoup their investment. The answer to this problem is mining pools. Mining pools are operated by third parties and coordinate groups of miners. By working together in a pool and sharing the payouts among all participants, miners can get a steady flow of bitcoin starting the day they activate their miners. Statistics on some of the mining pools can be seen on Blockchain. A Pickaxe Strategy for Bitcoin Mining As mentioned above, the easiest way to acquire Bitcoin is to simply buy it on one of the many Bitcoin exchanges.

Alternately, you can always leverage the "pickaxe strategy. To put it in modern terms, invest in the companies that manufacture those pickaxes. In a cryptocurrency context, the pickaxe equivalent would be a company that manufactures equipment used for Bitcoin mining. Downsides of Mining The risks of mining are often financial and regulatory.

As aforementioned, Bitcoin mining, and mining in general, is a financial risk because one could go through all the effort of purchasing hundreds or thousands of dollars worth of mining equipment only to have no return on their investment. This last hash is called a root hash or Merkle root. It is the hash that represents all the other hashes that were used to make it. Step 3: Finding a good block header Each block has a unique hash because each block has a block header that acts as an identifier.

But besides these two things, they also need to add something called a nonce. So, when a miner wants to make sure their candidate block is valid, they need to put the root hash, the hash of the previous block, and a nonce through a hash function. The objective is to come up with a valid hash. For the output to be valid, it has to be less than a certain target value set by the protocol.

In Bitcoin mining, the block hash must begin with a certain number of zeros. We call this mining difficulty. Step 4: Sharing the mined block As we just saw, miners have to hash the block header many times, using a different nonce value. They do this work repeatedly until they find a good block hash. The miner who found it will then tell the network about his block. All the other nodes will check to see if the block and its hash are valid, and if they are, they will add the new block to their copy of the blockchain.

At this point, the applicant block turns a confirmed block, and all miners move on to the next one. Mine difficulty change The protocol regularly changes how hard it is to mine so that the rate at which new blocks are made stays the same.

This makes it easy to plan for when new coins will be made. The difficulty changes based on how the network uses much computing power. As a result, the hashing difficulty will increase every time a new miner joins the network, and competition increases.

This will keep the average block time from going down. If, on the other hand, a lot of miners leave the network, the difficulty of hashing will go down, making it easier to mine a new block. With these changes, the block time stays the same, no matter how much hashing power the network as a whole has.

What happens if you mine two blocks at once? Sometimes, two miners broadcast a valid block simultaneously, giving the network two correct blocks. The next block is then mined based on the received first block. This causes the network to split briefly into two various blockchains. The race between these two blocks will keep going until the next block is mined on top of either of them. When a new block is mined, the winner will be the block that came before it. The block that is left behind is called an orphan block or a stale block.

All miners who chose this block have to switch back to mining the chain of the winner block. Can all cryptocurrencies be mined? Bitcoin is the most well-known example of a cryptocurrency that can be mined, but not all cryptocurrencies can be mined.

Proof of Work is an algorithm to reach a consensus PoW.

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What is Bitcoin Mining? (In Plain English)

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