Explore How Crypto Mining Works
Any cryptocurrency won’t exist without mining. Bitcoin requires mining for it to function, and so do the other cryptocurrencies now on the market. The altcoins based on Bitcoin share even more similarities when it comes to crypto mining, and this makes Bitcoin mining the standard model for almost all cryptocurrencies today.
What is crypto mining?
Crypto mining is the detailed process of adding every single transaction record to the blockchain, which serves as the public ledger of all transactions in the past. It’s a decentralized computational process devoid of human manipulation. It’s also responsible for two main functions, which are to confirm new transactions via blocks and to create or issue new coins in every block.
This is exactly the purpose of Bitcoin mining. Those wondering how Bitcoin transactions are processed or how bitcoins came about should understand the five basic steps involved in the mining process.
It’s in mining where the validity of every single transaction is verified. Each transaction is then clustered into blocks, which undergo the process of hashing. Mining rigs proceed to solving the algorithms, from which a correct solution warrants a mining reward. The new block advances to the local blockchain and into the network.
Bitcoin mining, however, isn’t the same for all cryptocurrencies. Therefore, mining other cryptocurrencies may require different processes from how Bitcoin mining functions.
What is proof-of-work?
You’ll eventually come across the term ‘proof-of-work’ when solving SHA-256 algorithms. In mining, this is your ticket to receiving the mining rewards. Technically, proof-of-work is a method used to guarantee that the new block generated from mining was indeed difficult to solve and to be created.
The proof-of-work method compares the hash number with the target value. If the hash number turns out to be of higher value than the target value, then the block proved to be easy to be made. Otherwise, a lower hash number is an indication that mining the new block indeed required more processing power. This also means that a more advanced hardware, power, and time were needed to solve the algorithm.
What is mining difficulty?
Finding a hash below the target value during the proof-of-work depends on the mining difficulty. Mining difficulty is directly proportional to the target value. So a high target value yields a lower mining difficulty and vice versa.
The value of mining difficulty increases when the average mining time—which is about 10 minutes per block—decreases. This result is reached when the block creation rate goes up, which is caused by the increase in the number of miners joining the network. The block creation rate decreases when the mining difficulty reaches a higher value. This is the time when the average mining time returns to its normal rate.