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Mining For Crypto Gold

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4 min read

Mining For Crypto Gold

BITCOIN MINING: THE ART OF DIGITAL COIN MAKING

From the rise of cryptocurrency, the word mining has adopted a completely different meaning. Once upon a time, mining was what the dwarfs did when they left Snow White at home alone, now it refers to nodes on a blockchain network competing to earn the task of processing transactions in exchange for digital rewards. Welcome to mining in the 21st century!

Essentially, the “crypto” part of cryptocurrency requires that all sensitive information associated with a transaction be encrypted. This encryption is achieved through the use of hash functions. These functions produce a random string of letters and digits called a hash, that represent some meaningful underlying information. Regardless of what is put in through a hash function, a completely unique hash will be produced. The limit is the length of the hash produced by the function.

The purpose of mining is to produce a hash for the transactions in a block, which can then be verified by the network and added to the growing chain. A potential miner will try to accomplish this by taking the transaction information that needs to be encrypted and pairing it with a special number known as a nonce. This combination is then run through a hash function. The hash that is produced must then be less than or equal to a value that has been predetermined by the network based on the difficulty of this task.

The first miner able to produce a valid hash is assigned the responsibility of generating the next block of transactions to be added to the blockchain. In exchange, they earn coins or tokens associated with the network. This is how new coins enter circulation. At this point, the rest of the network is notified to move on to the next set of transactions waiting to be encrypted and added to the distributed ledger.

EVOLUTION OF MINING TECHNOLOGY

It is important to realize that mining is a very energy exhaustive effort, especially as certain networks, like Bitcoin, become larger by the day. This makes it more difficult to come up with the correct hashes, and therefore, the incentives for being successful are more appealing. These costs and incentives of mining have transformed mining today from what it was when Bitcoin first launched in 2008.

Miners are required to install a full node on their device, which is basically an open software launched by the blockchain network. Since this has a full copy of the blockchain database along with the capability to relay information to several other nodes; running it can be resource heavy. Furthermore, the more powerful a processor, the better it will be at coming up with the correct hash values and receiving the incentive involved.

Over the years, GPUs (graphical processing units), a processor used to produce visual graphics on a computer, have proven to be great at solving hashing functions. This has made the prices for GPUs almost double within the last year, with the stock prices of companies that make GPUs, like NVidia, rising in correlation. Furthermore, companies like Butterfly Labs have started commercially producing computer chips known as ASICs (Application Specific Integrated Circuits).

These are dedicated computer chips that are designed to mine crypto. Not to mention cloud mining technology, where mining power can be purchased over the cloud, is gaining more traction as demand for crypto increases.

WHAT DO I NEED TO MINE?

As stated earlier, mining is a very resource heavy effort and can often require high energy inputs. Therefore, a lot of necessary hardware is required to be able to mine, including:

  1. A coin wallet. Coin Wallets are important for mining since this is where you will receive the rewards of your work.
  2. Full node software, which is usually open source and available to download from the website of the crypto project, and access to an online mining pool, where you can connect to other miners and share computing power for increased profits.
  3. Dedicated laptop or computer. For mining to be feasible and profitable, it is important to have a laptop or computer dedicated to mining, otherwise the necessary amount of processing power is not going to be available if your machine is being used for other applications.
  4. GPU or ASICs, which as mentioned above, help solve the complex hashing functions.
  5. Cooling system, since such energy intensive computing will generate a lot of heat, threatening to overload your system and shut it down without proper cooling devices.
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