Cryptocurrency is a special type of electronic payment. Digital coins exist only in the blockchain system, not in the physical world. In order to transfer crypto money, you need a cryptographic key or a unique digital signature. Coins are the main element of cryptocurrency. In reality, there are no coins, there is only a record confirming that the coins appeared in a participant’s electronic wallet or transferred to another wallet.
Where do crypto coins come from? Digital coins can be formed in the following ways: The first one is ICO. It is a means of investing real money in crypto coins. New coins are issued and sold to customers. The second one is mining blockchain system maintenance, transfers. And the third one is forging – adding new blocks in a system for transferring cryptocurrencies.
Any resident of the planet can start issuing cryptocurrency. Coins are independent of either a state or banks. The blockchain platform is distributed among all owners of a particular cryptocurrency. There is no centralized place where the cryptocurrency system unit is located. What does this mean? Independence from banks and a state, as well as an anonymity of transfers and ownership of electronic money, started to gain popularity. No one can block an account with cryptocurrency. Let’s consider the best way of getting popular coins like BTC, Ethereum, Litcoin, and others – mining. So, what is crypto mining?
What Is Cryptocurrency Mining in Simple Words
The main tool for creating a cryptocurrency is called mining, which can be performed even in your web browser. So, what is cryptocurrency mining? In order to find the only right solution, suitable for many parameters, complex mathematical calculations make it possible to issue new crypto coins. No one controls mining and anyone who wants to earn cryptocurrency can try to do this. Many system units around the world are engaged in solving or selecting the right values – this is the essence of mining. The opportunity to encourage people who support the blockchain system was laid at the very beginning. The first miners were Satoshi Nakamoto and his associates.
What is a cryptocurrency miner? Miners are people who ‘process’ payments, take a commission for themselves, for their services. The system must service itself, and people involved in the transfer of cryptocurrencies receive a reward in the form of a commission.
A fixed transfer cost would not bring so much money to miners, and when a participant sets a commission, it gives an opportunity to earn more than at a fixed rate per transaction. What is a cryptocurrency miner in other words? A minergate is a decentralized cell in the blockchain system. At the same time, miner is connected to the entire network and ensures the operability of the network, for which he receives a reward. The higher the miner’s power, the more chances he has to earn crypto coins. For this, you’re advised to get the best mining GPU.
How Does Mining Work: Solo, Pool, and Cloud Mining
Records of all transactions are accumulated in a single place – the log. All transactions are transferred to the miners one by one. The task of miners is to select the only necessary hash, a million combinations of numbers and letters need to be sorted out by the miners to find the only correct answer. This hash must meet the conditions:
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- not previously seen in transaction blocks;
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- suitable for any private key;
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- suitable for any new transaction.
The Bitcoin blockchain has been working since 2011, during this time more than a million unique records have been found. With each transaction, finding such a unique hash is becoming increasingly difficult. At the same time, many hundreds of miners are working on a search for a hash, and a whole crypto coin becomes the winner’s reward. After that, the block is closed and the generation of a new block with unique hashes begins. The power of system units and video cards, which are needed directly for the work of miners, affects who can quickly guess the hash. One block is generated within 10 minutes in the Bitcoin system. The difficulty level is recalculated every two weeks for 2016 blocks. If blocks are created quickly, then the level decreases, if slowly, then the complexity increases.
The probability of receiving a miner’s reward is calculated on its power in relation to all the power generating a block in the world. If the power is low, then the miner has little chance of profit, even for a long period of time. Now, you know what is crypto mining. Let’s look at its types.
There are 3 types of mining:
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- Solo mining. Independence from other miners and renting other people’s equipment make solo mining attractive. A wide variety of cryptocurrencies allows the miner to choose the most attractive cryptocurrency and mine it. For mining digital currency in this way, miners indicate their equipment and open a wallet in the system, after which you can start mining or look for the desired hash.
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- Pool mining. For a simpler and guaranteed income, miners are combined in ‘pools’. One server – the pool combines the power of many miners. With such work, large capacities are involved in solving the next problem. Profit is shared among the participants in the pool. Having more computing power, the participant gains an advantage over other miners in the pool. The emergence of pools occurred as a result of the increasing complexity of mathematical calculations in popular cryptocurrencies.
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- Cloud mining. This type of mining allows you to mine cryptocurrency without any power at all. Some mining farms lease their capacity. The participant pays the farm, and in case of earnings, the miner takes a reward depending on the share of purchased capacities. What is cryptocurrency mining in other words? Cloud mining is a kind of investment. Paying for equipment is an investment, and getting cryptocurrency is a return on investment. The member’s PC and electricity aren’t used at all.
Now, you have a better understanding of what is cryptocurrency mining and what is a miner in cryptocurrency.
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