What is cryptocurrency mining?
In today’s blog, we are talking about mining and mining. If you are an investor, it is possible that you have not encountered mining, but this process is no less interesting than investing in cryptocurrencies. Indeed.
Mining je the process by which networks of specialized computers generate and release new cryptocurrencies, while verifying new transactions. The mining process involves large, decentralized global computer networks that verify and ensure the validity of blockchain or blockchain. We can also talk about blockhain as a virtual book that documents cryptocurrency transactions.
As a reward to miners for their contributions to the processing power of the global network of computers – miners were rewarded with new crypto coins. This “exchange” somehow secures the network, forming a circle in which:
- Miners maintain and secure blockchain.
- blockchain rewards miners with coins,
- coins as a reward further encourage miners to maintain blockchain.
How can you acquire cryptocurrencies?
- Buy at Kriptomat ATM at our two locations in Zagreb
- Buy on the stock exchange such as Coinbase, Binance, Kraken and the like
- Receive as payment for goods or services you have sold
- “Mining” means “mining”
Mining on the example of Bitcoin
By 2009, anyone with an average home computer, either a CPU, or a GPU – could participate in the mining process. Today, this is impossible and, more complex, ASIC miners are used. Application-specific integrated circuit). As blockchain has grown over the years , the computing power required to maintain it has also increased proportionately. So it is in October 2019. It took 12 trillion times more computing power to mine a single bitcoin than in 2009. the year when the first blocks were mined. Also, as rewards for miners have decreased – this has called into question the cost-effectiveness of mining for amateurs and hobbyists. All this further resulted in the fact that today almost all mining is in the hands of specialized companies or groups of people who pool their resources. However, there are still miners who mined as natural persons.
How long does it take to mine 1 Bitcoin?
It usually takes approximately 10 minutes to create one bitcoin, and one block is 6.25 btc. The hardware used for mining, greatly affects the speed of mining. Bitcoins are mined on average every 10 minutes. With the increase in computer power, it is certain that miners will find hashes easier. To ensure that Bitcoin and continues to be mined every 10 minutes – the level of difficulty mining must be adjusted, in such a way that if the speed of computer hardware and the number of miners increases, that this does not affect the time it takes to validate new blocks.
Let’s remember Bitcoin Having : There will always be only 21 million bitcoins in circulation. The last block should theoretically be “mined” in 2140. Age. The assumption is that from that point forward, miners will no longer rely on the newly issued bitcoin as a reward, but will instead rely on fees they charge “in return” to carry out transactions
HASH, NONCE, DIFFICULTY
Learning about the mining process, you will surely come across new concepts one of which is indispensable, and that is “hash”.
“Hash” Is an alphanumeric code used to represent a word, message, or data. In the process of mining bitcoin based on the Proof-of-Work consensus mechanism – the valid hash must meet certain criteria – respectively, it must start with a certain string of zeros. Bitcoin is based on a “sha256” hash algorithm that, once executed, is always 64 digits, that is, 256 bits, respectively. What miners are looking for, that is, trying to guess is “nonce” .
“Nonce” is the only piece of information that miners can add, and it looks like a disposable array. Miners enter it, to change the hash output, so that it has a value equal to the mining goal. So we can say that “nonce” is the way to achieve mining goals. The level of difficulty, or “mining difficulty” determines how much minimum zero is required in order for a block to be considered valid. This means that the miners are constantly changing “nonce” until they meet a certain condition, that is, until they reach a certain number of zeros at the beginning of the hash. “Mining difficulties” depends on the global hash rate, that is, on the unit that indicates the strength of the “minner”, that is, how many hashes a pojeid miner can check per second. When global has hrate grows difficulty grows, and this is corrected every 2016 blocks or approximately every two weeks. Likewise, when the global hash rate falls – then the difficulty also falls.
Miners take a block of transactions and a certain amount of data, and as a resultget a certain hash that may look like this: “89s950gdtxa3849tjd7471bcff1e96e53fbcd602c7438a38d8e4257bbe78bddd”
Such a hash is not good because it does not contain a certain number of zeros at the beginning that are necessary in order for a block to be considered valid and to be added to the blockchain.
Here’s an example of a valid hash: “00000000000000002cf16881a7cd5312ec584ca17147f63292544780d10ee”
The process of crypto mining
Specialized computers perform the calculations that are necessary in verifying and recording each new bitcoin transaction. This achieves high blockchain security. Blockchain verification requires a huge amount of computing power, which is voluntarily contributed by miners. Bitcoin mining can be compared with running a large data center.
Miners – were natural, legal entities, buy hardware, and pay for electricity needed for its work, but also for cooling. In order for this to be profitable at all, the value of the coins earned must be higher than the cost of mining these coins.
Miners or miners race to find hash and nonce that match each other. Matching hash and nonceaa is a prerequisite for a block in the chain to become valid. Every computer, or miner, “races” on the network to guess first the 64-digit hexadecimal number known as the “hash”. The faster the computer throws out guesswork, the more likely the miner is to earn a reward. Miner “winner” updates the block chain book (eng. Blockchain ledger) with all the newly confirmed transactions – adding to the chain such a newly confirmed “block” containing all these transactions – and gets a predetermined amount of newly minted bitcoins. On average, this process occurs every ten minutes.
Reducing mining rewards
The reduction of rewards is directly correlated with the process of BitcoinHalving, i.e. halving. In short, the end of 2020. The prize was 6.25 bitcoins, and before that it was twice as high. In 2024. the prize will be reduced by half, and so every four years thereafter. In fact, as the difficulty of mining increases, rewards will decrease until there is no more bitcoin left to mine.
Why is mining important?
In addition to mining “releasing” new crypto coins that then enter circulation, mining is also crucial for the security of Bitcoin, as well as many other cryptocurrencies. This process “checks” and secures blockchain, which further allows:
- Cryptocurrencies to function as a peer-to-peer decentralized network that has no need for third-party surveillance;
- Miners to contribute to the blockchain network with their computing power, in exchange for a reward;
- Miners are the most important to users because they type transactions into the Blockchain network, i.e. they “execute” transactions between senders and recipients of cryptocurrencies.
Is Bitcoin mining legal?
If you’re wondering if Bitcoin mining is legal — the answer is yes, but not everywhere. While in some countries of the world, such as El Salvador, a new “Bitcoin city” is planned to be built, and decisions are being made about the future of geothermal energy-based mining – there are also locations in the world where mining is strictly prohibited. Examples of countries are China, Algeria, Nepal, Russia, Bolivia, Egypt, Morocco, Ecuador and P akistan . In the Republic of Croatia, mining is not prohibited, but also, there is no clear jurisdictional framework. The general position on cryptocurrencies in The Republic of Croatia is such that earnings generated through cryptocurrencies are defined as income. Therefore, although the possession of cryptocurrencies is not taxed, earnings from trading or selling are considered earnings. In other words, if you mine bitcoin and sell capital gains – it will be taxed. If you’re interested in more about cryptocurrency taxes, stop by our previously published blog on this topic.
Announcement of the following blog: We hope you enjoyed today’s topic, and a new topic awaits you next week. In case of questions or topics that you would like to know more about – write to us, either through social networks, or via email. We are excited to prepare an article for next Wednesday.
Until next blog,
Your Kriptomat.hr Team
