Mining in simple words is a process during which mathematical puzzles are solved, as a result of which new blocks of information are released. This brings a certain amount of electronic money, which is deposited in a common piggy bank and registered on the blockchain
Mining is carried out by trading various cryptographic assets (virtual currency), but here we will explain using the typical cryptographic asset (virtual currency) “Bitcoin (BTC)” as an example.
First, let’s briefly explain Bitcoin mining (BTC).
Cryptocurrency mining like Bitcoin has this name because, it is similar to mining any mineral like gold or coal. However, instead of picking up a pickaxe and a wheelbarrow to extract value from the land, you use ‘software’ and computer hardware to extract value from the network.
Bitcoin mining (BTC) is the “transaction data approval job“, and the reward for the work is paid on the new Bitcoin (BTC). It is called “mining” because it is like extracting a small amount of gold from a large amount of stone.
All of these transactions are managed by blockchain technology, giving people around the world peace of mind when trading Bitcoin (BTC). In other words, bids like yen, dollars and euros are administered by the central banks of each country, but Bitcoin (BTC) is “managed by blockchain technology“, which is a currency with a general legal tender. It is very different.
So, how does blockchain technology manage Bitcoin (BTC) transactions?
In the blockchain, each Bitcoin (BTC) transaction data is called a “transaction“, and each transaction is brought together to form a “block“. Then, important information such as “when“, “who (which address)” and “how much Bitcoin (BTC) was traded” are recorded in the block and a third party checks the transaction information.
In other words, this “job to approve a transaction” is mining.
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To make mining activity more difficult, something called ‘Bitcoin Difficulty’ is sometimes implemented. This is a measure of how difficult it is, compared to the easiest mining method, to find new blocks.
Everything is organised in such a way that the complexity of the calculations is constantly increasing, which also requires a constant increase in the computing power of the network. In the first few months after the emergence of Bitcoin, it was possible to exploit it effectively on almost any computer, using only the CPU, but soon the network became so complicated that it became unprofitable to do it even on high-end PCs with a powerful processor.
So, for this purpose, powerful video cards started to be used and hardware manufacturers actively started producing motherboards with 3, 4 and even 5 PCI-Express slots for installing high-end graphics adapters in SLI or Crossfire mode. . Based on powerful video cards, amateur miners began collecting so-called “farms” – special computers designed for commercial cryptocurrency mining.
As miners increasingly participate in the network, the rate of block generation inevitably increases. Thus, after the difficulty level is recalculated, the difficulty level must be increased to decrease the block generation rate again. Blocks created by fraudulent miners that do not reach a certain level of difficulty are rejected by other participants in the network, so they are worthless.
Therefore, this process requires effort and, through all these processes, new money is generated gradually. The rate of issuance of new currencies is similar to the rate of mining and production of primary commodities, such as gold, which is why this process is called mining.
However, as the Bitcoin network has become more complex, even powerful farms have become less and less profitable and this is due to several reasons:
First, the issuing protocols at the heart of Bitcoin are designed in such a way that the reward for mining is not evenly distributed and preference is given to the most powerful machines;
second, after calculating every 260 thousand blocks, which happens every 4 years, the size of the reward for calculating a block is reduced by half (“reduction by half” or “reduction by half” occurs).
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