This is Part One in our four-part series of Blockchain guides
Even though cryptocurrency is still growing, it already has a lot of benefits. Back when Bitcoin was created in 2009, the sole purpose was to eliminate mediums such as banks and make transactions happen peer-to-peer. Blockchain technology—the technology that regulates cryptocurrency transactions— has been growing ever since, creating many possibilities in terms of cryptocurrency and its mining. All the digital assets are transparent but unalterable thanks to blockchain.
Cryptocurrency mining and its advantages
In the cryptocurrency world, mining is a method of validating the transactions that happen based on blockchain technology. Since there are no banks or other parties in between, mining is basically a way of authorizing these transactions. In order for the transaction to happen, various complex algorithms must be validated, and these algorithms are created using cryptography. Technically, cryptocurrency miners handle all the validation process and as a reward these miners get paid in some cryptocurrency format.
What is the mining process like?
When someone makes a transaction that should be added to a blockchain, the process of adding it is taken care of by blockchain technology and cryptocurrency miners. The transaction will be validated by network nodes, the miners will include the transaction in the next block to be mined, and the miner who solves the decrypted puzzle first will get to place this mined block on the chain. They will be subsequently rewarded with the cryptocurrency.
The validation process of transactions on a blockchain works on a process known as “proof of work,” which makes transaction data hard to copy but simple to verify. Some of the cryptocurrencies that use proof of work are Bitcoin, Ethereum, Litecoin, Dash, Monero, and Dogecoin.
How are the miners rewarded?
Back in 2009 when Bitcoin cryptocurrency was created by the pseudonymous Satoshi Nakamoto, the reward for a single block attached to the blockchain was 50 BTC. After every 210,000 blocks, the reward gets halved and considering that about 144 blocks are mined in a day, around 52000 blocks get mined in a year. So, for the block reward to get halved, it takes about 4 years.
The mining can be done in many ways which include cloud mining, CPU mining, GPU mining, and ASIC mining. As the work suggests, the mining process doesn’t come cheap as it takes high computational power and energy to solve such algorithms. So, the equipment and manpower could cost a single ASIC miner thousands of dollars. If we look at how the Bitcoin price has increased now, the mining process has become more complex and is now highly competitive.
A lot of the large-scale computing required for mining is done in countries like China and Mongolia where electricity is cheap. Such countries have mining farms where there are thousands of miners running simultaneously.
What are the benefits of cryptocurrency mining?
The first benefit of cryptocurrency mining is to get rewarded with a highly valued Bitcoin payment. Each block on a blockchain will take about 10 minutes to get mined after some complex algorithms have been solved. As of now, the reward for each block set on a blockchain is 12.5 BTC.
Other benefits include:
- If you are looking to buy cryptocurrency, it is a bit expensive when compared to mining Bitcoin. Bitcoin mining just charges small fees and transactions are much faster here. Apart from that, you can save the deposit, withdrawal, transfer, and trading fee if you use Bitcoin mining. You can always send the amount to your wallet quickly after the request is processed.
- As the very process of mining Bitcoin can be quite expensive if you think of the whole, you can just invest and join a pool where the rewards are shared among the miners. Every pool obtains all the hash power from individual miners and combines it to have a significant advantage of solving a block. After the pool gets its reward, the reward will be split based on the hash rate you have contributed to the pool.
- On the whole, if many people are into Bitcoin and cryptocurrency mining, the system gets more and more secure. As Bitcoin is based on blockchain technology, it is initially very secure and not vulnerable to any kind of attack. Moreover, as the Bitcoin miners increase, the total combined hash power in the network increases and it becomes less vulnerable to attacks. If the attackers want to have a go at the system, they would need access to more than half of the Bitcoin mining rigs at a time which is technically not possible. So, mining cryptocurrency helps in building a highly secured system overall.
These are the benefits one can have as a Bitcoin miner and the impact they make on the security of Blockchain technology. Unlike any other currency out there which involves another party, cryptocurrency cannot be stolen and the rewards you get from mining are safer. Are you looking to invest in Bitcoin mining or do you have experience in the field? Feel free to ask Sanvada any questions you may have or share your experience with us.
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