What exactly is Blockchain mining?
A peer-to-peer computer process, Blockchain mining is used to secure and verify Cryptocurrency transactions. Mining involves Blockchain miners who add cryptocurrencies transaction data to cryptocurrency’s global public ledger of past transactions. In the ledgers, blocks are secured by Blockchain miners and are connected, forming a chain.
As opposed to traditional financial services systems, Bitcoins have no central clearinghouse when we talk in-depth. Bitcoin transactions are generally verified in decentralized clearing systems wherein people contribute computing resources to verify the same. This process of verifying transactions is called mining. It is probably referred to as mining as it is analogous to mining of commodities like gold—mining gold requires a lot of effort and resources, but then there is a limited supply of gold; hence, the amount of gold that is mined every year remains roughly the same. In the same manner, a lot of computing power is consumed in the process of mining bitcoins. The number of bitcoins generated from mining dwindles over time. In the words of Satoshi Nakamoto, there is a limited supply of bitcoins—only 21 million bitcoins will ever be created.
At its core, the term ‘Blockchain mining’ is used to describe the process of adding transaction records to the bitcoin blockchain. This process of adding blocks to the blockchain is how transactions are processed and how money moves around securely on Bitcoins. This Blockchain mining process is performed by a community of people around the world called ‘Blockchain miners.’
Anyone can apply to become a Blockchain miner. These Blockchain miners install and run a special Blockchain mining software that enables their computers to communicate securely with one another. Once a computer installs the software, joins the network and begins mining bitcoins, it becomes what is called a ‘node.’ Together, all these nodes communicate with one another and process transactions to add new blocks to the blockchain which is commonly known as the bitcoin network. This bitcoin network runs throughout the day. It processes equivalent to millions of dollars in bitcoin transactions and has never been hacked or experienced downtime since its launch in 2009.
Types of Mining
There are mainly three disting types of mining refereed to cryptocurrencies
1. Individual Mining
When mining is done by an individual, user registration as a miner is necessary. As soon as a transaction takes place, a mathematical problem is given to all the single users in the blockchain network to solve. The first one to solve it gets rewarded.
Once the solution is found, all the other miners in the blockchain network will validate the decrypted value and then add it to the blockchain. Thus, verifying the transaction.
2. Pool Mining
In pool mining, users work together to approve the transaction. Sometimes, the complexity of the data encrypted in the blocks makes it difficult for a user to decrypt the encoded data alone. So, a group of miners works as a team to solve it. After validating the result, the reward is then split between all users.
3. Cloud Mining
Cloud mining eliminates the need for computer hardware and software. It is a hassle-free method to extract blocks. With cloud mining, handling all the machinery, order timings, or selling profits is no longer a constant worry.
While it is hassle-free, it has its own set of disadvantages. The operational functionality is limited with the limitations on bitcoin hashing. The operational expenses increase as the reward profits are low. Software upgrades are restricted, and so is the verification process.
Uses of Blockchain Mining
1. Validating Transactions
Cryptocurrencies function without a central administrator and the insecurity can be substantial with the transactions that transpire. So, what is the authentication method with such cryptocurrencies? With each transaction, new blocks are added to the blockchain in the network and the validation lies in the mining results from the blockchain miners.
2. Confirming Transactions
Miners work the blockchain mining process to confirm whether the transaction is authentic or not. All confirmed transactions are then included in the blockchain.
3. Securing Networks
With more users mining the blockchain, the blockchain network security increases. Network security ensures that there are no fraudulent activities happening with the cryptocurrencies.