I'm really glad to be a part of the Steemit Crypto Academy. Cryptocurrency Mining is something I always wanted to learn and know more. The opportunity to understand about mining is very useful because then I can realize whether mining is suitable for a girl who is new to the world of cryptocurrencies.
Before I move to the homework task, I would like to give a big thank to the creator of this tutorial blogs Crypto professor @besticofinder you are a wonderful teacher who simplify such topics to the details.
How cryptocurrency mining works
Cryptocurrency mining is a process that adding more Cryptocurrencies to the digital currency ecosystem. Computer hardware calculate complex mathematical equations to put more coins into the circulation. Since it is mined out of the system and it has finite amount, we call the entire process Mining Bitcoin mining has to be the most famous and well known term we heard every where. May be that because everyone tries to be a Miner.
Now who is a miner? Miner can be a person who runs a mining program in his computer. They will receive cryptocurrency as a reward for completing blocks (easy to think as a general ledger) of verified transactions which are added to the blockchain.
With the above chart you can see that this is a complex process. It requires several resources. Now that miner needs a computer and a program, it should have a excellent processing power and a speedy web interface.
Is that it? No, computer requires electrical energy to mine cryptocurrency. Once the setup is done miner has to verify transaction and prevent fraud activities. When there are more miners process of verifying transactions will be faster and there will be less frauds. That is why ecosystem encourages miners with better compensation.
The verification has different mechanisms to confirm transactions,
- Proof of Work (PoW)
The concept of Proof of Work was developed to prevent the service attacks and abuse such as spam on a network by requiring some work from the service user. However in 2009 Satoshi Nakamoto the creator of Bitcoin introduce an innovative way of using Proof of Work as a consensus algorithm that is used to validate transaction and broadcast new blocks to the block chain. Since Proof of Work (PoW) become the most common and one of the most robust consensus mechanism for blockchain technology.
How does the PoW works? In short miners on a network will compete against each other in solving complex computational puzzle. These puzzles are difficult to solve but easy to verify the correct solution. Once a miner has found the solution they will be able to forwarded the block to the network. When its published all the other miners can verify that the solution is correct.
- The Proof of Stake (PoS)
Though the process is different purpose of the Proof of Stake is same to the PoW. This is also an algorithm which requires fewer CPU computations for mining. Unlike PoW, here in PoS system creator of a new block is chosen according to how many coins he or she holds. Hence the power used to solve cryptographic puzzles will be less. The disadvantage is that mining power will be determined by the Cryptocurrency owned by a miner.
What is Mining Difficulty ?
Money and the profit would be the only reason we would choose to become a miner. but everything will depend on how much capacity we have to become miner.
- Resources we have to acquire
To make a powerful mining setup we need Computational Hardware, Cooling System, Electricity, and Maintenance in place. The cost to setup require money in front as a capital.
- Energy consumption
The major issue is that mining require a lot of computing power as well as electrical power and a lot of time to run the calculation. Therefore it would be inefficient since the cost incurred would be greater than the potential reward.
- More Miners
As miners increased by number day by day, the complexities of crypto calculations increased with it. Hash rates being the variable, which is the speed at which the crypto puzzles are calculated and deliver income to the miner. The amount of profit for a miner dependent upon how much hash power the miner has relative to the network.
- Mining Rewards
Every four years the reward system will be reduced by 50% due to mining mew blocks is halved. At the beginning of mining miners were rewarded 50 BTC units to mine each block. In 2012 it reduced to 25 BTC and then in 2016 to 12.5 BTC. At the moment it is 6.25 BTC and it will further decrease in the future halving events.
End of the homework.
Good Bye, Stay Safe!
#besticofinder-week4 #cryptoacademy #steem-exclusive #srilanka #mining
Hello @hasini ,
Thank you for submitting homework task 4 ! You have done a great job ! I love the way how you have explained the topic. Nice work [8]
Thank you
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