Mining is the term used to describe the process of extracting cryptocurrency tokens from a blockchain network. This involves having computers continuously run a hashing algorithm, which takes an arbitrarily large amount of information and condenses it to a string of letters and numbers of a fixed length. The hashing algorithm hashes metadata from the most recent block using something called a nonce: a binary number that produces a unique hash value. For each new block in the blockchain, the network sets a target hash value and all the miners on the network try to guess the nonce that will result in that value.
See what it would look like with this mining simulator
The first Bitcoin miner was Satoshi Nakamoto. In 2009 he mined the first block, block 0, and earned 50 coins. By 2011 it started to enter main stream conversations and by 2014 large online retailers started to accept it. Today it is becoming the next step in online secure transactions.
There are several different coins that can be mined. We mostly talk about BitCoin as it was the first and most well known. There are currently over 1500 coins to choose from.
When you buy a mining rig it is designed to do one thing and one thing only. Its made to run hard, and run fast, an algorithm. Each coin has its own mining software that is easy to install, but you might need someone familiar with computers to troubleshoot any networking issues. The software is free and easy to install. Most contractors will build the mining rigs based on your power supply, cooling ability and the type of coin you want to mine.
Applications would be installed on a mining rig. Powers supply and economy determine hash rate. Most are open source and free, though you might need a professional to install them. Mining software is different than your basic wallet. Here are some links to help you find the right programs to use to mine cryptocurrency.
The amount of calculations needed to earn a single Bitcoin are immense. The best way to hedge your bets is to get to a mining pool. These are organizations that allow you to share the workload for small fee and increase the likelihood of return. There are several out there each one with its own advantages. If you are going to make profit you will need to be in a mining pool. Each crytpocurrency has its own variations on how their mining is set up.
Mining pools have been around since the dawn of crytpomining, even before there were application specific rigs and business ventures based around the idea. Challenges in mining pools arise around cheating the miners out of coin. Several different methods to pooled mining have been created.
Pooled mining is a mining approach where multiple generating clients contribute to the generation of a block, and then split the block reward according the contributed processing power. Pooled mining effectively reduces the granularity of the block generation reward, spreading it out more smoothly over time.
The slush approach
Bitcoin Pooled Mining (BPM), sometimes referred to as “slush’s pool”, follows a score-based method. Older shares (from beginning of the round) have lower weight than more recent shares, which reduces the motivation to cheat by switching between pools within a round.
The Pay-per-Share approach
The Pay-per-Share (PPS) approach, first described by BitPenny, is to offer an instant flat payout for each share that is solved. The payout is offered from the pool’s existing balance and can therefore be withdrawn immediately, without waiting for a block to be solved or confirmed. The possibility of cheating the miners by the pool operator and by timing attacks is thus completely eliminated.
This method results in the least possible variance for miners while transferring all risk to the pool operator. The resulting possibility of loss for the server is offset by setting a payout lower than the full expected value.
The Full Pay-per-Share approach
The Full Pay-per-Share (FPPS) approach, created by BTC.com team, aims to benefit miners from the high transaction fee. It will calculate a standard transaction fee within a certain period，add it into the block rewards (12.5 BTC every block for now) and then distribute the whole to miners according to PPS mode.
This method keeps advantages of PPS and pay more to miners by sharing some of the transaction fees.
Luke-Jr’s approach (“Eligius”)
Luke came up with a third approach borrowing strengths from the earlier two. Like slush’s approach, miners submit proofs-of-work to earn shares. Like puddinpop’s approach, the pool pays out immediately via block generation. When distributing block rewards, it is divided equally among all shares since the last valid block. Unlike any preexisting pool approach, this means that the shares contributed toward stale blocks are recycled into the next block’s shares. In order to spare participating miners from transaction fees, rewards are only paid out if a miner has earned at least 0.67108864 BTC (400 TBC). If the amount owed is less, it will be added to the earnings of a later block (which may then total over the threshold amount). If a miner does not submit a share for over a week, the pool sends any balance remaining, regardless of its size.
P2Pool mining nodes work on a chain of shares similar to Bitcoin’s blockchain. When a block is found, the reward is divided among the most recent shares in this share-blockchain. Like the puddinpop and Luke-Jr approaches, p2pool pays via generation.
The cooperative mining approach (slush and Luke-Jr) uses a lot less resources on the pool server, since rather than continuously checking metahashes, all that has to be checked is the validity of submitted shares. The number of shares sent can be adjusted by adjusting the artificial difficulty level.
Further, the cooperative mining approach allows the clients to use existing miners without any modification, while the puddinpop approach requires the custom pool miner, which are as of now not as efficient on GPU mining as the existing GPU miners.
Puddinpop miners receive coins directly.
Additionally, the puddinpop and Luke-Jr approaches of distributing the earnings by way of including precise sub-cent amounts in the generation transaction for the participants, results in the presence of sub-cent bitcoin amounts in your wallet, which are liable to disappear (as unnecessary fees) later due to a bug in old (before 0.3.21) bitcoin nodes. (E.g., if you have a transaction with 0.052 in your wallet, and you later send .05 to someone, your .002 will disappear.).
Puddinpop and Luke-Jr miners receive coins directly, which eliminates the delay in receiving earnings that is required on slush-based mining servers. However, using some eWallet services for generated coin will cause those coins to be lost.
Blockchain is a new way of sharing information that is extremely resistant to hacking. It may be the future of information exchange, but currently, it is mostly associated with bitcoin and cryptocurrency. Its similar to the way windows manages programs on your computer, but this manages blocks of data. It is a very complex, very secure, ledger, that keeps track of all transactions and will not allow alterations.
Bitcoin was created and Blockchain was pulled from its substructure. That is to say the chicken came before the egg in this case. The effective secure structure of the original Bitcoin programming was so remarkable that it eventually became its own program. With the addition of the “Smart Contract” it sealed the future of commercial transactions and Blockchain.
You read from the Harvard Business Review its “History of Blockchain”: https://hbr.org/2017/02/a-brief-history-of-blockchain
This is two words bashed together, the first is Crypto, from the word cryptography. We use it in the word in encrypted. In the easiest terms, its a secret way of writing using math or patterns to keep a message safe. Currency is a system of money. Cryptocurrency uses some pretty heavy computer math to keep it secure and to generate new value.
A Deeper Dive
Cryptocurrency is a digital/virtual currency that uses decentralized control as opposition to electronic money and the central banking system. Every different cryptocurrency’s decentralized control works through a blockchain. Blockchain is a new way of sharing information across a public database.
Bitcoin was the first decentralized cryptocurrency to enter the market in 2009. There are now over 1500 altcoins and growing such as Litecoin and Ethereum.
As cryptocurrencies increase in popularity, more miners join the network. This makes it harder for individuals to mine for cryptocurrencies. One solution that miners have come up with is to work together in mining pools.
Hash Rate – A Hash is the mathematical problem the miner’s computer needs to solve. The Hash Rate is the rate at which these problems are being solved. The more miners that join the Bitcoin network, the higher the network Hash Rate is. The Hash Rate can also refer to your miner’s performance.
Today, Bitcoin miners come with different Hash Rates. Miners’ performance is measured in MH/s (Mega hash per second), GH/s (Giga hash per second), TH/s (Terra hash per second) and even PH/s (Peta hash per second).
A hash algorithm turns an arbitrarily-large amount of data into a fixed-length hash. The same hash will always result from the same data, but modifying the data by even one bit will completely change the hash. Like all computer data, hashes are large numbers and are usually written as hexadecimal.
Bitccoin uses the SHA-256 hash algorithm to generate verifiably “random” numbers in a way that requires a predictable amount of CPU effort. Generating a SHA-256 hash with a value less than the current target solves a block and wins you some coins. Each coin uses different software to achieve similar goals.
This is the specific Algorithm used by Bitcoin: https://en.wikipedia.org/wiki/SHA-2