What Is Cryptocurrency Mining?

Before reading about what is Cryptocurrency Mining, let us first understand what Cryptocurrency is. In the later section of the essay we will see:

  • How does Cryptocurrency Work?

  • What is Cryptocurrency mining?

  • What are the requirements to mine a cryptocurrency?

  • Conclusion

What Is Cryptocurrency?

A cryptographic money, which can be considered as another name of cryptocurrency, is a computerized type of cash that is being utilized progressively everywhere throughout the world. When we compare any of the cryptocurrencies with the fiat money i.e. cash, the digital money is much more productive as far as utilization and exchange costs are considered.

What is Blockchain Technology? And who is Satoshi Nakamoto?

Cryptocurrency uses the technology of blockchain, where miners solve certain mathematical equations to generate coins. These maths equations are codes which need to be mined using several huge computers and software. The first digital money which was exchanged in the whole world was “Bitcoin” which happened in the year 2009. This was done by an anonymous person named Satoshi Nakamoto. The blockchain is a technology which is helpful in maintaining open records or blocks between seller and buyer of cryptocurrency.

Technically each record has a HASH pointer to link last connected block or record, a Time Stamp and transaction data. Nature of this data is

  • permanent,

  • irreversible and

  • it is verified by the miners.

Once the record of any information is added to this open ledger it is difficult to alter it due to complex nature and verification protocol of blockchain.

Global Revolution:

These digital currencies are the money of the future. With the release of Bitcoin started a new era of money-revolution in the whole world. It was the time since when we have seen various virtual currencies being made with new calculations with longer or shorter blockchains to better suit a future economy. Among the presently available cryptocurrencies globally there are 2 prominent protocols on which they have their base, which are: Proof of work (i.e. POW) and Proof of stake.

As we are now clear with what cryptocurrency is, let us now try to bring an understanding regarding the working of Cryptocurrencies.

How does Cryptocurrency Work?

We have already seen what cryptocurrency is and we have also understood that it runs on the technology of blockchain. Let us now understand what exactly a Blockchain is.

  • It is such a document which is a ledger having a shared nature.

  • This document is utilized multiple numbers of times on the whole network of computers.

  • This document is updated each time and is then distributed for the purpose of making it available amongst the whole family of crypto-currency holders.

Each time a transaction related to cryptocurrency comes into effect it is recorded on the blockchain. However, for recording these transactions high power computers are required by the miners who are responsible for tallying each transaction that took place. Further, they are also responsible for authenticating each of these exchanges initiated between the two parties. This is how the safety, security and authenticity of cryptocurrencies are maintained.

These miners in return for their hard work are rewarded by the cryptocoins and not the fiat money. If we talk about the worth of the cryptocurrencies it is not fixed, rather it keeps fluctuating based on the supply of the cryptos and their demand. The value totally depends on an agreed value between the buyer and the seller. This value is considered fair and is in accordance with a similar trading which took place elsewhere.

As the whole network is operated between peers, i.e. it is a peer-to-peer there isn’t any intermediary responsible to keep a check on the transaction. Also, the fees related to such supervision are also saved. The identity of the peers who initiate the transaction is not revealed. All these transactions which take place in this network are available on the public platform, as blockchain is an open network. There are two major ways by which cryptocurrencies can be transacted:

  • Trading of traditional currency

  • Online exchange

Let us understand this exchange through an example:

Suppose there is a person “A” who wishes to purchase something worth $20,000. And there is a seller “B” who accepts payment in digital currency, maybe Bitcoin. A would further look up for the existing rate of exchange in the market, let us suppose it to be $2,000 for each currency. The identities of both the parties are kept unknown to each other. Thus, ‘A’ will obtain the address of public bitcoin from the website of ‘B’.

As the payment to be made by ‘A’ is 10 bitcoins he would give the instruction to his bitcoin client for transacting these coins in the wallet of B’s address. A signature would be initiated by ‘A’ through his private key, once the transaction is complete. This private key is known only to the owner of the cryptocurrency. When this exchange would be displayed on the network of Bitcoin, miners would immediately get into action and would verify the transaction in a couple of minutes. B’s Bitcoin wallet would be credited by 10 bitcoins.

Let us now understand what is mining!

What is Cryptocurrency mining?

There are majorly 2 utilities of Mining of Cryptocurrency:

  • Adding new coins to the economy

  • Verifying the exchange of cryptocurrencies through a secure procedure.

Cryptocurrency mining is a procedure through which the exchange of currencies is verified and new cryptos are added released. The mining process can be initiated by anyone who possesses a PC, other required hardware & software and an internet connection. Mining is a procedure that secures the system, and in the meantime compensates the miners with cryptocoins. To mine digital currency you require mining equipment.

The three fundamental types of mining hardware are

  • GPU’s,

  • FPGA’s and

  • ASIC’s.

First and foremost the digital currency mineworkers, for the most part, depended on CPU/GPU as mining equipment. Latest equipment used these days is ASIC. These are the applications for particular incorporated circuits.

  • For working on computers and completing certain transactions miners are rewarded in return.

  • For completing the transactions and validating the blocks, these miners receive fees in form of coins.

Valid Batches of transaction clustered, encoded and hashed together are called Blocks. Two blocks are connected by hash and this process for linking one block with another is done for the purpose of

  • Authenticating and

  • Validating the information.

Blocks are earned and created based on the volume of their daily investment. The transactions which are recently initiated are compiled into the blocks and then these puzzles are resolved by the miners. The miner who is able to crack the target first by adding the next block on the blockchain is rewarded in return for his work. Computers are utilized by each of these miners in order to zero-in-on any value of Hash below the target. The reward given to the miners keeps fluctuating depending upon the difficulty and level of mathematical equations.

With the passage of time mining is now seen as a lucrative option for making money, and thus a lot of organizations, as well as individuals, have started putting money in hardware related to mining. Keeping a close check on the scenario and to remain competitive, individual miners have joined hands together by pooling in their individual resources and have come up with something called open pool.

Several mining pools, which count to almost 80% of the network-hash-rate, are established in China. Bitmain (which is based in Beijing) & Canaan are the 2 companies at present which have been doing superbly in mining hardware of consumer grade.

What Are The Requirements To Mine A Cryptocurrency?

The following would be the requirements if someone wants to become a miner and start with mining job.

A personal computer

A fast speed internet connection

A fast speed cooling fan as a lot of heat is generated while mining

A cool area with a hardware setup.

A password protected free private database for keeping the earnings

A continuous self-learning habit to grab new tips and techniques

A package of software for mining, if possible arrange a free version

A mining ASIC chip

A membership (for exchanging virtual money into conventional)at currency exchange which should be online

A membership at the community of miners, i.e. at mining pool.


If we talk about the currency market, although cryptocurrency is a safe and secure way of making and receiving payments, however, mining of cryptocurrencies is an ultimate gamble. As it involves a high amount of investments as well as high cost of electricity, it is an ultimate thing to be observed if miner would end up making money or losing everything in expenses occurred. Also when you initiate a purchase or an exchange again question making or losing money exists. Cryptocurrency mining is full of risk you may not end up making rewards as someone else may solve the mathematical equation faster than you and may claim all the rewards.

Thus there are always plus and minus associated with each situation in this life. A thorough comparison of ‘goods’ and ‘bads’ is must before making any final decision. Same theory needs to be applied in case of making a choice to mine or not to mine a cryptocurrency. We, at Coinpedia can only provide you with the facts and figures, but the ultimate choice making decision rests in your hands.

Did you buy or mine bitcoins and other cryptocurrencies? What are your personal thoughts on Cryptocurrency mining? Do you have any other query related to the mining of cryptocurrencies? Do let us know by leaving comments in the ‘comment section’.

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