What is Blockchain Mining?

What exactly is Blockchain mining?

A peer-to-peer computer process, Blockchain mining is used to secure and verify bitcoin transactions. Mining involves Blockchain miners who add bitcoin transaction data to Bitcoin’s global public ledger of past transactions. In the ledgers, blocks are secured by Blockchain miners and are connected to each other forming a chain.

When we talk in-depth, as opposed to traditional financial services systems, Bitcoins have no central clearinghouse. 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 that are generated from mining dwindles over time. In the words of Satoshi Nakamoto, there is only 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 process of Blockchain mining 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

The process of mining can get really complex and a regular desktop or PC cannot cut it. Hence, it requires a unique set of hardware and software that works well for the user. It helps to have a custom set specific to mining certain blocks.

The mining process undertaking can be divided into three categories:

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, a group of users works 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 the validation of the result, the reward is then split between all users.

3. Cloud Mining

Cloud mining eliminates the need for computer hardware and software. It’s 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 in blockchain. The operational expenses increase as the reward profits are low. Software upgrades are restricted and so is the verification process.

How can you mine bitcoins?

You can buy and trade for bitcoins, or you can mine them. For mining bitcoins, users are rewarded in bitcoins. This mechanism forms the pivot around which the bitcoin economy revolves.

While the cost and difficulty of mining bitcoins individually continue to increase, several cloud-based mining services have gradually emerged. These services allow individual users to lease the processing power of mining equipment and mine bitcoins remotely. However, you can mine bitcoins in person too.

Mining Bitcoins in Cloud

• Obtain a bitcoin wallet: Bitcoins are stored in digital wallets in an encrypted manner. This will keep your bitcoins safe.
• Secure the wallet: Since there is no ownership of bitcoins, anyone who gains access to your blockchain wallet can use it without any restriction. So, enable two-factor authentication and store the wallet on a computer that does not have access to the Internet or store it on an external device.
• Choose a cloud mining service provider: Cloud mining service providers allow users to rent processing or hashing power to mine bitcoins remotely. Popular cloud mining service providers are Genesis Mining and HashFlare.
• Choose a cloud mining package: To choose a package, you will need to decide on how much you are willing to pay and keep your eyes open to the hashing power the package will offer. Cloud mining companies will mostly envisage the Return on Investment (ROI) based on the current market value of Bitcoins.
• Pick a mining pool: This is the best shot you can get to earn bitcoins easily. There are many mining pools that charge a mere 2 percent of your total earnings. Over here, you will have to create workers which are basically subaccounts that can be used to track your contributions to the pool.
• Put your earnings in your own secure wallet: Whenever you witness an ROI, simply withdraw your earnings and put them in your own secure wallet.

Mining Bitcoins on your own

• Purchase custom mining hardware: You need to purchase an Application-specific Integrated Circuit (ASIC) miner to mine bitcoins. While purchasing an ASIC Blockchain miner, you should consider its efficacy in hashing power and take note of its pricing policies.
• Purchase a power supply: Blockchain miners consume a lot of power. So, get a dependable power supply that is compatible with the ASIC miner that you purchase.
• Obtain a bitcoin wallet: Bitcoins are stored in digital wallets in an encrypted manner. This will keep your bitcoins safe.
• Secure the wallet: Since there is no ownership on bitcoins, anyone who gains access to your wallet can use it without any restriction. So, enable two-factor authentication and store the wallet on a computer that does not have access to the Internet or store it in an external device.
• Pick a mining pool: This is the best shot you can get to earn bitcoins easily. There are many mining pools that charge a mere 2 percent of your total earnings. Over here, you will have to create workers which are basically subaccounts that can be used to track your contributions to the pool.
• Connect the power supply to the ASIC Blockchain miner.
• Connect the ASIC Blockchain miner to your router.
• Boot up your ASIC miner.
• Enter your router’s IP address in a web browser.
• Find ‘connected devices in the router miner page.
• Find your ASIC miner and click on it to display the device information.
• Copy and paste the IP address of your ASIC miner into your web browser.
• Log in to the ASIC miner with the default username and password that are ‘Root’ and ‘Root.’
• Select ‘Miner Configuration’ to set up the miner according to your preferences.
• Enter the URL, username, and password for your mining pool on the Miner Configuration page of the ASIC Miner.
• Click ‘Save and Apply’ to save your credentials for future use.
• Start mining and in periodic intervals check your profitability.
• Put your earnings in your own secure wallet: Whenever you witness an ROI, simply withdraw your earnings and put them in your own secure wallet.

Uses of Blockchain Mining

1. Validating Transactions

Bitcoin transactions take place in huge figures every day. 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 Network

To secure the transaction network, bitcoin miners work together. With more users mining the blockchain, blockchain network security increases. Network security ensures that there are no fraudulent activities happening with cryptocurrencies.