Definition of ‘Mining Coin’ - What is mining? Mining is the process that Bitcoin and several other cryptocurrencies use to generate new coins and verify new transactions.
What is ‘mining coin’?
Mining coin definition - ‘Mining coin’ is a technical term which means the processes involved in the generation of new coins or the verification of transactions across the blockchain network.
Mining is complex in nature, with levels of complexity differing among cryptocurrencies.
It would take a large number of decentralized computers working together to secure the blockchain to successfully mine coins.
The blockchain platform is like a virtual ledger that tracks and keeps record of every transaction done with the cryptocurrencies.
In essence, coins are like incentives given to miners for spending time and power to solve complex computational problems on the blockchain and also for securing transactions on it.
What is the history of mining coins?
We cannot talk about the history of coin mining without considering the first ever mined cryptocurrency!
Cryptocurrency, came into the limelight in 2009 when Nakamoto Satoshi introduced a peer-to-peer electronic cash system which he named Bitcoin.
In its earliest days, you could mine Bitcoin from the comfort of your home while playing around with your conventional computers, but as its popularity grew, along with the operating technology, it required more electronic resources to mine Bitcoins.
How can you obtain a coin for yourself?
There are three basic ways known to the crypto world about getting coins. You can get a coin for yourself or your business by exchanging fiat money for a cryptocurrency, or by trading one cryptocurrency with another during exchange and lastly, as a reward from the cryptocurrency platform for adding a block to it.
What does it mean to mine Bitcoin?
Like every other cryptocurrency, Bitcoin can be mined, and it is by far the most rewarding cryptocurrency to mine. However, it is one of the most taxing cryptocurrencies to be mined. It will require a lot of heavy-duty computer systems, a lot of electricity, and a high knowledge of analysis to validate transactions across the Bitcoin platform.
These transactions are presented in hashes or strings of codes that can be worked on from anywhere in the world. So anyone can work on it because it uses a decentralized system.
The first person to compute the hash and secure the transaction on the ledger gets rewarded with Bitcoins. This way, one earns bitcoins without exchanging money for it.
What resources do you need to mine coins?
Just as you'd need equipment to farm your home garden, you also need some resources to mine coins. If you're mining coins like Bitcoin, you'll need high-tech hardware like GPUs (Graphic Processing Units) or ASICs (Application Specific Integrated Circuit).
They cost a lot, and you may be considering a budget running into thousands of dollars.
However, when you are mining other coins like Ethereum, you may not need to make so many financial investments in getting this hardware.
For instance, Ethereum miners minimize the cost of mining operations by using individual graphic cards.
After obtaining a high-tech competitive computer, you want to get connected to a constant source of power supply.
It is considered the most demanding expense by miners, especially Bitcoin miners. Aside from that, you also want to ensure that you're connected to a cheap source of power. Since it is the largest source of a miner's expenditure, it's pertinent that you get power at low cost rates.
Mining software like CGminer is also important. This software is used to solve cryptographic mathematical problems which are used to verify transactions. An example is the CGminer. Not to forget mining pools that make your success at mining feasible.
What does proof-of-work mean?
It is a terminology in cryptographic computing parlance which means that a party providing answers to the verifier is validating a statement without providing additional information. In simpler terms, it's the process where miners verify transactions that occur on the Bitcoin platform.
What are the problems associated with mining?
- Unstable prices: One thing people know cryptocurrencies for is the volatility in price. Several factors have shown to affect the demand and supply which invariably affect prices. Such factors include sudden government regulations of powerful economies, actions of its biggest enthusiasts like Elon Musk etc. You cannot perfectly predict how much you will continue to earn as a miner in such a market.
- Government policies: In recent times, cryptocurrencies have become a major part of world economies hence drawing the attention of governments. In some countries, mining and other cryptocurrencies are placed under taxes, while in other countries, they are completely banned.
- Unpredictable profitability: Profits are what we have left from gross income after the cost of mining has been subtracted. For a miner, his profitability depends largely on the cost of mining. These costs include, the cost of electricity, taxes, the cost of mining gadgets, and the prevalent market price for the coin. Considering these, it may be unprofitable for a single individual to continue mining alone for a long time, as they may be unable to handle mining costs hence crash out of business.
- Malware threats: Malwares are the dread of any internet-based business or firm. In the world of mining, people are wary of the malware; botnet. You should be afraid of a botnet because it can be used to mine coins with your computer without your permission.
- Environmental implication: Due to its high electricity and power consumption, mining coins such as Bitcoin contribute to carbon dioxide emissions, which is unhealthy for our environment. Since electricity is the major cost of mining, miners settle for countries with low cost of electricity. For these countries, carbon sources such as coal drive their power sector hence the production of carbon dioxide in large amounts.
Does Bitcoin really need miners?
It is an almost impossible task to stop digital materials from being copied, duplicated or used more than once. Cryptocurrencies are digital materials and definitely face this challenge.
However, that's where miners come in, validating every transaction to ensure that it is very difficult and expensive for anyone to duplicate resources. It is even more rewarding to mine Bitcoin even though it can be taxing than to attempt hacking the system, thanks to the mining technology.
How are miners rewarded?
You've seen how miners help keep the Bitcoin space secured, so what's their reward for doing so? However, before we talk about how they're rewarded, let's look a bit into how the mining thing works.
To verify a transaction and complete a block, a miner has to guess a 64-bit hexadecimal number that is equal to or less than a target hash. So the miner, as fast as possible, tries to generate 'nonces'. Nonce is a short way of saying "number only used once". These nonces are used to determine which miner goes home with the coin.
If a miner produces a nonce that is less than or equal to the target hash, he is rewarded with 6.25BTC. At a point, miners were awarded 25BTC for successfully completing blocks; it was halved to 12.50 BTC before its current rate of 6.25 BTC.
This is done to slow down the exhaustion of 'unmined' Bitcoin because only 21 million BTC will ever be mined.
Is coin mining illegal?
Whether mining activities are legal or not is relative. Every country has its own rules, and what is legal in one country could be illegal in another country. That said, mining cryptocurrencies is legal in many countries. Actually, more countries legalize mining cryptocurrencies than those that do not. One reason some countries crackdown on mining activities is to reduce the load on their power grid and preserve energy. For some others, it is to protect the environment as there are speculations that mining activities contribute to atmospheric carbon dioxide content due to power use. Other economies are however skeptical of the effect of cryptocurrencies on their economies. This is because, as a decentralized method of financial transactions, these governments will have to relinquish a level of control, a path not many economies are willing to tread. Countries mining Bitcoin is considered illegal include Morocco, Algeria, China, Bolivia, Vietnam, Egypt, Ecuador, Nepal, Bangladesh, and Pakistan.
How long does it take to mine 1 Bitcoin?
How long it takes to mine one Bitcoin depends on some factors such as the type of hardware and software used. At the moment, only a limited number of miners can boast of highly sophisticated hardware and software to fast track mining activity. While on average, it takes miners 30 days to mine 1 Bitcoin, at optimum level it should take about 10 minutes to mine 1 Bitcoin.