Crypto 101-Part IV-Mining a Crypto

For those new to this post refer to Part I, Part II and Part III

Last week we had learnt about the 2 key methods of crypto mining “Proof of Work” and Proof of Stake”.

This week in a shorter post I want to dive a bit deeper into basic mining process and functions.

Will be doing a Part II of this next week for more details

What’s Crypto Mining?

Crypto mining is the process through which new crypto are entered into circulation.

Who’s Mining?

Bitcoin miners are the ones who are engaged in mining fresh bitcoins.

Miners get rewarded with the crypto being mined; for example bitcoin miners get rewarded with bitcoins for completing blocks of verified transactions that get added to the blockchains.

Mining rewards are paid to the miners who discovers a solution to the complex hashing puzzle first. However the probability that a miner will solve the problem first depends upon the total mining power on the network.

A miner needs a GPU (graphic processing unit) or ASCI (application specific integrated circuit) to set-up a mining circuit.

Miners are getting paid for their work as auditors. They are doing the work of verifying the legitimacy of Bitcoin transactions. 

To earn the crypto, you need to meet two conditions. One is a matter of effort; one is a matter of luck.

1) You have to verify transactions. This is the easy part.

2) You have to be the first miner to arrive at the right answer, or closest answer, to a numeric problem.

This process is what we described as the proof of work in the Part III of this series.

“What do you mean, ‘the right answer to a numeric problem’?”

Miners are not solving any complex mathematical problems- What they’re actually doing is trying to be the first miner to come up with a 64-digit hexadecimal number (a “hash”) that is less than or equal to the target hash. It’s basically guesswork.

Mining is essentially guesswork, but with the total number of possible guesses for each of these problems being on the order of trillions, it’s involves a lot of hard work.

Successful mining requires a high “hash rate,” which is measured in terms of megahashes per second (MH/s), gigahashes per second (GH/s), and terahashes per second (TH/s).

What’s crucial here is that there is no other process for creating a crypto coin. Mining is basically printing new currency.

Hash Function

  • A hash is a mathematical function converting an input of arbitrary length into an encrypted output of a fixed length.
  • Hashes are of a fixed length since it makes it nearly impossible to guess the length of the hash if someone was trying to crack the blockchain.
  • The same data will always produce the same hashed value.

A crypto “hash” has 3 properties:

  • They are “collision-free.” In simpler words every answer has only one question;

No 2 questions can produce the same answer, something that can happen in other fields

  • They can be hidden.

In simpler words you cannot guess the answer looking at the question. 

  • They should be puzzle-friendly.

It should be difficult to select an input that provides a pre-defined output. Thus, the input should be selected from a distribution that’s as wide as possible.

Here is an example to understand this better:

Let’s go with the sentence, “don’t be a jerk,” 

Becomes ciphertext- Grqwehdmhun

I will leave it here for today and elaborate further on mining technicalities in the post of next week.

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