What is Mining Cryptocurrency?
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What is Mining Cryptocurrency?

Mining cryptocurrency can be a lucrative endeavor with enough computing power

Mining cryptocurrency is in the news a lot lately. People are finding their computers have been compromised by malware and are mining, or in some cases entire botnets are mining. But what does that mean?

This isn’t mining in the traditional sense. There are no pick axes or canaries involved. Instead. it’s more about trying to win a blockchain lottery to earn the reward at the end.

What does that all mean? Let’s hash it out.

What is cryptocurrency?

To begin a discussion of mining cryptocurrency we need to start with what cryptocurrency is. Cryptocurrency is a digital form of currency with a cryptographic underpinning that is used as a secure medium of exchange. There are literally hundreds of different cryptocurrencies with varying real-world values. Many believe it’s the future of currency.

The most popular cryptocurrency is bitcoin, you may have heard of others like Etherium, too. While cryptocurrencies may differ in terms of the algorithms and encryption they use, they all share one similiarity: blockchain. And that’s what we need to talk about next.

What is blockchain?

Blockchain is a digital ledger of transactions that is impossible to alter. It uses hashing and a concept similar to salting to continuously complete blocks of information that chain to form an immutable ledger.

Hashing is the act of mapping data of any length to a fixed-length output. When cryptography is involved it’s a one-way function. The most popular hashing algorithm is SHA-256, which outputs at a length of 256 bits. Every hash value is unique. Even the tiniest alteration to the data being hashed caused the entire value to change.

Hashing is considered one-way because of the amount of computing power it would take to reverse-hash it. For a 256-bit output, calculate 2 to the power of 256 (2 X 2 X 2… 256 times). Your odds of finding the correct value are 1 in… the product of that equation. Those are astronomical odds. It would take a supercomputer thousands of years to compute that.

Blockchain + Cryptocurrency

Now let’s fit it all together. With a cryptocurrency blockchain, as transactions occur they are broadcast and added to various private ledgers. Each one of these transactions is digitally signed for the sake of authenticity. On the other end, there are people or groups collecting these transactions and building ledgers. They are also computing to find a value that when hashed along with the ledger, produces a set number of 0s at the beginning of the hash value. That’s the portion that’s similar to salting.

So let’s say that for our example cryptocurrency, we’ve set the total to 10 0s. That means the first 10 spots of the 256-character hash value should all be 0s.

When the correct value is found, the block is closed, it’s broadcast officially and added to everyone’s blockchain, then the hash of the old block is put atop the new ledger and the process begins again. This is how blocks are created in the chain.

So, what is mining cryptocurrency?

The act of computing the correct value to satisfy the hash function in blockchain is called mining. When it comes to cryptocurrency, a reward is provided to whoever solves for the correct value. That makes it lucrative to compute the correct value, though it takes quite a bit of power to accomplish that.

Oftentimes people pool their computing power together and split the reward if they solve for the correct value. In other cases, hackers have been known to co-opt others’ computers and use some of their computing power – behind the scenes – to mine cryptocurrency. There are entire botnets doing nothing but mining.

Really, solving for the correct value is like winning the lotto. There are countless people and botnets attempting to find the value and whoever finds it first gets the reward.

Of course, if you can accumulate enough computing power you could solve for the value enough of the time that you could accrue a substantial amount of cryptocurrency.

Wrapping Up

When someone says “mining cryptocurrency” what they’re referring to is the act of trying to compute a specific hash value by producing a set value that, when hashed along with the block ledger, produces a specific result. This requires considerable computing power, but considering the rewards – it’s well worth it.

What we Hashed Out (for Skimmers)

Here’s what we covered in today’s discussion:

  • Blockchain is an immutable ledger of digital transactions
  • Cryptocurrency is a digital currency that is a secure medium of exchange
  • Mining cryptocurrency is computing a specific value that produces a specific hash result and completes a block on the blockchain
14 comments
  • That’s good again, sir. I like your articles.

    But, why are people rewarded for finding the answer to a specific hash result? Why is there value or reward for “creating money” ?

  • The Bitcoin system was designed to issue a number of Bitcoins to reward the miner who successfully compute the hash value for the new set of transactions. It is like a race for the miners in order to reap the rewards: some newly minted bitcoins. The amount of newly minted bitcoins will diminishes over years.

  • Mining is used to provide the mathematical work that is used to make the blockchain secure and ineffective against brute force attacks. Miners dedicate their computing resources (and electrical energy) to guess solutions to a cryptographic hash function from the previous block by trying random permutations until the right one (that is verifiable as a solution) is found. That solution is then published to the network, and the miner who found it publishes the next block, with everyone else in the network confirming it. As reward for creating the block, the miner gets a reward of 25 BTC (which will be halved eventually) as a reward for performing the work to secure the block.

    Now it takes billions of tries to find the correct cryptographic key, so often, miners congregate in what are called mining “pools” to combine their resources so they have a better chance of finding the next block first. The pool then splits the reward depending on the work each miner did.

    Basically, there is a high cost (time and electricity, hardware costs) involved in securing each block. Therefore, a malicious attacked would not only need to dedicate an enormous amount of resources to “spoof” an entry, but also be in competition with all the legitimate miners. At the end of the day, the reward is incentive to keep the miners that secure the network dedicate their resources.

  • Thanks for the info. Still doesn’t make sense: paying people to make more money…like paying someone to print paper money. I don’t get it. “so dense light bends around him”

  • Cryptocurrency to me has no value iy is more prone to people getting scammed then to actually building value. Be careful the negative side of this infatuation with cryptocurrency is far greater than the positive side. Also be wary of tax implications because because with trading you would incur a huge tax liability yet have no cash to settle with the tax department. Caution is the word!

  • It seems to me, its a lot of waisted computer power and electricyti
    And a good opertinity for hackers to use other peoples computers and servers to do the mining

  • Thank you for sharing thorough information on mining cryptocurrency. I was searching something better for this information and i got it here.

  • Bitcoin or crypto-currency is a function of the government power to set-up currency within its borders which it must manage to bring the economy of the region in to financial stability to allow for inter-governmental trading which is under global control through entities like the G7 which recently had a summit, for example. It is inevitable that crypto-currencies building economic power will have a conflict with traditional government entities. Without a war machine or security force to protect the market-place where trading must occur to keep the value of the currency up according to rules and regulations regarding its standard operation and use, it is inevitable crypto-currencies real value is arbritrarily set by what people are willing to pay. To put another way Bitcoin is about as valuable as the old pet rocks. As soon as the market collapses Bitcoin will be worthless due to competing real world Global markets with real currencies such as exist within the the G7.
    Yours Truly,
    -shawn
    aka
    -straymoment

  • If the government (i.e.: any government) adopted some kind of crypto-currency for use, there would have to be a mechanism to redeem 100% of the currency from previous holders of the currency and in addition to that: 1) The real value of the crypto-currency would need to be near zero with nearly unlimited amounts of total possible crypto-currency available to that same government for it to be of practical use at all. They would then naturally redistribute it according to their laws and policies and charge dearly for its illegal possession. In addition to that they would in turn would be forced to protect the legal possession and publicly publish to the financial sector of the ,arket place where the currency will be used the results for the financial sector workers to see. In return the financial sector of the marketplace would then generate a work for credit system which would empower the government to hire labor and buy and sell goods and services within a publically maintained accounting system which the financial sector of the marketplace manages for their sake. Sound familiar?

    Well, there you go. That’s the real lay of the land.

    Watch out for BITCOIN pipe dreams is my advice.
    Yours Truly
    -shawn
    aka
    -straymoment

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Author

Patrick Nohe

Hashed Out's Editor-in-Chief also serves as Content Manager for The SSL Store™.