What does it mean to “mine” crypto?

Mining can be a very confusing term to wrap the mind around when it comes to cryptocurrencies.

This is not surprising as our mental model regarding the term “mining” has been long formed around the physical act of strong individuals with digging tools extracting precious raw materials from the earth.

While a lot of people may not be familiar with the nitty-gritty of the mining process, it is commonly believed that it is the process that certain individuals go through to obtain cryptocurrencies.

This is not so far from the truth.

While mining is not exactly the extraction of cryptocurrencies (or crypto tokens) from a Blockchain network, cryptocurrencies are the reward for participating in the mining process.

Let's look at what goes on in the "mining" process.

Blockchain primer (skip if you already know what a Blockchain is)

So, just for those that may not know, a Blockchain is simply a digital ledger of transactions. Different blockchain networks exist such as The Bitcoin network, the Ethereum network, etc. Blockchain networks have a legal tender for transactions (just like the dollar or pounds sterling), these are the cryptocurrencies. Bitcoin is the currency for the Bitcoin blockchain network, Ether is the currency for the Ethereum network, etc.

And just like the ledger we are all familiar with, transactions taking place on the Blockchain (members making transfers) are added to the Blockchain in blocks (hence Block-chain).

The Mining Process:

1. As transactions are taking place on the Blockchain, these transactions need to be added to blocks on the Blockchain
2. When a new set of transactions are about to be added, it means that a new block is about to be added to the Blockchain
3. The Blockchain needs a way to verify that these transactions are legitimate
4. Some members of the Blockchain volunteer to validate these transactions and create the new block.
5. These volunteers are the potential miners, however only one of them can mine the new block
6. The potential miners compete by solving a complex problem. The fastest member to solve the problem is chosen as the miner
7. After the miner validates and creates the new block, they are rewarded with the currency of the blockchain (e.g. Bitcoin, Ethereum coins - Ether, Dogecoin, etc)
8. This reward system is how new currencies are released into the network (the same way as a central bank prints new notes)

So there you have it, a “highly simplified” introduction to what mining on the Blockchain is all about.

To wrap up, let’s answer some of the questions posted in the topic announcement yesterday.

Q: Is there a digital mine that all computers go to extract cryptocurrencies?

A: The blockchain network is where the mining process takes place

Q: Are there digital tools for this type of mining operation?

A: Your computer is the only tool you need to mine. The more powerful your computer is, the better your chances of mining

Q: Is everyone free to mine?

A: Public Blockchains like Bitcoin and Ethereum can be joined by anyone. And everyone on the network is allowed to mine

Q: Many people talk about getting cryptocurrencies after mining, how is this digital wealth acquired?

A: Once you’re chosen as the miner for a particular block, you’re rewarded with the currency of the Blockchain network once you’re done mining. Adding a block to the Bitcoin blockchain attracts a reward of 6.25 BTC.

Q: How can I start mining?

A: Join a Blockchain network like the Ethereum network and you can start participating in mining operations if you opt in to do it.

Thanks for joining us on this episode of Blockchain Sundays, if you have any more questions, feel free to post them in the comment section below 👇🏼.

See you next (Blockchain) Sunday 😃