What is Crypto Mining & How Mining Works Answered Simply

What Is Crypto Mining?

The question of “what is crypto mining?” can be answered in a relatively simple manner but the detail behind the question is certainly anything but simple. 

Succinctly, crypto mining is a term that is widely used to refer to the process of collection of digital currency as a reward for the task you complete. 

crypto mining for bitcoin

Crypto mining has been around since the start of cryptocurrency in 2008 and is certainly a popular topic in the digital asset world so when the question arises of “what is crypto mining?” it seems as though we owe you the simple answer above, with another that adds a little more steak on the bone. 

Jump To:
What Is Crypto Mining?
How Crypto Mining Works
Step-By-Step-Process of Crypto Mining
4 Methods Of Crypto Mining
What Is Crypto Mining & How Crypto Mining Works – Short Summation

How crypto mining works made easy

Once you know what is crypto mining, the next step is learning how crypto mining works.

Cryptocurrency mining is a computationally intensive process that requires a lot of energy and computing power. As more people become interested in cryptocurrencies and the volume of users on cryptocurrency exchanges increase, the demand for mining increases, which in turn drives up energy consumption and environmental impact. 

Whilst this does not yet tell you how crypto mining works, we will jump right into that below for the two main types of crypto mining.

As mentioned, there are two main types of crypto mining and these are called proof-of-work (PoW) and proof-of-stake (PoS). 

How Proof Of Work & Proof Of Stake Crypto Mining Works

PoW mining requires miners to solve complex mathematical problems in order to verify transactions and add new blocks to the blockchain. 

PoS mining, on the other hand, does not require miners to solve complex mathematical problems; rather, they can validate transactions and add new blocks to the blockchain by holding a certain amount of the cryptocurrency (a “stake”). If you are curious about the world of crypto staking, we break that out in another article.

The two main types of crypto mining have different environmental impacts with some using high powered equipment or crypto mining rigs.

PoW mining is energy-intensive, as it requires a lot of computing power. This causes PoW miners to use more electricity than PoS miners, which in turn results in higher carbon emissions. On the other hand, PoS mining is less energy-intensive and therefore has a lower carbon footprint.

Cryptocurrency mining is a necessary process for many cryptocurrencies, but the environmental costs has caused people thing more about socially responsible investing.

Crypto mining has become meaningful for people looking for a sound financial profit without having to put financial assets in banks and those who maybe are not quite so involved in crypto trading with leverage.

Let us have a closer look below at the crypto-mining process to build a deeper understanding.

what is crypto mining & a rig?
A Traditional Mining Rig Not Be Mistaken With Crypto Mining Rig

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A Step-by-Step Look at the How Crypto Mining Works

It is logical how crypto mining works in a well-formed way, including a series of verification steps to ensure strict financial security. 

1. Verifications of Transactions by Nodes

Cryptocurrency blockchain is built upon transactions. Here is an example to make you understand how things work together:

Consider you are a crypto miner and your friend Daniel has borrowed $5000 from one of your other friends Jake to buy the latest gaming setup. The gaming setup is equipped with a multi-screen wide-angle display along with a mouse, headset, and LED keyboard.

Daniel sends Jake a partial bitcoin unit. The bitcoin unit will need to undergo a verification procedure for the transaction to be completed.

2. Forming a Block

This is the functioning step where all transactions are bundled to form a list which is then added to the new unconfirmed block of data.

Concerning our previous example, Daniel’s payment to Jake will be considered one transaction. Once the transaction is added to the blockchain, there is efficient and permanent record-keeping to prevent ‘double spending’ of any cryptocurrency.

Also, the record is unalterable meaning that once saved it can’t be manipulated.

3. A Hash is added to the Unconfirmed Block

Once several transactions are added to the block, the information is upgraded as well including the hash and header data from the previous block of the chain and the recently added new hash for the new block.

In simple words, a nonce and the header of the recent block are linked to form a new hash. The newly created hash is then added to an unconfirmed clock and undergoes the same process of verification by a miner node. In an ideal situation, you can become the lucky one to solve it.

You can also give a shout-out to your fellow miners on the network to verify as many transactions as required.

4. Confirmation of the Block’s Hash to Ensure the Block is Legitimate

As the title suggests, in this step the block’s Hash is confirmed to ensure whether the block is legitimate or not. Miners can directly check the accuracy of the unconfirmed block by checking the new hash. But do you know how much a hash is complex?

To answer this question, let us suppose that you apply an SHA-256 hash using an SHS-256 hash calculator to a text phrase “I love cryptocurrency mining”. By doing so the phrase would automatically become;

 “6a0aa6e5058089f590f9562b3a299326ea54dfad1add8f0a141b731580f558a7” 

Well, this is certainly a long and equally complicated ciphertext gibberish to read or even understand. The given example is an attempt to give an account of the complexity level of a hash.

5. Once the Block is confirmed it gets published in the Blockchain

On the part of the crypto miner, the proof of work (PoW) is completed. The proof of work (PoW) is a time taking process of solving the hash and to prove others that you have done so in a rightful manner that can be verified.

With reference and extension to the earlier mentioned example, we can propose that Daniel’s payment to Jake can be added to the blockchain as a part of the block as the transaction is now confirmed. The new block is added at the end of the blockchain this happens because the blockchain ledgers are built upon previous blocks and are chronological.

All crypto transactions are kept secure by using public key cryptography to ensure every recorded block is unaltered and genuine.

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4 Methods Of Crypto Mining – Cloud, CPU, GPU & ASIC

Graphics Cards Integral For High End GPU Crypto Mining
Graphics Cards Integral For High End GPU Crypto Mining

CPU Crypto Mining

CPU crypto mining is the process of using a central processing unit (CPU) to mine cryptocurrencies. CPUs are well-suited for mining because they can be used to perform the complex mathematical operations required to verify transactions and add new blocks to the blockchain.

CPU mining is popular because it allows individuals to start mining without the need for other expensive equipment but it is also more energy-intensive than other methods of mining, which has led to concerns about its environmental impact and long-term costs post setup.

Unfortunately, CPU mining is largely being made redundant in recent years with the advancement of dedicated mining rigs and equipment being used in the other methods of crypto mining.

Crypto Cloud Mining

Cloud mining has increased considerably over recent years and allows users from anywhere in the world to effectively rent equipment and gain access to crypto mining without having huge upfront costs to compete. We saw huge increases in the number of users searching for DogeCoin mining during the peak periods of growth experienced in that token in 2021 but starting a mining process can be costly in many cases.

There are really only 3 steps to Crypto Cloud Mining which make this process very easy for anyone new to the topic of how crypto mining works.

1. The first thing you need to do is select a cloud mining provider. There are many different providers out there, so it’s important to compare them in terms of fees, contracts, and features.

2. Once you’ve selected a provider, you’ll need to create an account and make a deposit. Be sure to carefully read the terms and conditions of your contract before making a deposit.

3. After you’ve made a deposit, you can start mining! Most providers will give you access to a control panel where you can monitor your mining progress and earnings.

GPU Crypto Mining

GPU crypto mining is the process of using a graphics processing unit (GPU) to mine cryptocurrencies. GPUs are well-suited for mining because they can be used to perform the complex mathematical operations required to verify transactions and add new blocks to the blockchain.

GPU mining is widely adopted because it allows individuals to start mining without the need for expensive ASIC miners. However, GPU mining is also more energy-intensive than other methods of mining, which has led to concerns about its environmental impact.

ASIC Crypto Mining

ASIC crypto mining is now the ultimate mining method. The cryptocurrency mining arms race is creating a big problem for the PC industry. ASIC (Application Specific Integrated Circuit) miners are purpose-built machines that are designed to do one thing and one thing only: mine cryptocurrencies. They’re very good at it, too. So good, in fact, that they’re rendering regular PCs obsolete for mining purposes.

That’s bad news for the PC industry, which is already struggling to find ways to grow. The decline of the desktop PC market has been well-documented, and while laptops and 2-in-1 devices have picked up some of the slack, they’re not growing fast enough. This is a problem for another day however with our focus here on crypto mining!

ASIC mining devices are making the world of crypto mining more exclusive, and more ‘pay to play’, which is against the ethos of the original cryptocurrency creators of inclusivity. The fact that these devices are so much stronger and more efficient than GPU or CPU mining is pushing others out of the market and making this a very competitive space with small individuals competing against publicly listed crypto mining companies.

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What Is Crypto Mining & How Crypto Mining Works Summary

crypto mining farm and setup

What Is Crypto Mining again? – Cryptocurrency mining is the process of verifying and adding transaction records to a public ledger (blockchain) using specialized hardware (miners). 

Miners are rewarded with cryptocurrency for their work, which helps to fund the development and maintenance of the blockchain network.

How Crypto Mining Works in short – There are two main types of crypto mining processes, PoW and PoS and each works differently.

In addition to this, there are 4 main ways in which people mine crypto which are on Cloud, CPU, GPU, or ASIC. There are various pros/cons of each and you would be well advised to dig in to (pardon the mining pun) each to see which best fits your needs or consider mining pools.

Various crypto exchanges offer access to crypto mining pools, including Coinbase, Kraken, Binance, and others. This is becoming far more common than ever before on both centralized and decentralized exchanges.

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