Understanding Cryptocurrency Mining

Understanding Cryptocurrency Mining

What is Mining?

Mining is the process of having computers collate and record all transactions into a Block, on the Blockchain. Think of it as transactions being recorded on a bank ledger, except that all transactions are readily available for public viewing.

A Bitcoin is defined once registered on the Blockchain.

Why do I have to pay Miners a fee?

Computers (nodes) need to be rewarded for their work of collating transactions into the Block. These rewards act as an incentive for nodes to ensure that all transactions are 'honest' and help maintain the integrity of the entire network.

This function - known as 'Proof-of-work' in the Bitcoin and Ethereum networks - is the reason why a fee needs to be paid to the network for every transaction.

Such functions vary in name, purpose, and structure across different networks and Cryptocurrencies.

For information on alternative methods of mining, you can take a look at concepts such as Proof of Stake.

Why are people who solve maths problems Miners?

The act of Miners being rewarded Bitcoin by the Network for their work is often interpreted as having 'discovered some coins'. Hence, there is a common association with the act of obtaining raw materials such as Gold and the label 'Miners'. 

If you wish to find out more about Bitcoin, you can read its Whitepaper here

Alternatively, there are many helpful videos on YouTube that can give you a clearer understanding such as this.

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