Cryptocurrency mining is a novel concept in monetary terms. Crypto mining is a technique by which new coins or tokens are added into circulation without relying on a centralized printer like fiat currencies.
What Does It Mean To Mine A Cryptocurrency?
Cryptocurrency mining is not exactly similar to mining mineral resources. The only commonality is the fact that you are extracting something. The top mineral resources like gold and diamonds are valuable because of their scarcity. Miners will typically dig hundreds of meters into the ground to find deposits.
For cryptocurrencies, the extraction is of a digital currency. You don’t go into the earth to extract Bitcoin as you would for common mineral resources like coal, iron, or bauxite. Instead, computers do the work, expending computer resources in exchange for cryptocurrency.
What Cryptocurrencies Are Mineable?
Most early cryptocurrencies like Bitcoin, Litecoin, Dogecoin, and Ethereum are mineable. Generally, blockchains using proof-of-work as their consensus algorithms allow their native tokens to be mined. However, there are a few major cryptocurrencies that are not mineable like Cardano, IOTA, and XRP. Users merely get to buy coins in circulation or rewards for staking. For early cryptocurrencies, the standard form of mining was proof- of-work mining.
What Is Proof-Of-Work?
This form of mining cryptocurrency entails computers competing against each other to solve mathematical sums. This competition is for the right to add the next block of confirmed cryptocurrency transactions to the blockchain.
This activity is deliberately tedious and random to improve the decentralization and security of the blockchain. However, it is notoriously inefficient, expending significant amounts of computer resources and electricity.
When analysts refer to this process as mining, it loosely compares to the tedious process of mining real minerals from underground. Computers with higher processing power (hash power) have a better chance of solving the sums faster and grouping transactions that will be added to a block of transactions. As Bitcoin mining got more competitive, only specialized equipment called Application-Specific Integrated Circuits (ASIC) could mine Bitcoin profitably. This form of mining can be very lucrative at scale but has the Achilles heel of excessive electricity consumption.
What is Proof of Stake mining?
This form of mining emerged as an alternative to the inefficient POW. It relies on individuals staking stipulated amounts of cryptocurrency and earning the right to validate transactions on the blockchain.
It is not an arbitrary completion but instead chooses validators and their rewards from the number of tokens staked. It has emerged as the choice mining standard, with Ethereum transitioning to this consensus algorithm to improve its sustainability. It is not as safe as Proof of Work but remarkably better for the environment.
What Is The Most Mined Cryptocurrency?
Bitcoin mining still takes the bulk of mining activity. This industry is expensive and tedious but still very attractive. Bitcoin has hit highs of $69k, meaning that the rewards of mining this lucrative outweigh the costs. Bitcoin mining companies are massive enterprises with significant profits. Proof of stake mining is about accumulating tokens and gaining stake rewards gradually. Therefore, provided Bitcoin is the most valuable coin and mining it will continue to be significant.