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What is Blockchain Mining? How does Mining Work in Blockchain
- joint
- 2022-09-21
- 4161
- Crypto wiki
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Summary:In this era of rapid change of information, people's novelty for something is always very short, like a flash in the pan. From 2018 to now, blockchain has become the most frequently discussed hot word in people's mouth.
In this era of rapid change of information, people's novelty for something is always very short, like a flash in the pan. From 2018 to now, blockchain has become the most frequently discussed hot word in people's mouth. As BTC, ETC and other digital currencies have entered everyone's sight, at the same time, the word "mining" has become popular, and people have joined the army of mining. So what is mining in the end?
Cryptocurrency mining
Mining is the process of recording transactions and storing them permanently in the chain. Miners to verify each New Deal and record them on the total account books, on average every 10 minutes there will be a new block was "mining", we have included in the block and is added to the block trading referred to as the "confirmation" on the chain, trading after a "confirmation", the new owners will be able to take him in the encryption of currency trading.
Miners receive two types of rewards for mining: new coins for creating new blocks, and transaction fees for transactions contained in the blocks. For these rewards, miners compete to complete a mathematical puzzle based on an encrypted hash algorithm, the answers of which are included in the new block as a proof of the miners' computational effort, known as a "POW proof of work".
Take Bitcoin as an example, Bitcoin is an application of block chain technology, and block chain is composed of many blocks, each block represents a bill, connect all blocks together is block chain, any transaction information, transfer records, are recorded in the block chain.
Mining code is constantly updated, it was quite a treasure hunt, after a period of time, the currency system will generate random code, then all the computer to find this code, who first found, then you can gain the currency reward, but also can obtain a block to charge to an account, to calculate the random code, It takes a lot of CPU.
What is the mechanism of mining?
That is, to determine the complex calculations that need to be run in a cryptocurrency transaction. Miners use computers or mining machines to perform these calculations. The first miner to perform these calculations gets a reward.
Let's take Bitcoin as an example. Bitcoin is based on a mathematical elliptic curve encryption algorithm that generates key pairs. A bitcoin is actually a long password. The so-called Bitcoin mining, which is constantly to use the password to solve, operation to match the password, even if mining, elliptic curve encryption algorithm is a kind of encryption algorithm based on the computing difficulty of the discrete logarithm on the elliptic curve.
Another mechanism for Bitcoin is that the total amount is limited, about 21 million.
Satoshi Nakamoto originally designed Bitcoin with the idea that for every 210,000 blocks created, the reward would be halved until Bitcoin could no longer be subdivided. Because Bitcoin, like gold, has a finite amount. So bitcoin is called digital gold, and bitcoin production is also known as mining. With the continuous mining of Bitcoin, the number is also decreasing, but the number of miners is constantly increasing, so the competition among miners is also extremely fierce. The global computing power is also increasing, so it is difficult to mine successfully without sufficient computing power.
The benefits and risks of mining
If you know the basics of mining, what are the benefits of mining?
It can be calculated by a formula:
Mining revenue = cryptocurrency generated (such as Bitcoin, etc.) * Coin price -- mining machine cost -- electricity -- maintenance cost and labor cost -- depreciation cost, etc.
The reason why investment mining is low risk is that in a bull market, you can sell coins and directly cash in fiat coins, while in a bear market, you can wait for the price to rise. The revenue from mining comes from three parts:
1. Profit from selling coins
The mined coins are sold at their current value for fiat money, ensuring a steady increase in assets.
2. Income from stock currency
Wait for the gains brought by the price of bitcoin, for example, initially up to now by about N+1 times, ETH is the same, if it is an investment to buy coins, few people can take the hands of the coins. However, if the same funds invest in mining machines, sell part of the coins and hoard part of the coins in accordance with the proportion, they can enjoy the dividend brought by the rising price of the coins.
3. ICO
By mining coins and directly using them to do ICOs, they are actually using low risk to earn high returns. For example, using ETH to participate in the EOS ICO is a low-cost arbitrage method in the primary and secondary markets.
If the coins obtained from mining are allocated as 50% selling coins, 30% buying coins, and 20% participating in ICO according to the proportion, it actually provides us with a steady stream of cash flow (profit from selling coins) + assets (profit from buying coins) + bullets (bullets participating in ICO).
No matter what you do, there are benefits but also risks. Mining risks are as follows:
1. Skyrocketing computing power
The surge of computing power is the biggest risk in mining investment. The increase of computing power leads to the increase of mining difficulty and the decrease of profits. However, because competition cannot be avoided in the free market, the risk of increasing computing power is acceptable.
2. The currency is down
The currency market, like the stock market, also has ups and downs. The bull market price is high, and the bear market price is low. When the price is too low to afford the electricity, mining is not profitable and mining investment cannot continue.
3. Systemic risk
Such as forking, such as the recent forking out of BTC BCC, due to the risk of forking, the price of coins will fall, and the profits of mining will fall sharply. Since minting and keeping accounts is the most important work in the whole system, the competing coins after the fork also need miners to complete the minting and keeping accounts. Therefore, in order to attract more miners to work, the corresponding coins will provide more block rewards and transaction fees. The actual situation is the same. After BCC bifurcation, miners switch between BTC and BCC to ensure greater benefits, but the systematic risk becomes an opportunity for miners to increase profits.
4. Policy risks
By public support for COINS, a growing number of countries such as Japan, South Korea has admitted that the currency monetary properties, such as the five ministries and commissions such as the People's Bank of China on December 5, 2013 in the afternoon issued the notice on preventing the risks of currency, while defining the currency is not money, is a kind of virtual goods, but admits that the legalization of investment COINS, namely: As a kind of commodity trading behavior on the Internet, ordinary people have the freedom to participate in Bitcoin transaction at their own risk. The governments of Wuhai, Inner Mongolia and other regions have taken the lead in supporting the establishment of big data industrial parks focused on mining, which also reflects the government's supportive attitude towards blockchain investment.
In addition to the above four points, there are also risks such as power failure, machine maintenance and so on.
Conclusion
Investment mining is a relatively low risk and stable income project in blockchain investment. If resources allow, it is also worth trying to participate in mining.
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