HomeCrypto blogHow does Crypto Mining work? | Cryptocurrency Mining Guide

How does Crypto Mining work? | Cryptocurrency Mining Guide

So what is cryptocurrency mining? How do Crypto Mining work? What is actually going on why do we need these daft machines this is a quick little guide just to give you a really basic overview of what’s going on and why it’s so important.

How do Crypto Mining work? Quite simply the process of cryptocurrency mining is actually not that complicated. The process by which crypto transactions are digitally verified on the Blockchain network and added to the blockchain ledger is known as mining. There are many different buzzwords that you might have heard you know from blockchain to hash power to kind of pools and all these different types of things. Ultimately it comes down to really quite a simple thing. We like to use you know some metaphors to kind of explain this to maybe make the language a little bit easier.

So people think the idea of having a machine that just sits there earning you money every day is a completely crazy concept. How is that even a real thing surely that can’t exist? Well if you think about it the other way around actually people have been doing this for 20 years.

How do Crypto Mining work? For example say you own a website and every month you’re very familiar with paying a monthly web hosting fee. Now, what are you actually paying for when you pay that monthly fee? You’re paying someone who owns a physical computer server somewhere in a massive warehouse in another country most likely and ultimately that computer spins away does its thing and it keeps your website online and keeps all the data moving through your website.

So whoever owns that physical machine receives a payment from you every single month. Similarly, that’s kind of what happens in the cryptocurrency space you need a physical computer a blockchain server, or a mining rig and effectively what that does is it crunches lots of numbers and all the transactions that are moving between different wallets and different addresses with all these coins and moving around they effectively need to be checked to make sure they’re real and the wallets match up and everything is good. 

This works on a system called a ledger or what we know to be a blockchain ledger. So effectively it’s just like a posh spreadsheet. So if I were to send you some coins they’d move from my address to your address and that kind of posh spreadsheet would get stamped as an authoritative transaction from the computer processing power from the machines. And effectively the machines would then receive a payment thank you for providing that service that the machines kind of become the authority. They say yes this transaction to this transaction is good we’re happy with that that’s not a problem they stamp that spreadsheet that’s on the blockchain the ledger for everyone to see.

So by proof-of-work which is where this P.O.W thing comes from proof-of-work effectively crunching the numbers is the computational work that’s needed. You’re able to have a machine that runs 24 hours a day crunching lots of complex maths but it’s actually providing a service for the company to which it’s providing power.

So it’s really not that complicated that you get paid a service fee for providing a service through this blockchain network and ultimately that’s how we’re able to make money from these machines is these tokens that we get. Obviously have a marketable value somewhat similar to maybe how the share market would work.

How do Crypto Mining work? If you want to really break it down in a very kind of common-to-understand example. It’s slightly technically different but a little bit like for the sake of explanation. If you had a very powerful computer you rented that power to Amazon instead of Amazon paying you for that service in pounds and pence they would pay you in Amazon shares. Those shares of course have a saleable price on the market and that subsequently is what you could sell to make money. 

Related: What Is The Blockchain Trilemma?

That’s exactly the same model that the blockchain equipment takes the cryptocurrency mining rigs to take. It’s simply just different companies in a slightly different technological sector but the practicalities are exactly the same. Plug it, in turn, it on, leave it running, and get paid every day for helping upkeep the blockchain.



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