Introduction to Cryptocurrency Mining

An Introduction to Cryptocurrency Mining

 An Introduction to Cryptocurrency Mining

An Introduction to Cryptocurrency Mining. The aim is to answer the question, “How do we end up with new cryptocurrency coins since there is no central authority printing money?”.

In the previous article we covered what a cryptocurrency is, a few definitions and examples of crypto currency. We now look at how the coins are generated.
Cryptocurrencies are generated through the process called mining. Mining is verifying transactions on the blockchain network and being rewarded with new cryptocurrency for the effort put in. 

Several approaches to how mining is implemented exist. The final result being generation of cryptographic hashes that validate transactions. Different options are used in choice of algorithms used. This therefore has implications on the type of hardware used to mine cryptocurrencies. Examples of algorithms used include Proof of Work and Proof of Stake.

Proof of Work – the miner has to be the first one to get to the right answer of a numerical problem. This requires use of high compute power to compete to get to this answer. Bitcoin is an example of a blockchain network that uses proof of work.

Proof of Stake requires network validators to stake a certain amount of the cryptocurrency. This allows them to validate transactions. It requires less compute power and resources. The amount given to the network therefore acts as collateral.  Ethereum 2.0 is an example of a network that uses Proof of Stake.

Cryptocurrency Blockchain Networks VS Traditional Banking

BANKSCRYPTOCURRENCIES
Controlled by centralised Governments.Decentralised, no governing authority.
Money can be printed anytime the governing authority wishes.Predictable and fixed way of generation of new cryptocurrency handled by the blockchain network itself.
Currency limited by borders of governing authority.Borderless currency with no location restriction.
BANKS VS CRYPTOCURRENCY NETWORKS

Conclusion

We have looked at what a cryptocurrency is. This article covers how its generated and the basic differences between banking and cryptocurrency networks. The next article answers question “What can I use cryptocurrencies for and how do I use them?”.

I hope you enjoyed this short read and please share your thoughts in the comments below.

bmukorera

Passionate software engineer with keen interest in solving world problems using technology.He has vast experience in developing enterprise solutions from Telecommunications ,Media,Banking and Consultancy.

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