How Does Crypto Mining Actually Work?

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How Does Crypto Mining Actually Work?

Cryptocurrency mining is, in simple terms, a way to use computers to create new digital coins. These coins can be stored safely in crypto wallets, spent in exchange of goods, or exchanged for fiat or other currencies. In the case of the latter, an account with an exchange, such as CEX or Indacoin, is required. If you are a total newbie to the crypto mining industry we suggest reading our basics on crypto mining guide first.

Mining is the backbone of the cryptocurrency network. Miners deliver security and confirm crypto transactions. Without them, the network would be highly vulnerable and would not operate smoothly.

How does mining work?

When you are mining coins you are validating cryptocurrency transactions and keeping the entire infrastructure secure, by preventing fraudulent transactions. Your reward is new crypto coins, such as Bitcoin, Monero or Ethereum. In the case of the latter two, miners solve memory intensive algorithms, whereas for Bitcoin miners solve a hashing algorithm.

By connecting a crypto mining rig, including one which you can build yourself, to a particular cryptocurrency network, it carries out the process of verifying and updating the blockchain’s blocks. The process varies depending on the currency being mined. This guide will especially focus on Bitcoin since it is the most popular crypto for mining enthusiasts and investors.

What security does mining provide?

Miners receive transactions sent to them on the Bitcoin network and upload them to their blocks. It is only once these transactions are verified for authenticity that they are uploaded, and until this is done, the transaction is deemed as unsecure.

Generally speaking, transactions with no confirmations from miners can easily be reversed and are, therefore, not secure. Transactions with at least one confirmation are deemed safe for small payments, such as those with a corresponding USD value of $1,000.

Three confirmations, emanating from different miners are deemed safe enough for payments ranging between $1,000 – $10,000. In fact, most exchanges, including Coinbase, three confirmations are always required for deposits.

For even larger payments, such as ones which are valued in the $10,000+, even up to $1,000,000, six confirmations are required. Naturally, a payment with six confirmations is deemed safest, but these confirmations each have a cost. Miners do not work for free.

How do miners actually provide security?

Miners are constantly checking the cryptocurrency network for uploads of transactions. A rogue miner aiming to alter existing blocks to its advantage is unable to do so as any chance requires more than 51% of all network hash power to be reversed or altered.

With cryptocurrency’s decentralised infrastructure, no one single individual, entity, organisation or country owns or operates more than 51% of the hash power. As a result, the probability of an attack or any sort of fraudulent action is highly unlikely. This keeps transactions made in Bitcoin and similar cryptocurrencies safe and secured.

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