What is cryptocurrency mining? How does it work?

New Delhi: As the cryptocurrency market is booming and attracting new investors every day, have you ever wondered that what is Bitcoin or crypto mining? How to own coins without purchasing them from the crypto exchanges?

In layman’s terms, there is no physical existence of any cryptocurrency but they have a value like any other legal tender of any nation and can be easily exchanged within groups or individuals. The Year 2021 made many new crypto fans and investors. This year also saw a fast rise of cryptocurrencies such as Bitcoin, Ether, and Dogecoin but the best is yet to come.

The majority of the traders buy and sell crypto through exchanges but it is also possible to mine the coins by using powerful computer systems which solve complex mathematical equations.

Most of the cryptocurrencies are made using Blockchain which is also known as the public ledger. It is being secured by using complex encryption techniques and getting new tokens on the ledger involves solving many composite mathematical puzzles which help in verifying virtual currency transactions. It is then updated on the decentralised blockchain ledger and in return for this work the miners get paid with the cryptocurrency.

This complex process is called mining and miners are an essential part of this ecosystem.

How does it work?

Powerful computers solve some complex mathematical equations. The first person termed as coder cracks each code to authorize the transaction and in return for this service miner will earn a small amount of the token. Once the mathematical problem is solved and verified, the data will be added to the public ledger, called the blockchain.

How much can it cost to mine crypto coins?

In 2009, when Bitcoin and some other coins came into existence it was a profitable activity as the miners would easily get 50 BTC, which were worth almost $6,000, for solving each equation.

Although the reward to mine Bitcoin decreased over time as the value of each BTC increased significantly. As per reports, the reward to mine a Bitcoin is $3,33,000 (roughly Rs. 2.47 crores).

But the cost of Bitcoin mining has increased dramatically. This is because the competition for tokens is much higher, and high-performance computing is now required to successfully mine the tokens. As a result, the cost of the energy consumed in this process could be huge depending on the miner’s location and the type of hardware they use.

Can you start mining at home?

For mining any cryptocurrency, you will need a high-performance computer, a wallet for that crypto. After this, you can join a mining pool to maximise profitability. Pool group of miners can combine their resources to increase the overall mining power and the profit will be distributed evenly to all members in the pool.