Crypto Glossary

Mining

In the world of crypto, mining is the process of verifying transactions on a blockchain. In other words, mining is what processes and validates transactions and adds them to the overall blockchain in an irreversible way. It also means synching the blockchain with the overall network (therefore allowing it to be decentralized) as well as keeping the data integrity of the blockchain intact.

Mining is what makes blockchain work. If you perform any transaction on a blockchain (i.e. transferring Bitcoin), it is the miners that actually make that transaction work.

Blockchain is powered by a whole network of miners, all around the world. It could be a single person who owns a “mining rig” in their home… all the way up to major industrial settings with entire networks of mining rigs pooled together. Mining rigs can be quite expensive and the energy requirements are high. For this reason, mining is an expensive operation. In order to make it worth their while, the network incentivizes them using miner fees and/or rewarding the miners with newly created coins. This is the economic engine that makes it worthwhile for random people to want to help maintain the blockchain.

While mining can get a little complicated, the simple version is that it means solving cryptographic problems. In essence, solving codes. It takes a good amount of computer horsepower to do that, which is why mining rigs can be quite expensive. In the very early days of Bitcoin, for instance, you could mine Bitcoin on a standard laptop. Today, it requires a computer with significantly more power so it is much more costly to do it.

By solving those cryptographic problems, the miners are verifying transactions and adding them to the blockchain.

The more miners there are on the blockchain, the more computing power there is to handle transaction volume. Likewise, more miners means more decentralization. For this reason, more miners in more countries around the world… and none of them controlled by any single entities… is what makes blockchain truly decentralized.

The word “miner” is obviously derived from the act of mining metals (like gold) out of the ground. Miners invest the capital to go mine that gold, but then get to enjoy the market benefits of selling that gold and putting it onto the open market. This is the root for the use of the word “mining” when it comes to cryptocurrency, even though it is a very different activity.

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