Blockchain Mining – A Complete Guide 2021 Edition
Blockchain mining is a peer-to-peer computerized process used for bitcoin transactions. It is called mining because the miners add such transaction-related data that is entered in the global public ledger of transactions of Bitcoin Company. The ledger works as a reference book relating to past bitcoin transactions carried out all over the world. The process connects people carrying out such transactions with each other forming the blockchain in the market.
How Blockchain Mining is Different
Major differences of blockchain mining from traditional financial services are as follows.
- Unlike traditional systems bitcoin does not have any central clearing house;
- Bitcoin transactions are verified using a decentralized clearing system;
- People involved in the transactions submit contents for verification in computerized forms; and
- The method of verifying bitcoin transactions is known as mining.
Blockchain Mining and Computer Power
Blockchain mining involves a good deal of computerized inputs. The mining is centred on the use of bitcoin transactions by people. However, bitcoin mining is similar to the mining of precious metals like gold as the supply of both is limited. According to experts the overall supply of bitcoins is approximately 21 million and it remains static for years together.
Defining Bitcoin Mining
To understand how the blockchain mining process works it is necessary to understand what bitcoin mining is. The reason is that the entire concept of blockchain mining revolves around the use of bitcoin and the first task for beginners would be learning about bitcoin mining.
- The terminology “blockchain mining” refers to the process of additions to the records of bitcoin transactions;
- It enumerates how transactions are processed in the industry and movements of money through bitcoins; and
- Bitcoin mining and the resultant blockchain mining are carried out by the distinguished community of blockchain miners around the world.
Who are Blockchain Miners
There is no bar on becoming a blockchain miner as anyone can apply and become one. The steps for becoming a blockchain miner are as follows.
- The miners install and run special blockchain mining software for the purpose;
- The objective in using the software is that the computers used by them communicate securely with each other;
- Once the software is installed the user becomes a bitcoin miner and works as one of the nodes in the chain;
- Every new user is added as a block to the existing bitcoin network; and
- The network runs throughout the day.
How Bitcoin Mining Network is Unique
Bitcoin mining and the resultant blockchain are preferred by many because of the safety, security, and convenience it offers. The best part of it is that since its arrival on the scene back in the year 2009 the network has never been hacked. It has also not experienced any downtime in the last 12 years of its existence.
History of Blockchain
For people looking to best utilization of blockchain, it would be necessary to have some idea about its origin. Two financial experts named Stuart Haber and W. Scott Storenetta developed the concept of a cryptocurrency-based blockchain that would be secure against hacking and manipulation of any kind. They introduced the concept in the year 1991. It was the next year 1992 when they invented Merkle and Hash trees in collaboration with Bayer. This was the first step of the commercial world towards establishing blockchain.
The Use of Hash Lists
The basis of the blockchain method is a binary tree containing hash lists. In the system, every parent node is a hash of its children. The first instance of a hash tree in the blockchain process was the Merkle tree that was invented in 1979 but was included in blockchain maintenance in 1992 only. These binary trees were used to –
- Create a secured chain containing numerous blocks;
- To create and define a series of data records;
- To interconnect the blocks and data records; and
- Inclusion of the entire history of the blockchain designed in the latest block added to the chain.
The invention of Distributed Blockchain
The theory of distributed blockchain was first conceptualized in its present form in the year 2008 by Satoshi Nakamoto. It was also the time when the method of adding blocks to a chain without the signature of trusted parties was introduced. This was a revolutionary transition of the process. The basic features of the new system were as follows.
- A secure history relating to data exchanges was included in the modified trees;
- It utilized peer-to-peer networks for the verification as well as time-stamping of each exchange that took place; and
- The process could be managed by dispensing with the necessity of any central authority.
How New Theory Affected Blockchain Mining
To say the least; these modifications introduced by Nakamoto were not only revolutionary but also extremely beneficial for the users. The introduction of these modifications resulted in the massive growth of the use of blockchains and it became the backbone of the trading in crypto-currencies. It also introduced the system of maintenance of public ledger recording all transactions carried out with crypto-currency like bitcoin.
Evolution of Blockchains Over the Years
The evolution of blockchains using crypto-currencies has been consistent and significant over the years. Some of the notable evolutions are as follows.
- There has been a massive growth of blockchains as the file sizes growing to 100 GB in place of the original 100 GB;
- While the current use of blockchains is adopted by 1% of all organizations it is likely to move up to 8% in the industry with more and more enterprises incorporating the blockchain in their infrastructure; and
- Blockchains are fast turning out to be one of the safest modes for all types of organizations as the transactions are carried out with crypto-currencies.
Blockchain Mining Benefits
The use of the process of blockchain mining can give the users the following benefits.
- Blockchains can be used for cloud migration;
- Besides financial management the system can also be used for education, voting, and data sharing safely;
- It can also be used for creating digital IDs;
- Users of the process get anonymity, and the highest levels of security in transactions carried out;
- It can increase transparency, efficiency in the organization, and enhance the speed of transactions; and
- Data and codes entered and locked in the blockchains cannot be manipulated and this works great in preventing hacking of information.
Growing Popularity of Blockchain Mining
As the market trend indicates a steadily growing dependence of commercial entities on the use of blockchains the mining is also taking a notable upward curve in the industry. Many global enterprises are replacing their traditional business models with blockchains and the use of crypto-currencies.
The reason is that the process is safer and prevents the possibility of stealing data and consequentially harming the organization. They also favour blockchains because they not only make transactions safe and secure but also play a major role in revamping their revenue generation. Add to this the other advantages like increase of transparency, efficiency, and speed of transaction and the reason for enterprises favouring the system will be apparent.
Blockchains Help Productivity
One of the most important reasons for the growing popularity of blockchain mining is that it can easily revolutionize the productivity of the organization where the system is adopted. Blockchains are not only about the use of digital currencies but there is a lot more they can provide.
- Many startup business houses have gained productivity and profits using blockchain mining;
- Users get the best benefits of security and transparency;
- It is one of the best technologies used for authentication in digital transactions; and
- The system does not require the use of centralized administrators.
In addition; blockchains are fast turning out as the best tool for strengthening the backbone of the special layer in Internet-based transactions.
Blockchains Help Value-Based Interaction
Users of blockchains appreciate the introduction of value-based interactions it creates between them. The system is extremely flexible that can be seen from the ease of introduction of new records in the existing public ledger. Records entered in the ledger become secure as the information is held by multiple custodians. Anyone can check the previous entries as well as the new ones in the ledger. The entries made in blockchains are protected by powerful encryptions. While one uses digital currencies they also can maintain a reliable network without dependence on any central administrator for the purpose. In short; the decentralized approach makes them the most secure system for any enterprise.
Despite being one of the safest and secure methods for online transactions using crypto-currencies the blockchains have a few downsides as well.
- Some experts opine that they have been overhyped;
- There are some limitations in technologies that are not suitable for some digital interactions;
- Crypto-currencies and crypto-keys should not be believed blindly as hackers are also getting acquainted with the technologies; and
- It is a complex technology that amateurs cannot use to best effects.
However, the limitations of blockchains indicated by experts are mostly based on assumptions. On the other hand, the advantages are practical and tested in research and studies. Thus the pros of blockchains easily outweigh the cons indicated by some experts.
One of the questions that are often raised is whether blockchain mining will stay or sink into oblivion as has happened in the case of numerous innovative and advanced techniques. In short; some people have doubts about the future of blockchains. The following facts can some light on the use of blockchains in the future.
- Like many others the blockchain technology is also evolving consistently;
- Till today, it is one of the safest modes of online transactions;
- Developers are consistently researching to improve the status of blockchains and their usability;
- All these facts indicate that blockchains and blockchain mining has come to stay; and
- It is not going away shortly which means it will be there for years to come.
How to Use Blockchain Mining
Much of the future of any technology and tool depends on the way it is used by people. This common analogy also applies in the case of blockchains and their mining. This technology is preferred by many because it helps faster and cheaper cross-border financial transactions carried out. Blockchains using crypto-currency transactions are economic because the remittance charges are considerably lower.
Traditional international remittance can cost around 20% of the entire overhead whereas the same transaction can be carried out at only 2% of the overhead costs and thus is highly preferable when the cost-benefit analysis is made. Developers are also developing the “Smart Contracts” app that is a computer program helping to administer all the aspects of any transaction from the stage of negotiation through execution.
What Attracts Blockchain Miners
Most blockchain miners find it attractive and good for mining because of its ability to carry out identity management. Such management is one of the trickiest parts of Internet use and carrying out transactions online. When blockchains are used the individual verifications carried out in different computers in the network give an unparalleled level of security for the people involved in transactions online. Since the process is poised for further improvements and transformations the miners find it one of the best processes around rendering multiple advantages for the users.
Blockchain Mining Types
While there are many types of Blockchain mining the common types are as follows.
- Individual mining is where one registers as a miner. Once a transaction is conducted a mathematical problem is give to all individual users. When the solution is found it will be verified and validated by all members in the network and included in the blockchain.
- Pool mining is where a group of miners work as a team to decrypt the problem and once decrypted the validation is made by all in the network.
- Cloud mining is a hassle-free process of extracting blocks. However, it is a bit more expensive compared to others.
In the digital world, the problems of hacking and identity theft are growing every day and it needs a solution. Blockchain mining could be one of the best solutions as it makes online transactions safe and secure from hackers. – Reza Abbaszadeh