Birdchain, Ethereum, Ripple, Tether, and of course the famous Bitcoin, are some of cryptocurrencies that have been around since the early 2010s.
Because cryptocurrencies don’t rely on a central institution such as a bank, they promise reliability and security to their users, using cryptography in order to secure transactions.
Transactions in cryptocurrency are validated through a process called mining.
In this article you will learn the basics of cryptocurrency mining and how it works.
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What is cryptocurrency mining?
Cryptocurrency mining is the process of earning cryptocurrencies through validating crypto transactions by solving complex mathematical equations with the use of a high power computer.
This process involves authenticating data blocks and adding each valid transaction to a public ledger called the blockchain.
To fully understand what mining means in cryptocurrency, you first need to understand what a blockchain is - the technology behind all cryptocurrencies.
Also Read: See how the Birdchain ads platform can allow you reach more people through ads
What is a blockchain?
A blockchain is a register, a large database which has the particularity of being shared simultaneously with all its users, all of whom are also holders of this register, and who also all have the capacity to register data, according to specific rules. fixed by a very secure computer protocol thanks to cryptography .
The blockchain allows its users - connected in a network - to share data without an intermediary or central authority.
In practice, a blockchain is a database that contains the history of all the exchanges made between its users since its creation.
Also read: See how Birdchain games can reward you with cryptocurrency
How does blockchain work?
- the identification of each part is carried out by a cryptographic process
- the transaction is sent to a network (or storage "node") of computers located around the world
- Each “node” hosts a copy of the database in which the history of transactions carried out is recorded. All stakeholders can access it simultaneously
- The security system is based on a consensus mechanism of all the “nodes” at each addition of information. The data is encrypted and authenticated by “data centers'' or “miners”. The transaction thus validated is added to the database in the form of a block of encrypted data (this is the “block” in the blockchain)
- The decentralization of the management of security prevents tampering transactions. Each new block added to the blockchain is linked to the previous one and a copy is transmitted to all the "nodes" of the network. Integration is chronological, immutable and tamper-proof
In this other article you can also read about the advantages and disadvantages of blockchain technology.
How are cryptocurrency transactions secured in the blockchain?
Blockchains are distributed ledgers. A ledger is a transaction report, which is distributed and shared with a community or a public in order to audit and verify.
The analogy that sums up how well a Blockchain works is the checkbox. Each check represents a coin-like transaction or other exchange for it.
As the number of transactions and checks increases, you will end up filling a book and then a box. The box is like a block in the blockchain, which is represented by a set number of transactions that have been grouped together and added to the chain.
Before the block can be added to the chain, however, the block is distributed to all exploration nodes in the network and then added to the chain so that everyone can verify that the transactions contained in the block are all valid.
This verification means that each unit of cryptocurrency can be traced back through the chain from one transaction to another to the point where it was mined.
It exists in every block from the point of extraction and beyond and has been verified by the network. Each node of the network is an independent auditor, even if only one of them rejects a block it will be invalidated.
This is how the blockchain is kept secured.
Who is a cryptocurrency miner?
A cryptocurrency miner is a person that validates and authenticates cryptocurrency that need to be added to the blockchain.
This required solving complex mathematical problems. The first miner to successfully solve a problem gets the right to write the next block in a blockchain and for their efforts they get reward in cryptocurrency.
What can cryptocurrencies be used for?
As the name suggests, cryptocurrencies can be used to make money transfers and purchase all kinds of goods and services as long as the seller accepts them.
Some are numerous online merchants that already accept cryptocurrencies as a mode of payment.
Aside from buying and selling, you could also hold these cryptocurrencies and once they gain value in time, you sell time. This is called cryptocurrency trading and investment.
We wrote a detailed guide here on the uses for cryptocurrencies today.
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