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When transactions are being made, it needs to be validated. Therefore, validators are needed on the blockchain just to validate these transactions. What happens is, numerous computers act as validators on the blockchain ledger. They solve complex mathematical problems in the form of puzzles with the use of computational power. Because the yare numerous computers connected on the network, the first one to solve the puzzle gets a small amount of bitcoin or Ethereum as an incentive for contributing to the blockchain ecosystem. Hence validators who solve the puzzles get rewarded and this is what we call crypto mining. The name is crypto mining because it is just like the mining of physical assets like Gold where the miner goes in search of precious assets from the ground, digging it up until something valuable is found.
So basically, pending transactions are being collected by these validators on the ledger from the network. The next thing is to verify them. They check if the sending wallets have enough funds to send. They also check for other necessary conditions or criteria needed for the transaction to take place. One of which includes the network terms and conditions.
After the verification process is finally done, the verified transactions are then grouped into blocks. The blocks are to serve as multiple containers for carrying the verified transactions. Miners then solve cryptographic puzzles which create new blocks. These cryptographic puzzles are solved through the use of substantial computational power. Specific harsh are then developed or found at the end. This harsh value must meet a certain criterion.
For the required criteria to be met, the validators or miners perform a series of calculations with the use of their computational powers or resources until the harsh that matches with the required one is found. Lot of energy is consumed during this process. It also requires lots of computational efforts from the miners or validators.
Once a valid hash is discovered by a miner. It is being broadcasted to the network along with its verified transaction block. This block is then being verified by other validators within the ledger or network to confirm if it is valid. This transaction has to be valid before it is being released to the next crypto mining stage.
This miner who was able to discover the hash and validated this transaction is being rewarded with a certain amount of crypto as an incentive. Transaction fees are also included. This amount might not be very much but worth the hustle.
Finally, the new block is then added to the blockchain of which an immutable record is being created. This transaction is being recorded on the network and readily available to the general public. The time, amount, date, address of both sender and receiver are some of the records kept on the blockchain for everyone to access. This is what we call the chain consensus.
Having gone through vivid explanations on what crypto mining is all about in the lean man’s perspective in previous paragraphs, let us dive straight into some pros and cons of crypto mining in the next few paragraphs.
PROS OF CRYPTO MINING
1. Potential for profit making;
everybody engages in one act or the other primarily because of some benefits or profits that may come out of it. For this same reason many people engage in crypto mining. Crypto mining is profitable and comes with some good incentives or rewards. It is very rewarding I might say. The level of profitability depends on the level of energy consumption released as a result of the number of computerized machines a miner is operating. Hence, miners are given some amount of crypto coins as a reward when they are able to validate a block successfully. Miners are rewarded with either Bitcoin or Ethereum. The most profitable time is during the bull run, during this time crypto prices increase causing the miners to make more profit.
2. Decentralized;
there is absolutely total control when it comes to crypto mining. The validators have a space of freedom to operate. There is no third party involvement making it much more secure than most means of earning. Hence the validators have nothing to be afraid since they are in total control of the mining processes and earnings. There is more security and theft prevention due to the presence of the miner who is making sure that there is integrity of transaction history.
3. The miners support the blockchain network;
miners are the key players behind a smooth operational system on the blockchain network. They are there to keep the network working properly and smoothly, not forgetting the maintenance of the blockchain is mainly possible because of the miners. The support of the miners also helps process transactions quickly and efficiently due to the computing power and efforts, making the whole blockchain ecosystem more robust and reliable to be on.
4.Accessible to everyone globally;
mining is open to the general public, all that an individual needs is just a computer and an internet connection and you are good to be a validator on the blockchain network. Hence it gives everyone equal opportunity to earn some crypto coins just by being a crypto miner or validator.
5.It provides learning opportunities for everyone;
being a miner or validator is a process and requires enough time to learn the process in order to set up your computers. For this reason, many validators are exposed to knowing certain hidden aspects of the blockchain. They are able to get a better understanding of how the blockchain works in general. This makes it possible for them to get exposure to certain other areas with the blockchain ecosystem.
Cons.
1. Very high energy consumption;
crypto mining comes with some high energy consumptions. This is because the mining process requires some powerful computers and these computers turn to consume a lot of electricity. This has been one of the major constraints to mining. This has raised some reasonable concerns about the adaptation of fossil fuel-based energy sources which has negative environmental effects. This can also put pressure on the grid stations as a result of increase in power consumptions.
2. Computer Mining Hardwares are very costly;
specialized hardware’s such as the Graphics Processing Units or Application Specific Integrated Circuits) are required in a computer for it to enable mining processes. These hardware’s are very expensive to purchase. Hence, a miner needs to spend a huge amount of mining in order to get certain hardware for mining.
3. Crypto mining may produce lots of noise and heat;
this is because the computers are super machines and run at a certain speed. This makes it produce lots of heat and noise hence it is also advisable for miners to have additional coolers to minimize these adverse reactions from the mining plant.
4. Problem of scalability and network congestion;
the scalability of a network is one the most important aspect of the blockchain but too many miners on the blockchain can cause it to get relatively choked and this may slow down the transaction speeds. The mining efficiency of the miners are sometimes compromised due to these adverse effects of congested blockchain networks.
5. There is relatively high competition among the miners;
this is as a result of an increasable growth in the crypto space. There are more miners that come into the play because of the growth, awareness and openness to the general public. There are more validators who would like to join the network causing a rise in the number of miners and as a result there is the development of competition among the validators. More computational powers are required. Individual miners suffer a decrease in profit margin.
6. Unprofitability during bear period;
there is a chance of not making enough or any profit at all. This can happen as a result of high volatility. Where crypto coins can just dump anyhow. During this time, the coins mined are not of profitable value again.
Thank You.