Every cryptocurrency must have a consensus protocol, which is the means by which the network agrees on the balances of every wallet. The first and still most common consensus protocol is called Proof of Work, and it is carried out by computers, called miners, competing to solve processor intensive math problems. The term miner was derived by bitcoin’s pseudonymous creator, who compared the process to “gold miners expending resources to add gold to circulation.” Mining both adds newly minted coins to the public ledger and ensures that all transactions are legitimately and correctly recorded there.
What Does Crypto Mining Do?
Bitcoin mining involves solving complex mathematical algorithms using a global network of powerful computers but more often via specialized hardware known as mining rigs. As this network contributes to, validates, and secures the blockchain, the miner that solves the complex problem first is rewarded with the next block of bitcoins.
Bitcoin isn’t monitored by an overseeing authority like the central bank or government, which means it’s a decentralized cryptocurrency—thus the need for oversight by miners. Successful miners are awarded with cryptocurrency. This is an enticing incentive for investors to verify and monitor Bitcoin transactions and contribute to the blockchain even if the process can be expensive and unpredictable. Because obtaining Bitcoin is directly tied to developing the blockchain ledger, mining is a cyclical reward system that keeps people engaged and invested.
Can You Make Money Crypto Mining?
As tempting as Bitcoin mining is, it’s not a casual hobby you can just pick up. In previous years, anyone with a relatively good computer at home could try mining, but the blockchain has grown significantly over the last decade and now requires much more sophisticated hardware. Most successful mining is completed by specialized companies or groups that pool their resources since it takes so much computing power.
Here is the breakdown of what this process might look like. Miners solve these complex algorithms to discover the 64-digit hexadecimal number known as a “hash”. Specialized computers can perform advanced calculations to certify and record every new Bitcoin transaction to protect the security of the blockchain. These computers are outputting a significant amount of power to verify these transactions, which keeps the blockchain running safely.
To produce enough power it takes a lot of electricity to run and cool the hardware, especially because the faster computers are more likely to earn that predetermined amount of Bitcoin. Whoever can find the 64-digit hexadecimal number first earns the reward and updates the blockchain ledger, effectively adding a new block with verified transactions.
A new block or supply of bitcoins is generated about every 10 minutes, and because it takes so much power to compete for just one bitcoin, most Bitcoin miners work in mining pools in which they combine their processing power and then share the rewarded bitcoin, in proportion to the processing power they contribute.
Mining also plays an integral role in giving crypto its value. Because miners expend resources in generating new coins, they assign a value to them that assists in price discovery.
Evertas Insures and Protects Crypto Mining Operations
Ultimately, crypto mining enables individuals and organizations to participate in the creation and maintenance of decentralized digital currencies while potentially earning those newly minted coins as in incentive. This reward system encourages miners to contribute their computational power to secure the network and maintain its integrity while making a profit. In order for the economics to work out, mining rigs must experience minimal downtime. As such, mining operations invest heavily in hardware and need to insure their rigs against damage from fire or natural disasters. Evertas offers insurance on mining operations while most traditional insurers stay away. Learn more about our crypto mining insurance options and how Evertas can protect your mining infrastructure.
