UNDERSTANDING CRYPTO MINING Pt1

The need for alternative digital payment solution arose from some fundamental flaws in the current fiat system and the desire to improve on transaction quality in general. One major flaw that crypto currency networks are attempting to correct, is to reduce or eliminate waiting times for cross-boarder transactions, they also seek to develop payment solutions (#cryptocurrencies) that allow for very low transaction costs in comparison with the fiat system. Another major flaw with the traditional payment system which crypto currency networks seek to address, is to eliminate the capacity of a group of banks to influence economic direction as a result of their control of mainstream currency, through decentralization. For decades, experts have sort to proffer viable solutions to these challenges, however it was not until 2008, when an individual who went by the name of Satoshi Nakamoto released a paper in which he suggested a peer-to-peer decentralized online public ledger known as the block-chain, which allows for quicker cheaper and safer transaction that are anonymous and publicly accessible. This brought about the phenomenon of crypto currencies.
Crypto currencies are simply digital payment solutions on a peer-to-peer network that use the age old techniques of cryptography to validate and secure transactions within a public ledger known as the block-chain. For more detailed information about the meaning and objective of cryptos, please refer to my post in the facebook group @CRYPTOMANIAC.

Since the inception of bitcoin, there has been a significant surge in the number of alternative crypto currencies, with numerous digital experts attempting to improve on the shortcomings of the bitcoin network. According to www.coinmarketcap.com, there are 1644 crypto currencies as at 6th June, 2018 trading on various exchange platforms. Adoption of the block chain technology has equally experienced a huge upward trend, particularly in 2017 when the total crypto currency industry value (market capitalization) went from just over $17 billion to $700 billion during January to December. Though this is quite a remarkable feat, there is still room for even more significant growth in the industry as crypto currencies are yet to go mainstream. In fact according to www.statista.com, there are currently under 24 million blockchain users world wide  which represents only about 3% of the over 800 million visa card and 700 million master card users.

In this piece, we will be looking at one of the most important aspects of the crypto atmosphere, that is MINING and its significance, with the aim to pin point the opportunities that may be present through mining.
Mining in the context of crypto currencies is the term used to describe the process by which transactions are verified and validated with a Block chain network. It is a task that is carried out by computers, often making use o high performance graphic cards to solve cryptographic equations the result of which verifies the transaction and awards the right to validate the ledger to the computer with the concerned computer.

So how does Crypto mining really work?

For illustrative purposes, we will be using bitcoin as an example, especially considering its popularity as well as the fact that #bitcoin was the very first application of the block-chain concept and so could be said to have set the agenda and standard for the crypto-currency environment.
The mythical Satoshi Nakamoto who created the bitcoin network, aimed to provide a safe way to exchange value online that would completely by-pass the need for middle parties like bank, greatly reduce the cost of and time taken to carry out financial transactions across boarders. To achieve this, he suggested a global online ledger that would be accessible to and maintained by the general public.This ledger is designed to continually expand and keep record of the history of all the bitcoin in circulation. The major concern as with most financial innovations was safety (ie how to ensure that the system would not be hacked or preventing double spending of the same bitcoin). To tackle this problem, the bitcoin network was designed to group hundreds of transactions into what is know n as a BLOCK. Every ten minutes, the information in this block is converted into a kind of cryptographic equation/puzzle. Computers on the network (miners) then engage in a race to find the solution to the equation. The first computer or group of computers to successfully decipher the puzzle announces to the other computers who then ensure that the equation is correct and also check to ensure the validity of the transactions. Once verified, the block is added to the ledger and miners can proceed to tackle the next block of transaction.The miner that solved the first block will receive some bitcoin (block reward) as incentive for maintaining the bitcoin ledger after 99 more blocks have been added to the ledger (get more information about block rewards here). This concept of solving block equations to verify and validate transactions in the bitcoin network constitutes a Proof of work (PoW) protocol. This system is designed to prevent spamming the network by challenging miners to solve puzzles that will require an estimated ten minutes to solve. The PoW protocol is a very efficient safety measure but also has some shortcomings and will be discussed in subsequent posts. Various #Altcoins utilize the PoW protocol for mining blocks others apply the Proof of Stake (PoS) or a combination of the two for block validation.
The Proof of stake protocol awards block validation rights based on how much tokens the miner has in his/her wallet. These protocols will be discussed in he crypto currency scene.

As previously stated, mining is the medium by which crypto currency networks carry out the necessary record keeping required to track transactions within the network. It is also the medium of distributing currency to users who engage in mining activities. In practice it usually involves logging on to a network with a computer or even a mobile device directly or via a specific software that performs the tasks involved.

During the early stages of #Bitcoin, when the network had few mining computers, one could simply download a software unto a regular personal computer and still have a fair chance of being selected to update a block, but as bitcoin gained acceptance, more competitors joined in for the mining rewards, this greatly raised the competition that favored miners with stronger graphics cards on their computer. This in turn created a whole new industry for the manufacture of task specific cards for mining (ASIC miners). Individuals and companies who are drawn by either the lure of profits of their desire to see a transition to a better way of payment, are now investing in more sophisticated equipment specifically designed for crypto mining. According to Forbes, the total current computing power on the bitcoin network is 250 time the sum of that for the world 500 most powerful computers.
This can be seen as a positive indication of the growing adoption of the block-chain technology as a suitable and more efficient replacement for the current centralized traditional banking system of record keeping. However its not all good news as the running of these powerful machines on this scale has its consequences on the environment. For example Digiconomist estimates that the total power consumption by bitcoin mining equipment is about 2.55 gigawatts which is almost the same amount needed to power all of Ireland. This represents a substantial expense to miners and considering that these mining equipment tend to make much noise and over heat, it also represents a cost on the environment. Another major challenge with crypto mining is mining difficulty. As more and more powerful computers are deployed to mine bitcoin, the network automatically adjusts the parameters of the block puzzle, making it more complex. The aim is to maintain a ten minute block update time and as such regulate the rate at which new bitcoins are minted. This has lead to miners having to join their resources to form mining pools that generate a competitive amount of power on the network. This development in itself also creates a potential problem that could see the network compromised if any of the mining pools were to attain 51% of the total mining power on the network.

With all these challenges facing the crypto-currency environment, through an observation of the rapid growth that has occurred within this young sector of the digital world and also the innovation behind its operation, it can be seen that the block-chain technology will be around for a long time and delivers an imperfect yet efficient way to transfer value globally online.