Steemit Crypto Academy - Lesson 4 - Homework Post for @besticofinder

Hello awesome people, how is everyone doing today, hope everyone is having a great week. I’m super excited to be part of this lesson 4 and to partake in it and to share my knowledge. Really enjoying these lectures so far and for me, I find it as a great way to learn more and more and expand my knowledge on blockchain and cryptocurrency-related topics. This week’s lesson covers Cryptocurrency Mining… this is an interesting topic everyone in the blockchain world already know about… even people who have come across bitcoin must have also come across the term mining as well.

Before we delve into the main topics for today which is cryptocurrency mining, how cryptocurrency mining works, what mining difficulty is and the challenges for cryptocurrency miners, I will like to first give a brief explanation about Cryptocurrency Mining and what they are, so as to give a base for the main topics…

What is Cryptocurrency Mining?

Before we begin talking about what cryptocurrency mining is all about, especially for people who are new in the cryptocurrency world and who don’t know what it is, it is important to first understand what cryptocurrency is… cryptocurrency is basically a digital currency that is similar to the physical currency we use. As opposed to the physical currency, cryptocurrency like bitcoin, ethereum do not have a bank or a central entity that controls it and decides what happens… its strength is that is decentralized and on the blockchain, meaning that there is no central authority or central entity that controls or alter it. In order words, users have full control of their cryptocurrency assets by keeping them in a cryptocurrency wallet and having full control of their keys.

Mining in the cryptocurrency world or cryptocurrency mining is a term that isn’t new to the cryptocurrency world, in fact cryptocurrency mining is as old as cryptocurrency itself and is as old as bitcoin which is the first cryptocurrency to be created. Whenever the term cryptocurrency mining is talked about, bitcoin is the first name that comes to mind because it was the first cryptocurrency to utilize mining. Cryptocurrency mining is basically the process of minting new cryptocurrencies and validating transactions from the blockchain.

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How Cryptocurrency Mining Works

At the moment, the popular cryptocurrency mining method is known as proof of work.

Cryptocurrency mining that utilizes proof of work basically means the process of mining (minting new coins and validating transactions) using sophisticated hardware, high computation power and specialized softwares to validate transactions on the particular blockchain network. Bitcoin is the king when it comes to blockchains and cryptocurrencies that utilizes proof of work mining. Cryptocurrency miners receive rewards for making use of these required tools to solve complex mathematical problems and also validating the transactions for the blockchain.

A clear example of proof of work mining is bitcoin mining which is one of the most popular when it comes to cryptocurrency mining. The way proof of work mining work is that miners who already have the required tools and computational power can solve the complex mathematical problems and the first to solve these problems gets rewarded. This means that the more computational power and better the equipment, the faster it is to solve the complex problems and create the next block.

What is Mining Difficulty?

Since we already know what cryptocurrency mining is all about, it is time to talk about another very important aspect when it comes to cryptocurrency mining and that is mining difficulty… we all know that blockchains tries to create consensus between a number of computers or nodes that are on the internet… miners try to be the first to solve the complex problems and as such, it requires a lot of computational power and advanced mining hardwares to be able to solve these complex problems. This comes with a lot of difficulties and challenges and that is where mining difficulty comes in…

Mining difficulty is basically the unit of measurement used in the cryptocurrency mining process. It basically indicates how hard the computers used for mining have to work or how difficult it is to solve the complex problems during the mining process. The mining difficulty goes up or down over time as it depends on the number of miners in the blockchain network.

What are the Challenges for Cryptocurrency Miners?

While cryptocurrency mining can be profitable, it also comes with a lot of challenges as well… one of the major challenges for cryptocurrency miners is centralization. We all know that the popular mining rig is the ASIC which has proven to be really effective in cryptocurrency mining. These ASIC miners are so powerful that is becoming extremely difficult to mine without ASICs. Even though this is great that the ASICs are a great cryptocurrency mining tool, they are also a challenge as huge miners are heavily influencing the price and also the way these ASIC machines are produced. Unlike other industries with a lot of manufactures, the ASIC manufacturers are not so many and this leads to centralization in the ASIC miners and difficulty for getting access to ASICs.

Another big challenge that cryptocurrency miners face is high power usage and energy cost… this isn’t a surprise because mining requires powerful hardwares to be able to solve those complex problems. These powerful hardwares and equipment consume a lot of power and as such incur high energy cost. Since mining requires miners to be the first to solve the complex problems, it results to miners competing with more and more computing power to be give them a chance of becoming the first to solve the problems… as computing powers increase, the power consumption increases as well and the energy cost keeps going high which reduces the profitability of the mining and this is one of the major challenges faced by miners.

Cc:
@steemcurator01
@steemcurator02
@steemitblog
@besticofinder