Crypto Academy Week 4:| Homework Post for @besticofinder : Cryptocurrency mining, mining difficulty and challenges.
Tsoday i am writing homework task for @besticofinder which is about cryptocurreny mining.
How crypto currency mining works ?
Mining is a process of validating cryptocurrency transections and recording thereafter in the form of blocks on blockchain. It is done by miners. Miners are the record keepers of blockchain. They maintain records of transections on nodes. After storing copy of block, it is immedatwly transferred to other nodes for validation. To be accepted by network, a new block must contain proof of work which requires miners to find a number called nonce (number only used once). Nonce is a mathematicsal computation which a miner need to discover before solving a block in a blockchain.One new block is added to blockchain every 10 minutes. it is a tedious, time consuming and skilful task which deserve reward. So a miner is rewarded cryptocurrncy for their exceptional computational power . And this is how new crypros ( example, bitcoins) are created.
As mining is based on solving complex methametical problems, it is achieved by use of equipments like powerful computers, GPUs, ASIC (application specific integrared circuit chips) and more recently concept of mining pool has evolved. In mining pool , multiple miners join to solve hashs quickly and earn/ share rewards.
So mining is a record keeping process done by miners to keep blockchain going for which they are rewarded cryptocurrncy and therby serve as a mechanism of new cryptocurrncy generation. In case of Bitcoin, as supply is limited to 21 million that are anticipated to be unleashed by 2140. To keep rewarding miners thereafter, it is said that miners will be paid from transaction fee.
What is mining difficulty?
Mining difficulty is a sort of unit to measure difficulty in finding right HASH for each block which is done by solving complex mathematical problems. As cryptos are becoming more and more popular, more and more powerful computers , GPUs of miners are entering the field of mining to grab miming rewards. So competition is increasing or we can say mining difficulty or hashpower is increasing
.
To mantain the standard of blockchain and target block time (example, 1 block every ten minutes for Bitcoin ) , difficulty level has to be adjusted from time to time. After every 2016 blocks added to the network, mining difficulty is adjusted automatically. Mining difficulty is adjusted according to the number of miners and hashpower.
Soirce
Hash equal to or lesser ( not greater) than target hash will be rewarded
So the rece is to find cryptographic Hash. A target hash is basically a 64 dighit hexadecimal number. Miners are supposed to find a number or Hash which is less than or equal to target Hash. So it is basically a guess work. And the one who finds it firet, is rewarded for the same known as block reward or miming reward.
As seen in image above, the mining difficulty is not constant. Above is difficulty level for 20feb 2021 and that is 21.724 trillion (say 22 ) . It means that chances of any miner to find a hash number equal to or lesser rhan target is 1 in 22 trillion. So you can understand, how difficult is it to validate a transaction and earn mining rewards and is almost impossible to indulge in mining without devices with very high computational power.
What are the challanges for cryptocurrency miners?
High cost equipments.
As mining is carried with the help of very powerful and costly equipments like GPUs, heavy computers, high quality graphic cards etc. Miners have to do cost benefit analysis. These costly equipments are a great challenge to miners along side other issues.
Regulatory issue.
Bitcoin and its mining therefore by default is yet to be globally accepted. It is still considered illegal in certain countries for its decentralised and anonymous nature and therefore potential of being misused.
High Energy Consumption.
High electricity consumption by miners is also an issue flared up by some economists and environmentalists, however I think, had it been such a big problem , it would have affected earning of miners too. Not to let this issue add to existing problems and to minimize the expenditure , alternative source of energy like geothermal, wind, solar, hydroelectric are becoming popular nowadays.
Halving of mining rewards.
It is applicable to Bitcoin miming. As a rule in crypto market mixing rewards are halved every four years to keep the supply low, as bitcoin supply is limited to 21 million coins. In 2009, it was 50BTC per bock . In 2013, it was 25BTC, in 2018 it was 12.5BTC, and in May of 2020, it was halved to 6.25BTC. This system will continue till 2140 and than miners will be rewarded from transaction fee. So this system of decreasing rewards also poses a challenge to retain miners.
Migration of miners .
To find favourable environment for mining like places with low Elexteicry charges , no regulatory restrictions, favourable environment like cool and dry winters to minimize energy expenditure, miners have to migrate from their native places to such zones. It is challange for both miners as well localities where miner consolidation takes place.
Eco - unfriendly
Least not the last concern is generation of carbon footprint at places where electricity is extensively carbon driven.
Hello @drqamu ,
This is a really great job ! You have explained all the required topics perfectly. Thanks for submitting homework task 4 ! keep up the good work [8]
Thank you
@besticofinder
Thank you for reviewing and plz let me know
Is it the grade ( sort of) that you provide . What is it based on . Is [8] poorer than [7] or better?
8 it better than 7 .. marks out of 10
Ok got it. Thank you.
https://twitter.com/Qamran7007/status/1366414939330514947?s=20