What is cryptocurrency mining and what does it involve?

 What is cryptocurrency mining and what does it involve?

What is cryptocurrency mining and what does it involve?

Bitcoin, Monero, Litecoin, Ethereum… Now everyone has heard about the world of cryptocurrencies, in which many people have already invested. Its great advantages are usually highlighted as a possible future digital currency or as an investment opportunity to earn more. There are also its drawbacks: they are not supported by any official organization and their volatility is high. However, little attention is paid to one specific aspect: where do they come from? This is the place to talk about cryptocurrency mining.

First of all, it is necessary to clarify some concepts: cryptocurrency o cryptocurrency is a digital asset that uses cryptography to secure its ownership. This ensures the security of transactions and prevents counterfeiting. These digital currencies do not exist in physical form. They are actually stored in a digital wallet.

As we pointed out at the beginning, cryptocurrencies are not regulated or regulated by any institution. In addition, their transactions do not require an intermediary, since a decentralized database is used, called blockchain, which allows to record joint accounts.

Blockchain technology is often compared to a large ledger where large amounts of information can be recorded and stored and shared in the network and cannot be changed or deleted.


1 What is cryptocurrency mining?
2 mining steps:
2.1 Verification
2.2 Grouping of Transactions
2.3 Hash and control data
2.4 Resolution
2.5 blocks have been added to the network
3 rewards for miners
4 What is necessary to mine cryptocurrencies?
4.1 Specific equipment and software
4.2 Mining of cryptocurrency
4.3 Cloud mining

What is cryptocurrency mining?

The definition of cryptocurrencies is the process by which network transactions are verified and grouped, which will later be added to the blockchain. Thanks to this activity, cryptocurrencies such as Bitcoin, the most important and known of all.

Why use the word “excavation”? Of course, it is a metaphor, but in essence, the work of computers to extract value from the network is similar to miners who go underground to find gold, coal or other valuable minerals.

Cryptocurrency miners do not use picks and shovels, but computer hardware and software. The task is to make the processing power of one or more computers at the service of the network. Different cryptocurrency networks use these teams to verify the authenticity of their users’ transactions.

Mining process:

What is cryptocurrency mining and what does it involve?

What is cryptocurrency mining and what does it consist of?

A fundamental part of the cryptocurrency mining process is verifying and validating transactions. This is achieved through the so-called mining, responsible for selecting pending transactions and adding them to the block template. The whole process, which constitutes a cycle, consists of five steps:


The full nodes are the team responsible for enforcing all the consensus rules of your network protocol. They are the elements that provide security and stability to the cryptocurrency network. Its main function is to verify that the sent cryptocurrencies have not been previously used for other transactions. In other words: no double spending.

Transaction grouping

Then they enter the implementation of mining nodes. They group verified transactions into templates and add them to unconfirmed blocks.

Hash and control data

The next step is to register the necessary information to mine cryptocurrencies and confirm the block. It is the preparation phase of all the necessary elements to perform the hash function and start the work of finding the identifier of the block that is created. This work is also carried out by the mine.


With the information provided by the mining node, a valid block identifier is created, in which the transaction can be confirmed and the coin released. It is a process that can take more or less time depending on the team used for the solution or the number of miners working on the same.

Blocks are added to the network

Finally, when a miner finds the solution of a hash function, a new block is created that is permanently registered. All other pending transactions will be automatically canceled to avoid the possibility of double spending. That’s when the miner’s reward is released.

From now on, the information contained in this blockchain can no longer be modified. In some networks, such as Bitcoin or Ethereum, their details can be discussed publicly.

Rewards for miners

What is cryptocurrency mining and what does it involve?

In the scope of someone who decides the resources and efforts to mine cryptocurrencies, there is a possibility to get their long-awaited reward. This is actually the engine that drives the whole process. By adding new blocks to the chain of cryptocurrency, rewards are obtained, which can be of two types:

  • In the form of commissions, paid by users who participate in transactions that constitute newly added blocks.
  • In the new digital coins put into circulation.

 What is necessary to mine cryptocurrencies?

Mining cryptocurrency farm

Surely after reading this, more than one of you turned on the light bulb and the dollar sign (or Bitcoin) was drawn in your eyes. If only one computer is needed, why not mine cryptocurrencies from home?

Although this is possible, it is not as simple as it seems. Actually, cryptocurrency mining requires a lot of computer power. It is not enough to have a computer or a computer network of a certain power, but it is also necessary a stable electricity grid. In fact, in this process stability is more important than speed.

Although this is possible, it is not as simple as it seems. Actually, cryptocurrency mining requires a lot of computer power. It is not enough to have a computer or a computer network of a certain power, but it is also necessary to have a stable electricity grid. In fact, in this process stability is more important than speed.

Specific equipment and software

The system used to mine cryptocurrencies depends on the cryptocurrency we want to mine. There are several options:

  • Use an asic miner, which is a computer prepared to perform a single and specific function: mining a specific type of cryptocurrency.
  • Make use of a computer equipped with a high-performance graphics card or GPU.

The most common is to resort to different hardware for each type of currency. Many people have tried to mine cryptos without the right hardware without success, also spending a lot of money on the wrong computer equipment and consuming large amounts of electricity to no avail.

Why do we need such powerful equipment and specific software? It’s best to explain it with an example: the hash function of a network like Bitcoin is composed of a combination and number of 64 characters. The law of probability tells us that in such cases, Finding the correct combination that releases BTC and confirms the transaction is a task unattainable for the human brain. That’s a job for a machine, a device with great computing power that can calculate a huge variety of combinations in a few minutes.

In conclusion, it can be said that the only thing that the miners do is to lend the computer system and electricity necessary to perform these operations, receiving rewards in return. In general, payment in cryptocurrency that you work.

Cryptocurrency mining farm

It is logical to think that the more powerful equipment we dedicate to the mining of cryptocurrencies, the greater the benefits. Unfortunately, that means a huge investment that is out of reach for ordinary citizens. It also requires adequate facilities and a dedicated human technical team to monitor operations 24 hours a day.

Some countries such as Russia o the United States (and until recently, also China) have invested heavily in cryptocurrency mining, creating huge facilities called mining farms. The profits of these farms are relative, not only because of the necessary investment, but also because of the constant fluctuations in the value of cryptocurrencies, which, as we have already seen, change a lot.

Another issue that questions the profitability of mining farms is that, when the price of cryptocurrency increases, more resources are used for mining. And this has the effect of increasing the difficulty when mining.

Cloud mining

Finally, we will refer to how to mine cryptocurrency within anyone’s reach without the necessary hardware. It’s not meant to make a big profit, but it works. Cloud mining is done through shared and remote data processing centers located in the “Cloud”. In this case, the miner only pays for the service provided by the service provider.