If we talk to you about mining, you may first think of a coal or gold mine with workers chopping rocks to get minerals and yes, you're right, but today we're not here to talk about that mining. Today we will talk about cryptocurrency mining.
Surely you are wondering why is it known as mining? , just like gold mining, where you take a pick to extract value from the land, with cryptocurrencies you use very powerful computers to extract value from the network.
Cryptocurrency mining is the process by which users validate transactions to be stored on the blockchain, which in turn generates new coins that are given to users as a reward.
Why is cryptocurrency mining essential?
Mining goes far beyond simply validating transactions and storing them on the blockchain for a reward. This is a crucial process in terms of cryptocurrency security in general, because thanks to miners, only valid transactions are recorded and a user is prevented from spending the same cryptocurrencies twice.
If the above does not seem important enough to you, this undoubtedly will, because thanks to miners, the Bitcoin blockchain is invulnerable, since a hacker would need to accumulate 51% of the computing power to edit or reverse a payment on the network. This is impossible on the most important blockchains, as the number of miners is so large that there is simply no way to hack so many devices.
How does mining work?
To mine a new block and get the juicy reward you must know the identifier of the block and that identification is achieved by solving extremely complex mathematical operations, so much so that it would take a person years to solve one on their own.
Waiting for a person to be able to solve a transaction is not an option, especially when the reward is won by the first miner to obtain the ID Block. That's why powerful computers are used to process hundreds of operations a day, and the more power you can gather, the greater your chances of getting the reward.
For you to better understand how mining works, we are going to explain it to you with an analogy, imagine that there is an ATM and the person who enters the correct password will take all the money that is inside. Miners try different possible combinations, until you get the right key and get the reward. That said, it sounds very easy, but the key to identifying a new block has 64 digits and to that add the millions of computers that are working day and night to obtain the right combination.
Energy consumption in cryptocurrency mining
The power needed to mine a bitcoin block generates enormous energy consumption, but we must take this with a grain of salt, because there are certain nuances, since energy consumption is not synonymous with pollution. The pollution generated by cryptocurrency mining is very difficult to calculate, since there are people mining from thousands of places in the world and it is necessary to know the origin of that energy.
For several years now, we have heard the comparison that mining bitcoins generates an annual energy consumption greater than that of entire countries and although this is true, it is a comparison that lacks context. The reason:
Mining cryptocurrency consumes about 183 million GJ annually and costs $4.5 trillion. But compared to the annual consumption of the traditional banking system, mining numbers are basically nothing, since approximately 1.87 billion GJ or an annual cost of $2,340 trillion are consumed. This leaves us that mining bitcoin requires less than 10% of the energy consumption required by the banking system.
The point of view and opinion play a key role, because if you think that Bitcoin is a scam and it is of no use, you will obviously think that it is a waste of energy. On the other hand, if thanks to cryptocurrencies you were able to keep your money and protect it from inflation, then energy expenditure will seem like a wonder to you.
Clearly, energy consumption is a problem, the pollution generated is a fact and we must seek solutions to these problems in the long term. Some cryptocurrencies such as Ethereum saw the solution in replacing mining with Proof of Participation (PoS), thus reducing energy consumption by almost 99%.
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