Mining is collaboration
Mining is the process of adding new transactions to the blocks of a blockchain.
Example: If you happened to collaborate with someone on a Google Doc, you know that any change made to the document is visible to everyone and everyone can contribute to it.
Putting it very simply, the miners do something similar on the blockchain: they see the transactions, they check their authenticity, they add them to the blocks and they check that the other miners have done the same thing correctly.
To summarise, mining is first and foremost the process of adding cryptocurrency transactions to this public register.
Mining is calculation
What makes mining complicated is not only that each blockchain has its own rules for mining, but above all that the blockchain is an encrypted infrastructure. This means that to record a transaction, verify it or add a block to the blockchain, the miners must conduct complex mathematical calculations.
Encrypting or decrypting codes in accordance with the blockchain is so complex that the miners need very powerful devices, which require a lot of energy.
In light of this, let’s give a new definition of mining.
Mining means creating new blocks according to the appropriate algorithms and adding them to the public blockchain.
Mining is gain
The topic of mining generates a lot of interest online for the revenue that can be derived from it. Miners, in fact, are usually rewarded for their contribution to the safety and functionality of the blockchain with a sum of newly minted coins and with the transaction fees paid by users.
The “reward per block” is the number of coins you receive for filling an entire block of the blockchain with verified transactions.
That’s why, when we talk about mining, we think about the generation of new coins, because this activity does also imply the creation of new bitcoins, new litecoins, new ethers.
From this point of view, mining is the creation of new coins thanks to the validation work of the miners.
Mining is competition
So why don’t we all live off bitcoin mining?
The first reason is that few people have the necessary resources and skills, but with the expansion of the Blockchain and the passing of time, there are new downsides.
The bitcoins that are mined as a reward are less and less: from 50 BTC per block, it has dropped to 12.5 BTC. This is because the currency must keep its value high, and to do so it must be scarce (deflationary). To this aim, as early as 2009, it was established a maximum limit of 21 million bitcoins.
Another dissuading factor is high competitivity. Most of the Blockchain is controlled by giant mining pools that work 24/7 and the rest are thousands of small pools or single expert miners. Since the reward given is proportional to the energy contribution provided, if the rest of the network has already verified all transactions with powerful hardware, there is little left to profit from.
Considering the energy required, the meagre profit and the very name of mining, perhaps it is not such a distant activity from its analogue counterpart: mineral extraction.