What is cryptocurrency mining?


In the crypto ecosystem we use the term “mining” to refer to the process of validating transactions on a blockchain, which also generates a reward for those who carry it out.

But although this activity is known by that name, it does not involve any type of extraction of materials from the earth or rocks. Rather, it is a way of running software, a computing effort.

The term has its origin in the validation of Bitcoin transactions. As we know, the total limit of BTC that will be created is 21 million. But by the time the network went live, there were none.

Each unit of bitcoin, while it existed “in theory”, had to be obtained in some way. The term mining is a colloquial metaphor illustrating that units of bitcoin need to be mined and that they will eventually run out.

If Bitcoin did not have an established limit, as happens in Ethereum, we would talk instead of manufacturing cryptocurrencies.

The main purpose of mining is to establish and encrypt the transaction history in such a way that it is computationally impractical to tamper with it.

What miners do
‍Miners are called those who practice mining. That is, those who make their computers available to a crypto network to validate transactions and thus obtain new units of each cryptocurrency.

Mining is the mechanism used to introduce new units to the system: these miners are paid in cryptocurrencies a reward for their work. This serves both to expand the networks of these new currencies in a decentralized way and to motivate people to provide security to the system.

Although mining began as a household activity, today it is constituted as an entire economic activity in itself, involving large mining farms, video card manufacturers and ASIC hardware.

‍What are mining farms
‍The places specifically built to mine cryptocurrencies are called this: structures where you can mine on a large scale, which require a considerable investment and occupy a lot of surface.

In general, they consist of tens or hundreds of graphics cards or ASIC chips configured to work 24/7. Some companies build large warehouses to locate the equipment, taking into account designs that allow savings in costs associated with mining such as refrigeration or energy consumption.

Today miners are looking for places with some kind of comparative advantage. Like Canada, where the low temperatures have an effect on a great saving of energy destined to the refrigeration; or like Paraguay, where electricity is very cheap.

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