What is crypto mining and how does it work?


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With the cryptocurrency craze on the rise, you can’t help hearing about the people who are mining these digital currencies and destabilizing the graphics processor market. This is what “crypto mining” really is.

What is crypto mining?

In short, crypto mining is how new units of cryptocurrency, commonly referred to as coins, are created. As you can imagine, this type of mining doesn’t involve callused hands grabbing pickax handles. Instead, it’s the computer processors that do all the hard work, taking out complex math problems.

Of course, you might be wondering why these digital currencies even have to be mined: after all, it’s fictitious money with no backing whatsoever except what people will pay for it. Real money, the one backed by governments, can be created by turning on a bill printer, so it stands to reason that crypto could do the same.


The fact that the supply couldn’t be restricted has been the biggest obstacle in cryptocurrency for years: there were a lot of ideas on how to create digital coins, but no way to ensure that people didn’t. would not just duplicate them at will. Without an authority like a central bank, an institution that regulates the flow of money, it becomes very difficult to manage the supply of any currency.

This problem puzzled creators of digital currencies for decades until Satoshi Nakamoto (probably a pseudonym) invented what is called the blockchain. The full theory of how they work is quite complicated – we dig deeper into our article on explaining “blockchain” – but the easiest way to explain it is to represent it as a chain.

In this metaphor, each link is a block and each block contains a defined amount of cryptocurrency. For example, a block contains 6.25 Bitcoin. To unlock a new block, you need to solve a complicated math equation, which validates the block and adds it to the chain. Also, since the blocks are linked in a linear fashion, you have to switch between them, you cannot choose one at random.

The ledger

Whenever a new coin is unlocked, it is recorded in the cryptocurrency ledger, a large file that anyone can access at any time to see which coins were mined when and by whom. The ledger also shows when a coin changed hands and who was involved in the transaction, denying the claim that Bitcoin is anonymous.

To sum up, the ledger records the creation and movement of coins in the blockchain. Mining validates new blocks and accesses the coins they contain. Interestingly enough, given that the blockchain has to be finite, it also means that most cryptocurrencies have a hard limit on how many can exist: Bitcoin, for example, has a ceiling of 21 million.

How crypto mining works

To unlock a block in the chain, you need to validate it by solving a complicated equation, usually in the form of a hash. A hash is a random set of characters and numbers that, with the right touch, reveals the original message; it’s a basic part of crypto and that’s where the “crypto” part of “cryptocurrency” comes from.

In a way, crypto mining only solves these incredibly complicated math puzzles. Do it fast enough and the reward is a coin. If you’re slower than the competition, you don’t get it. This method is called “proof of work”.

However, hashes are, by their very nature, incredibly complicated puzzles to solve. The phone or laptop that you are probably reading this article on would probably take millions of years to solve one.

DIY supercomputers

Of course, if you don’t have a supercomputer, you can always build one. Many people interested in making money from cryptocurrency – Bitcoin in particular – have started to do so, often by connecting multiple devices to each other to create powerful networks that can combine and amplify processing power. of each individual device.

The most powerful single component you can use in this case is a graphics processing unit, or GPU, the part of your computer that gives you nice, brilliant graphics, if you’re on an advanced computer, of course. They are generally more efficient and powerful than their central processing unit (CPU) cousin, and gathering enough of them gives you a serious computing boost.

This brings into play a new kind of equation, where several savvy individuals calculated that the price of GPUs times the cost of electricity was far less than what a Bitcoin would earn. This created a sort of arms race where these outfits would create bigger and better platforms to beat their competition.

In addition to the competition between these groups, there is also the problem that each subsequent block is more complicated to solve than the last, a built-in security built into the blockchain to prevent it from being all unlocked at once.

As a result, the GPU market was all but destroyed, with these groups buying every unit they could get their hands on, even steal them in some cases, and by ensuring that regular consumers had to pay massive prices even for badly obsolete models. Even if, at the end of 2021, this arms race calms down thanks to a number of factors (including one repression against minors by China), the GPU market has yet to recover.

Mined or unmined crypto-currencies

Interestingly enough, however, not all cryptocurrencies are mined. Rather than using proof of work, some currencies, like Cardano and Ripple– use something called “proof of stake.” They still run on the blockchain for security reasons, but instead of mining new blocks, you ‘stake’ them instead, claiming them for yourself up front.

The more you claim, the greater the chance that you will get blocks. It’s a complicated system, even more so than mining, but it could very well be the future of cryptocurrency.

The future of mining

This brings us to one final important point: cryptocurrency needs a future beyond mining. Not only is it expensive to mine new parts because of the price of power and GPUs, it is also bad for the environment, like this Columbia Climate School article Explain.

It’s hard to say exactly what that future will be like: maybe it’s staking, maybe it’s one of dozens of other solutions that crypto enthusiasts are no doubt thinking about as you read. this. Time will tell us.


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