You would be conversant with the word “Bitcoin mining” and had wondered if it is the same with the act of extracting gold from the ground. Nonetheless, bitcoin mining is simply a method where miners mint bitcoin, confirm, and secure bitcoin transactions. They do so by using computers to solve complex mathematics.
Solving complex mathematics with the use of computers helps miners mint bitcoin and make Bitcoin payment network trustworthy and secure, by verifying its transaction information. However, cryptocurrency mining is a general term that describes every cryptocurrency mining operations, including bitcoin, ethereum, and other minable cryptocurrencies.
Functions of Cryptocurrency mining
Contrary to printing dollars by the Federal Reserve to stabilize the economy as needed, cryptocurrency is issued based on consensus on the blockchain. While fiat currencies are issued and controlled by a central authority, cryptocurrencies are issued by decentralized issuers called miners. In terms of proof of work (PoW) consensus blockchain like bitcoin, miners attempt to solve a block having the transaction data using cryptographic hash functions. Consequently, miners use their computing power to generate the new bitcoins.
1. Validation and verification of transaction
Depending on your volume of transactions, the miners require several times to include the transaction block in a blockchain. Usually, it takes 1, 3, and 6 confirmations for a range of less than $1000, less than $10000, and above $10000 transactions, respectively. With the confirmation phase, your transaction is on the blockchain, a decentralized secured ledger.
2. Cryptocurrency transaction security
To explain how mining operations secures your transaction on the blockchain, you have to answer a few questions:
- Have you seen mining farms looking for miners?
- Have you heard of a 51% attack?
Whether you have or have not heard, the security of transactions is a function of the number of miners in a network.
The more miners in a network, the more secured it is because the network seems more distributed. Assume there are 50 miners in a network, and a central party buys over 50% of the miners, what happens is that the central party automatically owns the network. Concurrently, if the party owns the network, you should be sure that there’s no consensus in the platform any longer as the party may decide anything that happens to the transaction.
Challenges of Cryptocurrency mining
Often you receive emails or phishing links asking you to click or execute some operations. If you have clicked on any unknown link or email codes, your device is probably compromised to mine cryptocurrency and other unsolicited operations. The above illustration is an example of cryptojacking.
According to CSO Online, Cryptojacking is the unauthorized use of someone else’s computer to mine cryptocurrency. As explained above, cryptojacking operates in two different ways, as shown. The basic one is tricking the victims into loading crypto mining code onto their computers while the other injects a script on your browser or website. Consequently, as miners try to mint cryptocurrencies, most illegitimate miners create phishing links and scripts that secretly mine crypto on other devices.
“However, this simulates how cryptojacking demonstrates that cryptocurrency mining can be decentralized, but it introduces cyber threats and associated problems to the device users.”
Therefore, one of the solutions to this kind of vulnerability problem is a hybrid of five protocols, an improvement to PoS scripting as deployed by the DigiByte
2. Centralization of mining hardware
Imagine what happens when there are a few numbers of cryptocurrency mining device manufacturers? The companies will have a greater level of control over distribution rights to hashing power for a cryptocurrency. For instance, ASIC device manufacturers like Bitman has control over mining hash powers as coin specific ASIC adopt the design of the machine. Consequently, mining becomes grossly centralized.
However, solving crypto mining centralization problems requires adopting custom hardware design for various coin mining operations. Also, employing hash algorithms that are not specific to ASIC. For Example, a case of Siacoin mining.
3. Multiple algorithm mining operations
Most cryptocurrency mining software and hardware are designed for specific mining algorithms. It limits interoperability between another blockchain. Also, there are cases of low hash rates.
4. Specialized location
There are little chances for single PCs to mine as they have low hash rates. However, for single PC miners to get a higher return on investment, they need to connect to mining pools. The mining pools are located at specific locations. Therefore, it becomes a limitation because the processes of connecting to pools often introduce some centralization problems.
Consequently, Hotmine, a company based in Ukraine, engineers home appliances for crypto enthusiasts to mine crypto.
5. Higher power consumption.
One of the biggest challenges of cryptocurrency mining is high energy consumption.
An online tool released by the University of Cambridge estimates the crypto-currency network’s energy usage and compares it with other entities. It found that Bitcoin uses an estimated 61.76 terawatt-hours (TWh) of electricity per year – more than many countries and approximately 0.28% of total global electricity consumption.
By comparison, Switzerland consumes 58.46 TWh, while Greece uses an estimated 56.89 TWh per year. If Bitcoin was a country, it would be the 41st most-energy-demanding nation on the planet. The crypto-currency’s massive energy demands come from the computing power needed for mining, a process whereby machines are connected to the network to verify transactions which involves solving puzzles.
To solve the energy cost challenges of Cryptocurrency mining, energy alternatives, and ambient temperature are subject to consideration. Some miners have relocated to countries such as Iceland where geothermal energy is cheap and abundant while the Arctic air helps with cooling.
Also, Burency, a UAE based blockchain company, is currently providing an alternative mining solution to save energy and effectiveness. One of their approaches is setting the mining farm in a cold region and adopting renewable energy solutions.
Cryptocurrency mining, a means of minting, conforming, and securing bitcoin transactions, can be sustainable. If engineers and the cryptocurrency community work on security, hardware designs, and energy consumption, the existing problems of cryptocurrency mining will be solved.