Bitcoin (BTC), which first became popular in 2009, was not widely understood by many people. Cryptocurrency mining was a relatively new concept and, like many new concepts, was not well understood.
Blockchain and cryptocurrency mining is still a hot topic in 2022. While it is often linked to cryptocurrency, it can also be used as a standalone concept that can be used for cryptocurrencies. This article will explain how cryptocurrency mining work, and also, what cryptocurrency mining is, and where it ends.
The huge hashing speed quickly rendered any other hardware inefficient, to the point that you would likely lose electricity.
What is Blockchain?
Blockchain is used to create a ledger, which is a record of all historical transactions (e.g. financial transactions or messages).
The blockchain, as it is fundamentally known, is a chain or block of data. At their most basic (at least in most modern implementations), they can be conceptualized like the diagram below. It is based upon the process of cryptocurrency mining as well as Bitcoin’s famous implementation.
This implementation contains four pieces of information in each block of data:
Timestamp – The time the block was created.
Transaction root – This block contains details about the transactions, i.e. This section of the ledger. This section can contain a lot of data. In Bitcoin, for example, there will be about ten transactions per minute. Others use shorter windows.
Previous Hashing – This is how the chain is connected. Once a block is processed, its hash will become the Previous Hash for the next block in a chain. This allows historical records to be linked and traversed.
Nonce – A cryptographic term that refers to an arbitrary value that is used once in a transaction. We will discuss the purpose of this later.
The hash value, which is called the Previous Hash value within the next block, is the hashed total of all data in these four blocks.
Is Cryptocurrency Mining tamper-proof?
One truth about security is that no item is inherently tamperproof. It must be designed to make it difficult to tamper with and then protected by as many anti-tampering controls as possible. Therefore, it shouldn’t surprise that cryptocurrency mining don’t have any additional safeguards to make them tamper-proof.
Distribution and decentralization are the first control. This ensures that everyone has access to the ledger and any transactions that are added to it. Tampering should be much easier. All parties will notice if they have the same information. Any attempt to falsely report a transaction by less than a majority of those involved will be detected by the others who are honest in processing the data.
Private Blockchain is not more secure than other data storage mechanisms because it lacks distribution and decentralization. One person can control all processing on cryptocurrency mining that is owned and processed only by him.
This is where we need a way for interested parties to communicate and verify the validity of new blocks submitted to the chain. Here is where implementations diverge. There have been three main approaches to implementations in the past:
Proof Of Work – This makes it difficult for others to verify that a valid block hash is calculated. The network validates the hash before it is added to its chain.
Proof Of Stake – Block creators is chosen pseudo-randomly according to their stake in the cryptocurrency mining process. This is used primarily by cryptocurrency because the stake is calculated based on the currency each member holds.
Notable Uses: DASH, cryptocurrency; Ethereum (cryptocurrency), hybrid PoS/PoW
Practical Byzantine Fail Tolerance – This is a consensus-based system of ‘tolerating faults in data’ and automatically recovering.
A side note: All of the above solutions are for the risk of what’s known as a Byzantine fault. This is a fault in which there’s potentially incomplete or incorrect information that may lead to the fault being presented differently to different parties. Each party isn’t aware of how many malicious participants are involved and some of them, while ‘in” on any scheme to falsify the data, may only be malicious “approvers” of bad data, not the generators.
Is it the right time to speak about Cryptocurrency Mining?
Both yes and no.
Because we already have cryptocurrency mining as Proof of Work.
Because cryptocurrency mining is an artifact of cryptocurrencies that use the Proof of Work fault tolerance solution, it is not desirable for most other blockchain applications.
How can you prove that it works?
Proof of Work functions is based on setting a “difficulty goal” for the hash. This is a numerical goal that the hash must meet. Since hashes are always the same for the same data set, we must change some data to manipulate the hash value. This is where we use a nonce.
Let’s reduce the amount of data in the Transaction Root, Previous Hash, and Timestamp elements to the text “Hello, world!” – shown in red on the right and left sides of the diagram.
Let’s also create an arbitrarily difficult target that requires the hash to start with four zeroes.
This is achieved by concatenating a random piece of data (the nonce, shown blue) to the data we wish to record, and then hashing all the strings. If this fails to meet our difficulty target, then we add another nonce to the original data and try again.
To hash “Hello, world!” to meet our ‘four zeroes difficulty target, we will need to repeat this 4,250 times. This would then be sent out to the network, which will validate our effort quickly by comparing our hash to their difficulty target. Remember that everyone checking our efforts should have a copy of the same data we sent. If we cheat and use falsified data to generate our hash they’ll receive a different one.
It may sound like brute force, but it’s not. It’s easy to verify that the work was done legally, so the network can quickly reject or approve results.
First, think of cryptocurrency as an application that uses blockchains to store data. Remember that cryptocurrencies can be based on any of these fault tolerance approaches Proof of Work or Proof of Stake. However, most major implementations are PoW or PoS at the time of writing.
Now We Can Discuss Cryptocurrency Mining
We have already discussed that digital tokens are minable because they use Proof of Work fault tolerance. To encourage the user to perform the complex calculations required by PoW, the first person who generates a valid hash is awarded the transaction fees (generally the number of coins included in a transaction after a specified number of decimal places) or a new currency.
This cryptocurrency mining process led to a rush for these currencies, and as with any money-related activity, a rush for faster and better mining methods. This led to the creation of Application Specific Integrated Circuits, (ASICs), that is dedicated to cryptocurrency mining. In April 2018, this hash rate was over 30,000,000 terahashes/second. This is 30 quintillion hashes per second across the entire network.
Cryptocurrency mining compensates by increasing the difficulty rate so that every ten minutes a new block is mined. Remember that different PoW-based currencies have different target times for blocks.
This arms race has caused implementations to diverge again. Some cryptocurrencies have started to branch out to use a different Proof of Work algorithm. These can be broadly classified as:
CPU-Constrained Alphagorithms – These algorithms, such as SHA256 (as Bitcoin uses), require very little memory per instance ( 512 bytes) and can be easily executed by inexpensively-made ASICs.
Bitcoin (SHA256), a well-known use:
Memory-Constrained Algorithms These are algorithms that use significantly more memory per instance, which can significantly increase the effort and cost of ASIC development.
Not-So-Famous Uses Litecoin, Monero (CryptoNight),
We need to bring up the topic of malicious miners. The prospect of easy financial rewards often goes hand in hand with malicious activity.
Monero’s memory-constrained CryptoNight algorithm was specifically designed to work better on home computers than ASICs. The design specification (known as CryptoNote), states that the following is true:
It appeals to malicious actors who want to install miners on their home PCs. This can be done via either traditional malware that executes on the PC directly or later through in-browser miner miners that run when a user visits a website with the miner embedded. The latter will be discussed in detail in our next blog post.
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Cryptocurrency mining technology has many applications. We can help you realize the potential of cryptocurrency mining technology for your business. Errna offers the best blockchain application development services to transform your business. Our custom-built apps meet the needs and complexities of your business in the most efficient way.