What is Mining?
Mining is the process of using vast computing power to unlock the next block in a blockchain and use that block to confirm pending transactions.
Mining is used as a way to achieve consensus in Proof of Work blockchains such as Bitcoin, Ethereum, Monero and most other cryptocurrencies. Consensus means that all the network can agree the mining was done correctly and the trasactions that the minier confirmed are real and stored in the blockchain forever. Mining is a definitive consensus method given that it relies on miners around the world competing for the right to unlock the next block once they discover its “password” using the previous block’s “password” which has to be distributed across the network.
Every blockchain project has a rule for how long each block should take to solve, and on each block mined, it automatically adjusts the difficulty of the next block to make sure the rate of blocks mined stays constant when more computers enter the network. This helps each blockchain give accurate estimates of how many blocks are mined in a year and control the rate of inflation/deflation of their currencies.
While Proof of Work means using some form of mining, different blockchain projects employ different mining algorithms for their particular reasons. Bitcoin, the first blockchain project uses the SHA-256 algorithm for its mining, which is the same algorithm used worldwide to hash and keep passwords safe. At first when Bitcoin began, all mining was done using normal computers using their CPU and graphics capacity to mine blocks of Bitcoin. Later, in 2016 when Bitcoin adoption grew, certain companies discovered ways to create ASICs, which are machines whose sole purpose is to run the mining algorithm over 100x faster than any average computer. The way ASICs work is they are not computers, they are simple electrical devices that only do one thing. When they are turned on, the electrical components automatically run the mining algorithm and they communicate with a computer connected to the internet which mines the block and uploads it to the network. You can think of ASICs similar to a pair of headphones; headphones know how to produce sound when plugged in and given input, but it cannot produce sound by itself or perform any other functions.
ASICs however are powerful machines that consume lots of electricity and are one of the biggest criticisms of the Bitcoin network in particular. The Bitcoin network currently consumes an estimated XXX GW of electricity per day, which is more than the amount consumed in some countries. While some of this is probably produced with renewable energy, the high electricity cost coupled with slow transaction speeds and high trasaction fees have caused many projects to challenge Bitocoin’s place in the cryptocurrency world. But Bitcoin’s historic dominance is something that no other project is able to rival. Some projects have sprung that focus on computer-friendly algorithms which are labeled ASIC-resistant