What is cryptocurrency? And how does crypto mining work?

You must have heard the term cryptography by now. A subject that has become very common in today’s digital world and has become one of the most popular issues.

Cryptocurrencies allow you to buy the goods and services you want or make trade. Many people may not know what cryptocurrency is. And how does crypto mining work? If you are interested in this topic and want to know how crypto mining works, stay with us until the end of this article.

What is cryptocurrency?

As mentioned, cryptocurrency is a digital currency through which you can buy any product or service. A cryptocurrency is an Internet-related currency that uses cryptographic codes to track purchases and financial transfers, making the process of converting information into an almost non-hackable code.

One of the most popular cryptocurrencies is Bitcoin. Bitcoin has experienced a lot of fluctuations from the beginning until now.

Cryptocurrencies are guaranteed by cryptography. This means that it is almost impossible for them to be counterfeit or double-spend. One of the salient features of cryptocurrencies is that they are usually not issued by any central authority and therefore the government does not interfere in them.

In other words, cryptocurrencies are systems that can be used to make secure online payments in the form of virtual tokens that can be viewed by internal system inputs.

“Crypto” refers to encryption algorithms or cryptographic techniques that protect these inputs. Some of them are elliptical curve encoding, Public-private key pairs and hashing functions.

Types of cryptocurrencies

As you probably know, the first cryptocurrency based on blockchain was Bitcoin. This cryptocurrency is still the most valuable and, of course, the most popular cryptocurrency in the world.

Bitcoin was first launched by a group nicknamed “Satoshi Nakamoto”. But after Bitcoin, other cryptocurrencies were produced with different functions and specifications.

Bitcoin is a digital currency for which a fee is charged for any payment. Bitcoin is issued on a blockchain that acts as a decentralized account and is run by miners. Miners are powerful computers that solve complex mathematical equations and receive bitcoins as rewards.

A number of other cryptocurrencies that have been as successful as Bitcoin and are known as Altcoins include Litecoin, Peercoin and Namecoin, as well as Ethereum, Cardano and EOS.

What is Crypto Mining?

Crypto Mining is a term used to obtain cryptocurrencies. This process is done by computer and by solving cryptographic equations, which includes validating data blocks and adding transaction records to a public file (general ledger) known as blockchain.

If we want to explain Crypto Mining technically, it can be said that it is a transactional process that is operations such as using computers and cryptographic processes to solve complex operations and record data in a blockchain. It can be said that in fact they are complete networks of devices that perform encryption.

Is Crypto Mining legal?

If we want to answer this question in general, we must say yes. It is legal. But in reality, the legality of this process depends on two issues.

1. Where you live, or in other words, your geographical location
2. And whether you extract the cryptographic process through legal means or not.

Regarding the first issue, it is interesting to know that different governments have taken different processes in this regard. Some countries are trying to stop it and others are very welcome. Some other countries also consider the income and profits from Crypto Mining taxable, while other countries consider it as non-taxable income.

And about the second item, you should know that some people use illegal tools for Crypto Mining. For example, some cybercriminals use JavaScript or install malware on users’ devices to hijack their processing power.

Now that we’ve talked about what Crypto Mining is, we want to know how it works. So follow us.

How does Crypto Mining work?

To understand how this process works, you need to know the meaning of some of the concepts so that you can understand the Crypto Mining process. The first is the concept of blockchain.

Two issues are important in the concept of blockchain: public key encryption and math. These two issues must exist together and in other words they are necessary for each other.

Blockchain is a chain of digital blocks. In fact block is digital information; and chain is public database. And blocks are stored in chains.

Blocks are made up of digital information. They specifically have three parts:

1. Blocks store some information including the date, time and amount of users’ purchases.
2. Blocks store information about who is involved in transactions. But instead of using your real name, your purchase will be recorded without any identification information and using a unique digital signature such as a username.
3. Blocks contain information that makes them different from other blocks. Just as two people have different letters to distinguish them from each other, each block stores a unique code called a “hash” that allows us to distinguish it from any other block.

A single block in a blockchain can store up to one megabyte of data, depending on the size of the transaction.

Let us now define other concepts:

Node: refers to the people and devices that are in the blockchain. For example, your computer or computers of cryptocurrency miners.

Miner: These are special groups that validate unverified blocks in the blockchain by verifying the hashes. When the miners approve a block, the block is added to the blockchain. The first miner to let others know that he has solved the hash is rewarded by the cryptocurrency.

Transactions: A transaction is what starts the crypto mining process. In other words, the transaction is a two-way process for exchanging cryptocurrencies.

Hash: Hash is a one-way cryptographic function that enables transaction legitimacy by nodes. Hash is an essential and integral part of any block.

Crypto mining steps

In this section, we want to review the crypto mining process and explain its steps.

Step 1: Confirm the legitimate of the transaction by the nodes

We want to explain this step with an example. Imagine you are a digital currency miner and your friend borrowed $ 6,000 from your brother. Now he wants to pay off his debt by transferring part of his bitcoin to him. This is a transaction and some steps need to be approved to complete it.

Step 2: Add new transactions to other transaction to generate a block

In the next step of crypto mining, all transactions must be in a list to be added to an unverified and new block.

Step 3: Once enough transactions have been added to the block, the previous

information will be added. Information such as the header data and hash from the previous block in the chain and a new hash for the new block.

The new hash is added to the block that has not yet been approved and must then be approved by a minor node. Now, if you are lucky and you solve it, you should inform the other miners.

Step 4: Confirm the hash block to ensure it’s legitimate by miners

In the fourth step of crypto mining, other network miners must check the hash to test the validity of the unverified block

Step 5: publish the block in the blockchain

Miners consider the last stage as the celebration stage. Because at this stage the proof of the work is over (POW). POW is a long process to resolve the hash and prove to others that it was done legally.

According to the example above, this step means that the bitcoin transfer to your brother has been confirmed. So it must be added to the blockchain. But the point is that this new block is at the end of the chain. Because blocks are temporal in nature.