Cryptocurrency mining plays a key role in the crypto industry.
What is cryptocurrency mining?
Mining machines (e.g. computers, mining rigs) perform automated tasks to verify network transactions-which confirms their validity-in a way that does not require a central bank to be the third party. The process has a strong relationship with blockchain technology, because blockchain functions as a distributed ledger, separating knowledge across network nodes (participating devices).
Blockchain technology is an increased method of accounting for cryptocurrencies such as Bitcoin, which create public records of all transactions that have occurred since the network launch. Both transactions are kept in an electronic ledger and therefore fraudulent transactions can be easily checked by internal and external parties and chronologically order. However, a method had to be invented to add transactions to this ledger to ensure that the transactions were legitimate, without relying on a central body. Participants donate resources from their mining machines for as long as they want, in exchange for a monetary reward.
The method means that these mining machines participate in an automated process where complex mathematical equations are resolved. A fixed block reward and any transaction fees associated with the block are allocated to the first computer to solve the equation, and the now solved and verified transaction is added to the blockchain.
Those that use tools, for this reason, are called "miners" in cryptocurrency and will be compensated when solutions are found. More efficient mining machines are more likely to find solutions, so they continue to offer more incentives over time.
Mining is important for decentralization
Normal conventional forms of payment, such as bank transfers, use a central authority to determine which transactions are valid. For instance, if anyone wants to make a payment using a debit card, the bank must check that the user has the number of funds required to complete the transaction.
Blockchain technology is a method for replicating this system but the validation of the transaction is no longer necessary for a central party. Many cryptocurrencies vary in their approach in using blockchain technology, but Bitcoin and many others use cryptocurrencies make sure pending transactions are valid before they are applied to the blockchain.
It essentially removes concerns such as double spending while staying loyal to a system where all users have equal authority, and the consensus-based decision is democratic.
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