- Crypto Asset Mining Context
- Mining, security, and governance in the crypto world
- Bitcoin mining and how it works
- The infrastructure needed to mine
1. Context of crypto-asset mining
The infrastructures in charge of sustaining and protecting cryptocurrencies are called “blockchains”. These are open, decentralized, and accessible systems that allow users to own assets without giving their custody to a bank.
The existence of these infrastructures is due to mining. An activity through which the validity of money transfers made with crypto assets is verified, which are then added to historical records that function as “accounting books” of independent “peer-to-peer” networks of companies, governments, and individuals.
2. Mining, security, and governance in the crypto world
Mining is important, in a nutshell, because it allows us to distinguish true information from that generated by malicious agents, through mathematical verification of it, to prevent the falsification of assets and their double-spending. This activity is carried out by the “miners”; people in charge of putting into operation hardware and software necessary to secure the network.
Mining constitutes a fundamental mechanism for the governance of the systems on which cryptocurrencies run since it generates a public and open dynamic for verifying information. Through it, it becomes possible to reach a “consensus”; that is, collectively confirm the existing data in the blockchains without endowing any entity with a higher hierarchy.
To reach this consensus, the miners cooperate and compete with each other, motivated by their profit motive, since they expect to receive monetary rewards at the end of the process. They invest their computing resources in favor of blockchain security, with the ultimate purpose of mining a valid block.
These types of dynamics reduce the risk of collusion because they motivate those who dedicate themselves to mining to prefer to carry out an honest behavior since this will not affect the value of the assets they receive and the reliability of those systems that they consider will be strengthened. profitable to mine.
3. Mining and how Bitcoin works
The first implementation of mining systems in a cryptocurrency was completed with the launch of Bitcoin in early 2009; a currency whose most important conceptual aspects can be found in the whitepaper “Bitcoin: a peer-to-peer electronic cash system”, published by Satoshi Nakamoto in November 2008.
This document establishes that “proof of work” mining (that is, the one that requires providing a “proof of work”) is based on the mathematical validation of the information received from other agents of the “peer-to-peer network. “, Which is processed by sending new blocks of information approximately every 10 minutes.
For this verification, a “retroactive” scheme is used which contrasts, by means of “cryptographic hashes” embedded in the headers of said blocks, the reference to an immediate ancestor; In this way, the creation of a new block requires pointing towards a previous valid block, accepting its existence and implicitly confirming its consent, thus endowing the transactions with an increasing security scheme based on the number of confirmations that the block receives in which your data is included.
4. Infrastructure needed to mine
Although the verification of the validity of the blocks and transactions is a simple and accessible process for most of the network participants. The construction of new blocks that add information to the transaction record of a blockchain (mining) requires intensive computer work, which demands, in most cases, a large number of resources.
To conclude, it is important to bear in mind that initially, mining was an activity carried out by miners “alone” using their home computers, but at present, this industry has become professionalized, so it usually requires a large number of resources and hardware. specialized networks connected to mining pools, through which many miners cooperate with their computing power to solve one block at a time, distributing the profits among the participants of the operation when they are successful in producing a valid block.