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How cryptocurrency mining works?

How does Bitcoin Mining work?

Crypto mining is the process of solving complex mathematical equations to discover new Bitcoin. The process uses high-performance computers to solve complex mathematical equations, each equation representing a block. Solving these equations allows miners to earn Bitcoin. However, the process is very demanding on system resources, which is why it is important to be able to check that computers are working correctly. To solve these equations you need GPUs enabled system that is called a mining rig to achieve a high hash rate to mine new bitcoins. Bitcoin mining is work on Proof of work, this high-performance system verifies the transaction and earns new bitcoins as a reward. Let's understand the working of Proof of Work and Proof of stake.


You can unlock new coins by two methods-

  • Proof of work
  • Proof of stake

What is Proof of Work?

Proof of Work (PoW) is a technique used to mitigate spam and denial of service attacks and more recently has been applied to the problem of distributed consensus. PoW is the process by which blocks in a blockchain are created and thus serves as a mechanism to validate new blocks. In this blog, I will be examining the similarities and differences between PoW in Crypto-mining and PoW in the blockchain.

How to Mine New Cryptocurrency?

To mine a cryptocurrency such as Ethereum, there are two options. You can either buy a mining machine or rent a cloud-based mining machine. In both cases, proof of work is required to mine the coins. In the case of a proof of work in a cloud-based mining machine, the proof is performed to verify that the machine is working.

What is Proof of Stake?

Proof of Stake (PoS) is the method used to achieve consensus in many blockchain platforms. It is also referred to as "Staking" or "minting." The proof-of-stake algorithm requires participants in the blockchain to place a security deposit (also known as a stake) to validate transactions. The proof-of-stake algorithm is designed to achieve consensus at regular intervals through a process referred to as "coin rotation."

Proof of Stake Protocol

Proof of Stake is a protocol used by cryptocurrencies such as Peercoin, Blackcoin, Nxt, and many others. The protocol allows users with the highest stake (the most invested) in the network to validate transactions and create new blocks. This is different than proof of work, where miners must solve difficult problems to create new blocks. With POS, there is no need for expensive mining hardware because anyone can become a validator by simply holding coins in their wallet.

Proof of Stake Algorithm

Proof of Staking is a consensus algorithm that allows a blockchain to achieve consensus fairly and democratically. In PoS-based blockchains, the creator of the next block is chosen in a deterministic way and is based on the number of coins held by an address. The proof of stake algorithm is the name of the consensus algorithm used by the Ethereum network. The main point behind choosing to use this algorithm was to avoid wasting electricity, as is the case with the proof of work consensus algorithm. For a cryptocurrency to be considered a valid one, it must have a consensus algorithm: an algorithm that determines which version of the blockchain to accept and which one to reject. Many algorithms can be used to achieve consensus, but Ethereum chose the proof of work approach.

How does Proof of Stake Work?

Proof of Stake (PoS) is a type of algorithm by which a cryptocurrency blockchain network aims to achieve distributed consensus. In PoS-based cryptocurrencies, the creator of the next block is chosen via various combinations of random selection and wealth or age (i.e., the stake). In contrast, the algorithm of proof-of-work-based cryptocurrencies such as bitcoin uses mining, where the chain with the most cumulative work is chosen as the main chain. While consensus is weakly dependent on the chain length in PoW cryptocurrencies, it is dependent on the consumed stake (i.e., coins) in PoS.

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