Cryptocurrency Mining: What is it? How does it work?

Cryptocurrency Mining: What is it?

Cryptocurrency mining is the process by which new currency units are put on the market, in exchange for which users must confirm transactions and add them to a blockchain.

This system incentivizes users to continually update and secure the network, in exchange for cryptocurrencies like Bitcoin. Anyone with a computer and an Internet connection can mine, but this operation is not always profitable. Depending on the currency mined, the capabilities of your computer and the electricity used, you may or may not be able to mine profitably.

In the case of Bitcoin, mining is a real lottery. Any company or person wishing to mine a cryptocurrency will have to take part in a race in order to solve a special code as quickly as possible, which will confirm the transaction and update the blockchain with many details. The winner will then get Bitcoins.

How to invest in cryptocurrency?

Today, you can buy and sell cryptocurrency on exchanges like Binance, Coinbase Exchange, or Huobi Global. Many of these platforms charge fees (which can reduce your profits!) for transactions.

You can buy some cryptocurrencies with euros and others only with cryptocurrency. Bitcoin, for example, gives you both of these options. To start trading cryptocurrency, create an account on an exchange. You can then buy crypto currencies with real money.

Some platforms provide a “custodian” wallet, which does not allow you to obtain private keys, to store your purchases and currency exchanges. Please note: in most cases, the platform holds the private keys of the wallet. So be sure to trade securely if you plan to store your cryptocurrency in such a wallet.

Is investing in crypto currencies risky?

Yes. Very risky.

If you invest in a single cryptocurrency, the risk is concentrated there. To reduce it, you can buy a portfolio of different cryptocurrencies through an exchange-traded fund (ETF). You can then invest in different currencies, although the process is not always “safe”. The entire cryptocurrency ecosystem is volatile and not a safe long-term bet. So think carefully before investing all your savings in it.

How does cryptocurrency mining work?

Let’s solve the mystery of cryptocurrency mining! The term isn’t quite right, as it’s not just about getting or “mining” new coins. Cryptocurrency mining serves two purposes: to generate new cryptocurrencies (for this the term “mining” corresponds perfectly), and to verify the legitimacy of cryptocurrency transactions on their blockchains.

So, when a Bitcoin miner completes the verification process for a block of transactions, they receive compensation. But what exactly does he get? Brand new bitcoins; which comes to bail out his wallet, and increase the total number of bitcoins in circulation.