Digital currency mining, through SHA-256 for Bitcoin, Scrypt for many other currencies, and a plethora of other algorithms that have been developed, is a growing industry, with Bitcoin mining, and Scrypt mining, machines being created that cost $10,000+.
Why Do People Mine Digital Currencies?
Mining is the primary method for transaction processing, recording, and security for most digital currencies, as well as the method in which new coins are created. This is not true for every digital currency, but is central to the vast majority.
The Digital Currency Mining Process Block Generation
So, to start understanding what mining is, one must first understand how a block is generated. A block is simply a list of recent transactions that needs to be processed, recorded, and added to the public ledger known as the Block Chain. This is the central goal of a miner.
The way this is completed is complex, but the non-technical way to look at it is this: Computers run a program that attempts to guess the solution to a nearly incalculable problem. This is necessary for the security of the network, as it creates a need for work to be done in order for a miner to have a chance of obtaining bitcoins.
Mining difficulty causes the network to accept any answer that is less than a certain value. This difficulty is adjusted, based on the speed that recent blocks were solved, so that the rate at which blocks are solved remains stable. As the processing power of a coin’s network goes up, the maximum value accepted (the target) becomes smaller.
If the processing power goes down, the target is increased. The Bitcoin difficulty is currently at a level that dwarfs all other currencies, and is measured on the level of petahashes per second at this point. Proof-of-work Proof-of-work is exactly what it sounds like.
It is a method designed to protect the system by requiring miners to prove that work was completed, and is the basis for most digital currencies. The way this is accomplished is through the above-mentioned hashing method. 99bitcoins.com