Producing cryptocurrencies instead of buying them is possible thanks to mining pools!
You’ve surely heard of cryptocurrencies, or related terms like Bitcoin, blockchain, or Ethereum. Some people may have told you you need to buy it. But did you know that it is possible to produce your crypto-currencies!
The production of crypto-currencies or mining of crypto-currencies is an activity that is little talked about and quite complex to assimilate at first glance. However, this industry has a primary and vital role in the existence and sustainability of cryptocurrencies and what is called the blockchain.
What are cryptocurrencies?
Before turning to cryptocurrency mining and its principle and operation. It is important and interesting to explain the basics of cryptoassets.
If you are still wondering what cryptocurrencies are and what they do, don’t worry, it’s still not too late to get started. After all, we are still at the beginning of this whole adventure and are still a long way from mass adoption by the general public. In any case, the following lines should be of great interest to you.
Cryptocurrencies are digital assets that aim to be a medium of exchange between two thirds. They are issued peer-to-peer and use the principle of cryptography, which is a discipline designed to protect user privacy while ensuring the authenticity and integrity of the request. They are also the spearhead of the cypherpunk philosophy, a movement whose goal is to ensure privacy through the proactive use of cryptography.
The first cryptocurrency that emerged in 2009 and is the now famous Bitcoin. Since that date, new crypto-currencies have emerged such as Ethereum, Litecoin, Monero, Dash, Ripple, Beam or even Grin. Today, there are thousands of them and their particularity is to use decentralization both in its governance and in its operation.
Decentralization is a process by which the activities of an organization or industry are distributed or delegated out of an authoritative central location or group. Planning and decision-making is then done through horizontal governance, that is, no one is above anyone else and no opinion prevails. Decentralization can be applied in private business, in politics, in public administration and of course in the economy, money and technology and this is why cryptocurrencies use decentralization.
They are an alternative and a solution to the centralized world of finance run by banks and governments. It’s also a great way to bypass the interference of intermediaries in our private exchanges. The integration of cryptocurrencies into a decentralized network is done through blockchain technology.
What is blockchain?
Blockchain is a technology that establishes a complex decentralized system that allows data and information to be transmitted transparently, securely and above all anonymously. This makes it possible to be the ideal infrastructure for cryptocurrencies in view of respecting the principles of cryptography and the cypherpunk philosophy.
Thanks to the contribution of crypto-assets, a blockchain or blockchain becomes a veritable digital and decentralized book of accounts. This account book records all crypto-asset transactions and the information is available for all to see while respecting the anonymity of the parties included in the transaction.
A crypto-asset transaction works this way. When user A wishes to transfer cryptocurrencies to user B. The transaction information will be entered into a hypothetical block, which will group together many pending transactions. In order to verify the integrity and validity of the transactions of this block, the information will be transmitted to decentralized machines located around the world. These servers will therefore do work to prove that the transactions are legal and non-fraudulent, this is called proof of work or in English, Proof of Work. Once the proof of work is completed, our hypothetical block is finally validated and can be added to previous blocks and so on and this forms a chain of blocks, hence the name blockchain.
If you want to find out more about blockchain, we invite you to consult
Now that the basics are established, it is high time to question the production of crypto-currencies or crypto-currency mining.
What is cryptocurrency mining?
Cryptocurrency mining is about providing support to a cryptocurrency’s decentralized network. In fact, for the decentralized network to function, servers are needed. These machines have to be owned by various people, like you and me, all over the world for them to be decentralized.
Previously, we explained to you that in the operation of a blockchain, decentralized servers check the integrity and validity of transactions and therefore of blocks. Well, this is the activity called cryptocurrency mining! Indeed, in addition to ensuring the sustainability and existence of the blockchain, miners (people mining cryptocurrencies) ensure the validity and integrity of transactions that are included within the blockchain. In fact, decentralized machines are more commonly known as mining rigs. So you will understand, it is thanks to the mining carried out that a blockchain and therefore cryptocurrencies can work.
Because of their role and their work on the blockchain, miners are therefore rewarded in crypto-currencies! And, so this is how you produce your own cryptocurrencies! The more decentralized servers you have, the more mining rigs you have, the more power you will have allocated to transaction verification (called hash power or hashrate), the more important you will be for the blockchain and the better your crypto-asset remuneration will be.
Nonetheless, it is difficult to profit from this activity if you mine alone. At first, because you will be in competition with all the miners in the world and it will be the first to solve the proof of work of the next block which will be rewarded. Secondly, mining crypto-currencies allows you to receive income in crypto-assets, but this activity is not free, you have to buy equipment and especially pay the electricity costs which are not at all neutral .
Because of these issues, some players are interested in a solution to solve them. And one of those solutions is the mining pool.
What is a mining pool?
A mining pool is a service that brings together miners under a single entity. The goal of coming together under one force is to be able to more easily resolve the proof of work and thus receive the reward in cryptoassets. As a result, the remuneration of minors will therefore be much higher than if they acted alone.
But concretely, how does it work? Take the example of Cruxpool, the leading French mining pool.
When a miner with multiple mining rigs wants to mine Ethereum. He goes to the mining pool site where he will find a connection link to start. This link is what allows users to connect under the same infrastructure as Cruxpool. The machines are then all combined to form a single one.
Once the link is retrieved, the miner will integrate it into their mining software. To put it simply, the software is what allows you to launch your machine in mining mode. In particular, he will have to enter information, such as the name of his machine, the address of his wallet (the equivalent of the RIB but for crypto-currencies), as well as other parameters.
As soon as this is done, that’s it, the mining rig begins its mining! The decentralized machine will perform the mathematical solving work imposed by the blockchain, as soon as it finds one, it will share it with the mining pool. This is called a share. Following its sharing, the mining pool will remunerate the miner for his work effort and those for each share found. In addition to that, when a miner connected to Cruxpool finds a block, i.e. resolves the proof of work and a block is added to the blockchain, the mining pool will then receive the reward for the success of this operation. This reward will then be shared between all the miners connected to Cruxpool.
In short, a mining pool is an intermediary much like a cooperative. It facilitates work and provides much more financial guarantees (much more income and much more stable) and therefore allows better profitability for minors.
So, are you interested in mining?
Are you interested in crypto-currency mining and want to get started? There is still a long way to go and there are a lot of things we haven’t covered here! For example, the equipment used (the mining rig) or the resources useful for mining, such as mining software, crypto-currency portfolios (wallet). There are many sites or videos that address these topics. These will facilitate your learning and understanding of these new technologies!