What Is Mining, And What Do Miners Do? (Article and Video)

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What Is Mining, And What Do Miners Do?

What is mining, and what do miners do?

Mining in the media is covered solely from mining cryptocurrencies, and skewed public opinion is formed from this one-sided information.

Perhaps it will be a surprise for many to find out that the receipt of cryptocurrency by miners is only a consequence of their work, and the significant result of their activities is something completely different. In the same way that doctors or truck drivers are paid for their work, miners are rewarded for performing certain socially demanded duties. We also recommend reading Noteworthy Altcoins.

The emergence of decentralized database technology, which has revolutionized civilization's ability to exchange values ​​remotely - money and rights, has given rise to a new profession, whose representatives create and maintain the infrastructure necessary for the functioning of blockchains.

In the field of mining today, everything is happening in the same way as events developed during the formation of the Internet, the appearance of which, at one time, became the first experience of contact with decentralization on a planetary scale.

The Internet infrastructure is based on servers that store all the information that we access when we connect to the network from our computers, smartphones, and tablets.

Any computer can be a node on the Internet. Still, the requirements of reliability, security, and bandwidth gradually led to the fact that the Internet nodes are specialized devices assembled in specialized data centers, which are serviced by specialized organizations.

Blockchain technology, like the Internet, took its first steps relying on the power of enthusiasts' home computers and laptops. It was enough for experiments, support for rare transactions between a few users, but not enough for the massive introduction of blockchain technologies, which is gradually becoming a trend in the IT industry's development.

Today, probably, no one has any doubts that absolutely all business processes associated with the transfer of money and rights to tangible and intellectual assets over the network will eventually be transferred to the blockchain. Banks, governments, and multinational corporations are looking closely at technology.

The number of blockchains will grow, and along with this, the need for their support - mining - will grow. The process has already begun, but the cryptocurrency market is still the driver of growth. Today's mining facilities are almost entirely involved in servicing transactions of infrastructure objects of the crypto market.

Large corporations and states, their needs for maintaining registries, can increase the number of transactions in blockchains tens and hundreds of thousands of times. Had it happened simultaneously today or tomorrow, the overload of existing blockchain networks would be inevitable.

The risks of overloading blockchain networks were demonstrated by the game CrytoKitties, the viral popularity of which overloaded the Ethereum network, and contributed to the increase in the price of gas that determines the cost of transactions.

Now it is impossible to reliably predict at what rate blockchains will multiply and on what type of consensus they will operate. Still, the very fact of the growth in demand for mining services seems to be undeniable and the birth of new forks, which need miners no less than parent blockchains.

Mining data centers are the environment for the existence of distributed databases. The commission inherent in the blockchain support reward algorithm makes the mining business one of the most profitable and reliable areas for investment.

Benefits of investing in mining

If we compare mining with a very similar business of information data centers, then the following distinctive mining features are striking:

  • constant full utilization of production facilities;
  • unlimited opportunities for business scaling;
  • The algorithms of the supported blockchains guarantee payment.

In other formulations, more traditional for the business environment, all the same, may sound like this:

  • no need to search for orders, no sales department is required;
  • the sales market is global, and its growth is accelerating;
  • There is no need to knock out receivables; payment is received automatically in the course of work.

The entrepreneurial instinct, faced with such characteristics of the mining as a business, makes you look for a catch.

Risks of the mining as a business

As in any other business, they are generating income from mining is associated with risks. Mining risks are quite specific and closely intertwined with the dynamics of the cryptocurrency market development.

Mining income is higher in a growing market and lowers in a falling market.

The growth of cryptocurrencies' rate is rapidly attracting new investments in mining, which are implemented in new computing capacities. Competition is growing, which has a direct negative impact on the miner's income.

The growing complexity of computations and aging of equipment reduces the miner's share in forming new blocks, and, accordingly, in the generation of new coins.

The cryptocurrency market's high dynamics require a miner to react quickly to changes in the parameters of supported blockchains - redistribution of data center capacities between cryptocurrencies, adding new profitable ones, and excluding cryptocurrencies that fall out of profitability.

Since the entire mining process is based on the highly loaded electronic equipment operation, periodic failure or overheating guarantees equipment downtime. The activity's financial result also depends on how quickly the miner's staff reacts to problems with the equipment.

In itself, the presence of risks is not a critical factor when deciding whether to invest in mining. The miner's ability to manage these risks is essential - the organization of round-the-clock technical support, the choice of the type of equipment that allows switching between blockchains, continuous monitoring, and forecasting of the market by the analytical service and other activities and tools that optimize work.

Probably, from all of the above, it is already possible to conclude trends in mining as a business:

  • growth in the value of economies of scale of production, contributing to the consolidation of mining data centers;
  • Development of joint-stock forms of mining financing.

Article and video for topic: What Is Mining, And What Do Miners Do?.

Author: Jonathan Burroughs