Bitcoin And Cryptocurrency Mining Misconceptions: Things You Should Know
Cryptocurrency mining is the process through which Blockchain miners develop new digital coins and transactions. The miners participate in the process by trying to solve a difficult cryptographic problem which allows them to add new blocks that contain transactional data to the Blockchain.
After adding a new block to the Blockchain other miners will check if the new block is valid or invalid and reject the block in case of invalid transactions. In case the block contains valid transactions; other miners accept it and add it to the Blockchain.
Below are the most common cryptocurrency mining misconceptions that you need to know in case you are interested in cryptocurrency mining.
Block Rewards In Cryptocurrency Mining Will Never Get Depleted
Block rewards act as an incentive to motivate miners to participate in the mining process by contributing their hashing power and add transactions to blocks in the Blockchain network.
As a result, block rewards are essential factors to the cryptocurrency’s economic structure since they encourage miners to join the Blockchain network to process transactions that create new coins and also invest in the cryptocurrencies produced.
However, they are used to assist the network to be self-efficient and therefore they will be unavailable after meeting the total coin supply.
The value of mined Cryptocurrencies is based on the power expenditure
Since ineffective mining arrangement may take longer to solve cryptographic puzzles; basing the value of mined cryptocurrency on the cost of power consumed in the process is not correct. Therefore the value of mined cryptocurrency may be higher or lower than the cost of electricity used to mine it.
Cryptocurrency Mining Is an Illegal activity
A lot of people believe that cryptocurrency mining is unlawful. However, this is not correct since there is no country with existing laws that prohibit trading or mining cryptocurrencies. It is difficult to control the use of cryptocurrencies because they are not controlled by any group or individual or affected by regulations from any jurisdiction.
Your Computer Is At Risk during Cryptocurrency Mining
Most people usually believe that using your computer to mine Cryptocurrencies exposes it to a higher risk of getting damaged. Cryptocurrency Mining utilizes the entire processing power of the computer used for an extended period of time. Although this is not recommended as it affects your machines’ durability, it is not different from running most gaming and graphics software on your computer.
You will only require having an effective cooling system on your computer and always monitor the machine to ensure it does not overheat. Also, ensure the machine operates in a well-aerated room which is free of dust particles; this will keep the machine in good working conditions for a longer period of time.
Every Recorded Transaction Permanently Stays On The Blockchain
Every node in the network stores the entire Blockchain’s transaction history; this requires a large storage space since the transactions are being processed as time progresses. Therefore, the size of the Blockchain will soon be larger than the available storage space making it difficult to keep all the records.
In addition, users are required to download the Blockchain’s data to allow them to send or receive cryptocurrency payments using cryptocurrencies stored a cold wallet. This would make the process very slow and inefficient in case one has to download large amounts of data.
The blockchain is a distributed network of computers
Most people think that Blockchain is a distributed network of computers with every node in the network carrying out its specific function. However, this is false since each node that connects to the Blockchain network performs the same functions i.e. verifies similar transactions using the same rules and generate and stores similar records or history.
Cryptocurrency Miners Provide Network Security And Stability
Though people believe that cryptocurrency miners provide network security and stability in the Blockchain network, this is not entirely true as they tend to hinder other miners from accessing and mining cryptocurrencies. As a result, there is a high risk of a single miner controlling more than half of the computing power used in mining thus allowing them to add an invalid block that compromises the Blockchain network.
A compromised Blockchain network may allow some people to spend their cryptocurrency coins multiple times; this is contrary to the concept of smart contracts which is intended to mutually benefit all parties. It will also affect the stability of cryptocurrencies as users will duplicate their spending which may lead to a decrease in the value of the digital currency as investors will lose their trust.
Cryptocurrencies Exist As Real Digital Coins (Items That Can Be Collected)
A lot of people think that cryptocurrencies exist as real digital coins (items that can be collected); this is not correct since bitcoin or cryptocurrency exists as a transaction record on the Blockchain network. Cryptocurrency miners are given block rewards in the form of new Bitcoins for solving puzzles in the Bitcoin Blockchain; these new Bitcoins (block rewards) are valid transactions that are recorded in the Blockchain network.
The Blockchain technology (e.g Bitcoin and other cryptocurrencies) is becoming increasingly popular as it is being embraced in various industries. However, a lot of people remain uninformed about the Blockchain technology and how it works. Cryptocurrencies such as Bitcoin use Blockchain’s technology to connect nodes that form a distributed peer-to-peer network that allows users to store valid transactional records in data blocks. These data blocks are impossible to change and are accessible to all nodes in the network.
Cryptocurrency mining is one of the methods through which one can acquire digital currencies. However, it is a difficult process that consumes a lot of resources such as special hardware machines to use in mining, electricity, time and also require advanced computer skills. As a result, it is not possible for most people to carry out the cryptocurrency mining process. in case you wish to participate in cryptocurrency mining process consider reading this article to gain more information about the subject and also understand some common misconceptions about bitcoin and cryptocurrency mining.