What Is Crypto Mining and How Does It Work?

By Nick Marshall


One of the defining features of the DeFi revolution is the way transactions are processed through a decentralized ledger instead of by a centralized financial institution (ie. bank). That requires legions of network computers to verify and record each trade. They are referred to as crypto miners, and the work is as energy-sapping as conventional mining in terms of processing power. 

What Is Crypto Mining?

A simplified definition of crypto mining is creating new cryptocurrencies by solving puzzles. The first computer to solve the puzzle and submit “proof-of-work” validation collects a reward. Since no single computer or financial institution can monopolize the process, crypto mining provides transparent transaction verification and eliminates double-spending or fraud. Here’s what’s going on behind the screens…

How Crypto Mining Works

There is no central authority for transaction processing in blockchain. Every time cryptocurrency coins change ownership from one wallet to another, the transaction has to be verified and recorded on the distributed ledger. To do that, cryptocurrency miners download the complete history of a blockchain and assemble the valid transactions into a block. Only verified miners can validate transactions. A new block cannot be verified and added to the chain until the crypto miner has solved the hash function, the fixed-length hexadecimal number that validates the new block. In principle, it’s the same as cracking a password, but without knowing how many characters are required. Whichever miner comes closest receives a reward in cryptocurrency, and the new block is added to the chain. 

Cryptocurrency mining is not a community service. It’s a fiercely competitive business spanning individual miners to huge mining farms worldwide

What Do You Need to Mine Crypto?

Each of the different types of cryptocurrency presents its own level of difficulty and profitability to the miner. You can see a snapshot of the current league table on sites such as CoinWarz. What all currencies have in common, however, is that they require an awesome level of computing power to mine. To solve the algorithm, computers need to generate hashes at either megahashes per second (MH/s), gigahashes per second (GH/s) or terahashes per second (TH/s) speeds. A standard laptop computer won’t suffice (even though standard CPUs were enough in the early days of bitcoin). Today, crypto miners need a set-up with an Application-Specific Integrated Chip (ASIC) or similar, strong internet connection and cooling hardware (mining is hot work). It’s not a hobby. Just getting started in crypto mining can cost thousands of dollars in hardware. 

One way miners can overcome the financial barrier to entry is by joining a cloud-mining pool where resources and profits are shared. 

The Evolution of Crypto Mining

Some aspects of cryptocurrency haven’t changed since the launch of Bitcoin in 2009. The blockchains behind crypto still require a decentralized consensus to verify the integrity of new blocks. But the complexity of the challenge and the raw power required to solve the algorithm have increased steadily by design. To prevent any single computer from dominating block verification, the puzzle becomes harder as more computers join. In Bitcoin, for example, the difficulty increases every 2,016 blocks. It stands to reason. As more players enter the crypto-mining arena, the algorithm has to raise the bar continually to stop the giant mining operations from dominating. 

Is Crypto Mining Safe?

In terms of the cost and power required to operate, crypto mining provides a built-in deterrent to threat actors who want to manipulate a currency. It is not impervious to cybercriminals, however. So-called “cryptojacking” attacks are increasingly common, with criminals sharing malware designed to steal personal identifiable information or turn network machines into zombies. McAfee estimates that 50 out of every 100,000 devices could be at risk. 

Malicious code isn’t the only risk to the potential miner. There’s a financial one too. The costs of getting involved in mining are high, but there’s no guarantee of earning rewards, or that the value of a particular cryptocurrency will remain stable. As more miners join the network, the rewards for completing a block diminish. Meanwhile, the competition from the big mining farms grows. The top 0.1% of miners control 50% of mining capacity, suggesting perhaps that decentralized currency has more in common with conventional banking than it may want to admit. 

Whether you mine or you’re a crypto user, one way you can protect your wallet is through TransitNet, the first offchain title registry. Proving ownership of crypto assets is no less important than proving the validity of a transaction. Find out today how to secure your crypto wallet. 


Investopedia – Bitcoin Mining Definition

Techopedia – What is Cryptomining? – Definition from Techopedia

Sunbird – Largest Bitcoin Mining Farms in the World

CoinWarz – Cryptocurrency Mining Profitability Calculator

McAfee – Bitcoin Security: Mining Threats You Need to Know

Webopedia – Cryptocurrency Mining