For most cryptocurrency users, it is not necessary to learn and understand the ins and outs of crypto mining. Nonetheless, it is important to understand that there is a process that creates any virtual currency.
These coins are not pulled out of thin air. Unlike traditional currencies, which are printed, there is also a method for creating cryptocurrencies. To complete the process, mining requires the help of a miner. Anyone can become a miner. Coins are created when miners process blocks of transactions. These blocks are compiled transactions lists made every few minutes or other period. This is what makes cryptocurrencies different from any fiat currency out there. You have to understand that miners are essential components of any cryptocurrency. Miner, when mines new block and add it to blockchain gets reward for certain amount of coins and this is how coins are created. It is the only way to release new cryptocurrency into circulation.
So, basically, miners process blocks of transactions, and get reward for that.
When new block is mined and added to Blockchain all other nodes get this information and synchronize with each other. That means that transaction history in the block is written in whole coin network. Every time another block gets generated and added on top of last block, it counts as another ‘confirmation’ for the every block beneath it. So, new blocks that are generated confirm previous block – every transaction in previous blocks get new ‘confirmation’.
Mined coins can be spend after certain number of ‘confirmations’. Also, all transactions are marked as valid after certain number of ‘confirmations’. For example, DinkyCoin transactions need three ‘confirmations’ and mined coins must mature four confirmations before they can be used.
For example, if my transaction is included in block 101, and the blockchain is 108 blocks long, it means my transaction has 7 confirmations (101–108). Here is an example of blockchain https://coinshub.one/dinkycoin-blockchain/.
Every time a new block is added to the blockchain, all miners will have to start over again forming a new block – start mining again. First miner that solves problem and creates new block, gets miner reward, and that block is added to blockchain.
Since the computations require advanced technology and powerful processing, they use their computers or specific hardware miners like these – futurebit.io.
Also, every cryptocurrency is completely decentralized network that depends on nodes and wallets that are synchronized. Nodes form the infrastructure of a blockchain. They store, spread and preserve the blockchain data, so a blockchain exists on nodes. A node is coin daemon running on a device like a server or computer that contains a full copy of the blockchain – transaction history. Nodes are usually working 24/7 and they are mining – confirming transaction blocks. Anyone can setup coin nodes or wallets and support any coin network. Every node has all coin wallet functions.
Nodes – server daemons and wallets can be modified if someone has coin source code but these modified nodes and wallets mostly won’t synchronize with main network and will create separate network. Coin wallets and server daemons are updated now and then with ‘checkpoints’, hardcoded hashes of certain blocks, so no one can alter our blockchain by mining our coin on separate isolated nodes and altered code creating complete new blockchain with complete new blocks that are not same as on our main – original network – that is so called 51% attack. Our nodes with ‘checkpoints’ coded stay safe and won’t sync with altered version of blockchain. More on that topic on Our Forum.
Our coins wallets have built-in CPU miner and coins can be mined without any third party software without any effort. Then miner – You, get miner reward to Your wallet. You must know that server daemons act as nodes and basically synchronize network. Also server daemons are commonly set up to mine coins, so they will be nodes that are actively generating coins and confirming blocks. Nodes must be connected to other nodes and then are synchronized.
If one node goes offline it will synchronize with network when goes online again if it is connected to other nodes. An entire blockchain can theoretically run on a single node, but since it would be stored on only a single device, it would be extremely vulnerable data loss. Even if all nodes go offline, it only takes one node with the full blockchain history to come back online to make all the data accessible again.
PC wallets are connecting to list of nodes to synchronize with network to stay updated. PC wallet also can be easily set up to run as a daemon to act as a node, but must be on static IP address or domain. Server daemons do not have graphical interface as PC wallets but they both have same functions and do same thing.
Scrypt is used in many cryptocurrencies as a proof-of-work algorithm.
Our Coins use the Scrypt algorithm. One of the biggest differences between a Scrypt miner and the others is that Scrypt relies on computing resources other than the processing unit itself. Scrypt favours large amounts of high-speed RAM, rather than raw processing power alone. It operates within the proof-of-work consensus mechanism, where a miner is required to solve a hash function in order to add a block the blockchain.
Proof of Work promotes fairness in the network and better distribution of coins throughout the community. Proof of Work Mining gives miners a proportionate reward based on the computational power they put into the network.
Large memory requirements of Scrypt come from a large vector of pseudorandom bit strings that are generated as part of the algorithm. Once the vector is generated, the elements of it are accessed in a pseudo-random order and combined to produce the derived key. A straightforward implementation would need to keep the entire vector in Random Access Memory (RAM) so that it can be accessed as needed.
In this case, a cryptocurrency miner must successfully solve the Scrypt hash function on the coin protocol in order to be able to add the next block, and to be rewarded for it. Both hash functions are computationally intensive as they both require raw computational power in order to generate a large number of possible solutions for their respective functions. Scrypt is memory intensive because as well as being able to generate numbers rapidly, these generated numbers are stored in the RAM, which needs to be accessed continuously before submitting a result. In terms of overall hashing power, Scrypt based protocols have a lower hash rate than other based protocols.
This process is actually not defined as a mathematical problem, but rather as a deterministic thing — computers are performing pre-determined operations on a number to see if the output is desirable.
Mining cryptocurrencies that use Scrypt is often performed on graphics processing units (GPUs) since GPUs tend to have significantly more processing power (for some algorithms) compared to the CPU.
While it takes up more memory than its counterparts, the fact that it uses less energy makes it more attractive. For GPU mining you will need Scrypt mining software that supports GPU mining. It can be downloaded for free.
So, mining process add new transaction blocks to blockchain, verify transactions and make transaction confirmations. For every Block Mined Miner gets reward and that how coins are generated.
Coins Blockchain record past transactions and allow anyone to view the history for transparency purposes. You can check out how one blockchain looks like, with all blocks listed and all transactions ever made for certain coin – from ‘Genesis’ block till last one generated.
DinkyCoin, for example generates about 240 blocks a day, randomly, every 6 minutes, and miner is rewarded with 1000 coins for mining the block. Block mining reward halving is every 5 000 000 blocks.
Taking note of the volume of the cryptocurrency in circulation is also essential, as well as the number of transactions made using the same coin.