Mining is essentially the operation of the Blockchain, by verifying the transactions and adding more blocks to the chain.
Crypto currency miners use computer power, to package transactions into blocks and link them to the blockchain, securing the network against external tampering.
There are different mining systems for different cryptocurrencies.
The 2 most popular systems are :
- Proof of work
Miners solve a cryptographic puzzle to determine the nature of the upcoming block. The block is added to the chain of the answer is correct. This is the system that is used by Bitcoin.
- Proof of stake
This involves asking coin owners to hold special wallets holding coins online. The coins in their wallets automatically interface with the network and mine new blocks. Ethereum will be using this system soon.
Crypto-currencies offer miners rewards to encourage them to dedicate their computer power to the blockchain.
The reward is often newly created coins of the type they have just mined or their transaction fees will be paid by everyone whose transaction was packaged into the newly mined block.
Some currencies will use proof of work or proof of stake and others will switch between them or use variations of either.
Pay attention to the mining system when you are researching a currency as this affects coin prices.
Higher mining rewards can mean more inflation and declining coin value.
Often, an indication of an upcoming switch to a different mining system might drive prices upwards, as everyone starts buying coins to mine with after the switch.
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