Mining is one of the most important steps in the creation of cryptocurrencies, the basis of the blockchain, and one of the terms that comes up most often when talking about news in the sector. But what exactly is mining?
” Mining bitcoin requires energy “,” Ethereum miners are more and more numerous »… In the world of cryptocurrencies, ” undermine Does not mean digging the earth, or extracting coal. The term relates to a crucial step and a fundamental principle of cryptocurrencies. It is the act that ensures the integrity of the blockchain, creates new cryptocurrency units, and makes the entire crypto ecosystem work.
But, concretely, what is mining? And what exactly is going on?
What is a blockchain?
Before answering questions about mining, you need to understand how a blockchain works.
To put it simply, a blockchain is a kind of shared virtual journal, which records all the interactions of all participants in the journal. Anyone can write in the journal, and everyone has the same version. None of the participants has more authority over the keeping of the journal than the others, and it is not hosted in only one place, because everyone has a copy. This is called a decentralized system.
A decentralized system has many advantages, including the fact that no one has the upper hand over others, that the security is guaranteed by the large number of blockchain users, and that the system is transparent. Nevertheless, such a decentralized system must respond to major problems: how to ensure that all the participants in the journal write the same things in it? How can you be sure that the journal has not been tampered with? In order to guarantee the security of the blockchain, an information verification step has been put in place: it is this particular step that will allow mining.
What are we talking about when we talk about mining?
Mining refers to the process of validating transactions made on a blockchain (or, to take the example of the newspaper, the sentences entered there). ” These transactions are validated by group, or by block, explains Claire Balva, director of blockchain and crypto sectors at KPMG, interviewed by Numerama. The minors are then put in competition with each other by the system to know who will have the right to validate them.. »The validation of these operations is a key step for blockchains, and the process is referred to as the “consensus protocol” : this is what makes sure that all the registers have the same version.
There are different consensus protocols: the two most used are proof of work (which concerns bitcoin, and many other cryptocurrencies), and proof of stake (Ethereum is preparing its transition to this model). If there are other protocols, they are not as widely used, so this article will only mention the case of these two systems.
Mining with proof of work
In a blockchain using a proof of work protocol, you have to answer an equation to be able to validate the transactions. ” It is a complex equation, continues Claire Balva, therefore the minors competing for validation must test a lot of possibilities. They will have to use the computing power of their computers to do this – this is one of the reasons why the Bitcoin network consumes energy. “
At one point, a miner will succeed in finding the correct answer to the equation. This answer is very difficult to find, but it is easy to verify if it is correct. ” It’s as if you were standing in front of a building door, without having the code to enter, explains Claire Balva. The code is hard to find because you have to try many combinations. But once we have found the right one, it is very easy for everyone to verify that we have the correct answer.. ”
From the moment a transaction block is validated, the miner who has found the answer to the equation will be rewarded for his work with cryptocurrency units: miners receive 6.25 bitcoins per validation on this blockchain.The act of mining therefore allows the creation of new cryptocurrency units.
The hashrate and its impact on mining
Theoretically, all miners can validate the blocks, but in fact, the computing power (also called hashrate) required is such that today only professionals can do it. This difficulty is due to one of the main characteristics of bitcoin: a new block is mined every ten minutes. This number was decided by Satoshi Nakamoto, the creator of bitcoin, and is written into the blockchain code, so it’s a constant for miners.
How to ensure this frequency of 10 minutes? ” By adjusting the difficulty of the equation to the computing power that is on the network ”, says Claire Balva. Concretely, the hashrate has continuously increased since the beginnings of bitcoin, and the calculations have therefore become more difficult over time. But the reverse is also true: when the hashrate drops, the equations adapt.
This is what happened in July 2021, when the majority of mining farms in China had to close, thus depriving the network of their computing power. At that point, the difficulty of the equation dropped by 28%, to make sure that computers didn’t take more than 10 minutes to find the answer.
The difficulty is readjusted approximately every two weeks. ” The network looks at the last blocks for the average time it took, and readjusts accordingly every 2016 blocks, so every two weeks, announces Claire Balva. If the mining of the last 2016 blocks took more than 2 weeks to be completed, the difficulty is reduced, and vice versa. ”
Mining with proof of stake
In systems using proof of stake (or proof of stake in French), consensus is not achieved by finding the answer to an equation. Instead, to validate a block, you have to put part of your cryptocurrency holdings into play. For example, on the Ethereum blockchain, it will be necessary to commit 32 ETH (i.e. more than 106,000 euros at the current price) in order to try to become a validator.
Once the miners have passed this step, “ validators will be chosen at random, is it specified on the blockchain site, and the cryptocurrencies involved will be used to ensure the good behavior of validators. For example, if a validator disconnects when creating a block or does not validate it, he may lose some of his money for harming others. »After block validation, miners will also be rewarded with ETH.
There are subtleties in the proof of stake protocol used by the different blockchains. For example, Ethereum will ask a committee of participants to verify that the validation performed is in order. The Cardano blockchain uses the Ouroboros proof of stake protocol, which divides blockchains into “slots” and “epoch”; Tezos uses a protocol that allows people who do not have enough cryptocurrency to actively participate to have delegation power.
What about stablecoins?
Stablecoins are a special case in the cryptocurrency world, and this claim also applies to their creation. The value of stablecoins is pegged to a fiat currency, like the dollar or the euro, or to a metal, like gold or platinum – unlike other cryptos, whose value is determined solely by their popularity or utility. . They work on blockchains, but they do not always have their own chain: they are largely based on that of Ethereum or Binance.
And the fact that they are not directly backed by their own blockchain changes everything for these cryptocurrencies, because their creation does not go through the same stages. Since they do not have their own blockchain, they cannot be obtained by miners as a reward for their work. Their issue is therefore managed by ” smartcontracts, established on existing blockchains, and it is these contracts that will manage their creation. There is therefore no really specific stablecoin mining. », Informs Claire Balva.
Do all cryptocurrencies have minors?
The main cryptocurrencies have their own blockchain, but others, generally the smallest or the most obscure projects, exist on chains developed by other organizations: these are called tokens.To use the very clear definition of 20 minutes, “ a ‘corner‘is a unit of value that is specific to a blockchain. One ‘token‘is a unit of value of a digital asset that does not have its own blockchain “.
Tokens have become extremely popular in recent years, as there is no need to create your own blockchain – and they require less technical means to set up. However, for tokens, ” there is no mining act »Informs Claire Balva. As with stablecoins (which are also tokens, although their name can be confusing), their issuance is handled by smartcontracts. For these cryptocurrencies, there is therefore no need for minors.