LeoGlossary: Miners (Cryptocurrency)
Miners are computers used to solve puzzles and get rewarded in cryptocurrency. These devices can be general or specially designed in nature.
In the early days, cryptocurrency mining used the CPU on any computer. That was quickly surpassed as other options arose. GPUs became popular due to the isolated nature of the chip. A CPU has many responsibilities meaning that less power is dedicated to mining. With a GPU, the opposite happens. This caused many cryptocurrency miners to shift to graphical cards.
ASIC miners ended up taking over Bitcoin. An ASIC device is one that was developed simply to mine Bitcoin. It does nothing else. These are very expensive yet are the most efficient way to mine the largest cryptocurrency. Most of the large Bitcoin mining pools are run by companies that employ these miners.
Proof-of-Work (PoW)
A blockchain that has miners is operating under the Proof-of-Work consensus mechanism. Here, a complex puzzle is solved, offering the right to add a block to the chain.
This differs in consensus as compared to a Proof-of-Stake (PoS) chain such as Ethereum.
Miners are tasked with solving a cryptographic puzzle. The miners collect all the transactions as put forth by the decentralized blockchain. Once there is a winner, that node will produce a block and push it to the rest of the network for verification. Upon this being accepted, the other computers update their ledgers to reflect the new additions.
Miners are responsible for maintaining the network and keeping track of all coins. Transactions are processed, updating wallet balances. For this service, the operators are incentivized through the payment of block rewards.
In addition to Bitcoin, Litecoin is the other well known PoW chain now that Ethereum switched to PoS.
Energy Consumption
Cryptocurrency mining came under attack in recent years due to the fact that it is an energy intensive business. Part of the security of the system is the idea that massive amounts of energy are required to take over the network. This means that a 51% attack becomes less viable the larger it gets. However, this increase in energy consumption sparked outrage by many around the world.
As more mining difficulty increased, there was a correlation at the amount of energy required to get the same amount of hash rate. To offset this, miners sought less expensive forms of energy. This often meant turning to areas with renewables.
Other than the cost of the rigs, electricity is the biggest expense a cryptocurrency miner has. For this reason, there are financial incentives in place for them to do all they can to reduce this outlay. If the mining pools can cut costs, they realize larger profits on the same revenue. This is no different than any other business. The difference is the biggest cost is for energy.
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