A Complete Guide for Mining Bitcoins & Other Altcoins

Coinpursuit’s guide to mining digital currencies like bitcoins, litecoins & other altcoins. Visit today to learn more about the mining process.

Since digital currencies are decentralized—which means they aren't controlled by any bank or governmental agency—it's natural to wonder how all the transaction information that pours in on a daily basis is processed. There are no clerical or data entry “employees” assigned the task, so how does it get done? Since currencies are owned collectively by the people who invest in them, the processing of the information that keeps the currencies dynamic and valuable is undertaken by those investors, as well. This information processing is called “mining,” and the investors doing the work are—logically enough—called “miners.” For the majority of cryptocurrencies, taking part in the mining process isn't required in order for you to invest, but nonetheless many investors do like to play an active role in mining because doing so not only creates new coins, but there are usually rewards for miners who successfully process blocks of data.

The accompanying articles in this section will be geared toward those looking for a better understanding of the mining process. Generally speaking, mining is used for three essential purposes:

1. Processing of transaction data. This assures quicker confirmation times and turnaround—ideally, this needs to happen as quickly as possible, so customers and vendors aren't waiting around for a transaction to be finalized. However, many industry experts consider transaction times that are too short to be a security risk; it's a delicate balance between speed and security.

2. Heightened security of transaction data. Each data block that is mined after the block containing a transaction's original information adds another layer, or “generation,” of security to that transaction. If you hear someone say, “Six generations of data security,” that means that six data blocks must be mined after the one containing the original transaction information before that specific transaction is considered fully and officially secure.

3. Generation of new coins. For most digital currencies, this process will continue for the foreseeable future; however, in the case of currencies with minting caps (a limited number of total coins that can ultimately be created), new coin creation will eventually stop. However, mining will still be necessary even after the minting cap is reached, because transaction data will still need to be verified. The function of mining new coins is where the term “mining” comes from, comparable to the mining of silver or gold.

As you can see, mining is critical to the security and fiscal vitality of digital currency, and investors are encouraged to take part in the process. They can be rewarded for their efforts in two ways: first, most cryptocurrencies offer “block rewards,” which are a given number of coins rewarded to the miner or miners who successfully process a data block; second is a percentage of the transaction fees contained within the block that is rewarded to whoever mines it. For cryptocurrencies with minting caps, the transaction fee rewards will, over time, become much more important, because once the minting cap is reached, the transaction fee rewards will become the only income incentive for mining—there can be no newly-minted coin rewards if no new coins can be minted. In most cases, however, this transition isn't expected to happen for many years.

We'd like to take a moment to address the “get-rich-quick scheme” reputation that cryptocurrency mining has gotten. Yes, mining offers the incentive of some supplementary income in the form of earned digital currency; it's a nice incentive for investors who devote their time and energy to the process. However, there are those in the industry who portray mining as a way to earn huge amounts quickly, and with little effort. We at Coin Pursuit would like to let our readers know that—except in very rare cases—it's just plain not true. In order for mining to generate the kind of income some folks are promising, it would involve large expenditures of time, resources, energy and money—not to mention the need for special hardware and devices designed solely for the task. Mining is a great way to take an active role in a currency you believe in—but take our advice, and don't quit your day job and replace it with mining. It's one of the biggest fallacies in the digital currency field—and we'd like to warn our readers away from such misinformation.

Now that you have an overview of what mining is—and its importance to the industry—join us as we take a closer look at some of the other facets of the digital currency mining process. As always, Coin Pursuit's digital door is open to our readers; we love to hear from you, and we welcome any input, questions or suggestions you might have for the improvement of our site. Meanwhile, let's explore some of the topics that are relevant to alternative currency mining.

Next Mining Topic: Data Blocks

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