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Cryptomining

By: Jennifer Seaton | Reviewed by Kuntal ChakrabortyCheckmark | Last updated: April 19, 2021

What Does Cryptomining Mean?

Cryptomining is the process of validating cryptocurrency transactions. The foundation of cryptocurrencies is distributed public ledgers that record all financial transactions. The records are saved in the form of blockchains. Each transaction is linked to the subsequent transaction creating a chain of records. The records are linked using cryptographic hashes.

Because the ledger is public, a record needs to be validated before being added to the ledger. Otherwise, it would be too easy to forge fraudulent payments. Cryptocurrencies use Proof-of-Work (PoW) as a security measure.

In order to post a transaction to the ledger, a problem that is difficult to solve, but easy to verify must be computed. The problems are computationally complex and require brute force to solve. A network of computers will compete to solve the problem first. This process is called cryptomining.

The computer that solves the problem first earns the right to post the transaction to the ledger. The goal is to make the cost of solving the complex problem higher than the gain of posting a fraudulent transaction. The benefit to the cryptominer is that for every transaction posted, the winner receives a small reward. The reward is often a combination of a fee associated with the transaction and newly created cryptocurrency.

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Techopedia Explains Cryptomining

Cryptomining was introduced in 2009 when Satoshi Nakamoto, (which is a pseudonym,) invented Bitcoin. Bitcoin was the first implementation of a decentralized cryptocurrency. Nakamoto implemented cryptomining PoW to secure the public ledger.

Since then, miners have competed to create faster and cheaper mining machines. As the competition within mining has increased, more complex problems have been created. The mathematical problems used for PoW are designed to be nearly impossible to solve without using brute force. Brute force requires the computer to try multiple combinations of solutions until by chance one solution works.

One of the most well-known PoW functions is called Hashcash. It is based on SHA2 cryptographic hashes. Hashes are encryptions that are easy to verify if you have both the key and the message, but nearly impossible to solve without a key. Full hash inversions have 2255 different possible solutions, which is difficult to feasibly solve with brute force. Hashcash uses partial hash inversions to create the PoW problems.

Although anyone can mine for cryptocurrency, the hardware and energy requirements to be competitive are a big barrier. The energy requirements are so great that some energy companies use some of their resources to mine for cryptocurrency. In fact, as of 2019, the energy used for Bitcoin mining equals the energy consumed by the country of Switzerland!

As with any money-making venture, eventually a criminal element will find a way to exploit it. With cryptomining, cybercriminals have devised ways to use malware to mine using other peoples' networks, a method called "cryptojacking." This can result in slower, less efficient computing power for the network's actual use, damage to equipment not designed to process the level of work required to mine and a staggering power bill for the victim.

Because the high hardware and energy requirements are a barrier for some to engage in cryptomining, cloud mining services are now available. Cloud mining allows a person to pay to rent a mining machine, called a rig. The renter is allowed to keep any cryptocurrency the rig mines over and above the cost of the maintenance of the rig.

Laws governing cryptomining vary internationally. In some juristictions, the mining itself is legal, however obtaining a permit to draw the amount of power needed can be difficult or impossible to obtain. leaving a bit of a gray zone. Experts advise not to operate in any of these "legally dubious" areas, as you could end up facing major consequences.

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Synonyms

Cryptocurrency Mining

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Artificial Intelligence (AI)Technology TrendsBitcoinBlockchain

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