Crypto, Knowledge

Everything You Need to Know about Mining Cryptocurrencies

Cryptocurrencies are slowly carving a unique place in the lives of people, especially investors. The crypto exchanges are looking at plenty of new investors signing up as a user and making their first-crypto investments. Ever wondered about where these famous cryptocurrencies come from? Who makes them? How are they created? What is the process of creating new cryptocurrencies known as? We are here to answer all these questions. You may have heard of mining cryptocurrencies. So, in this article, we will discuss what it means to mine cryptocurrencies and many other aspects of them. 

What does it Mean to Mine Cryptocurrencies?

Mining cryptocurrencies refers to the process of generating and introducing new coins in the crypto market and validating their transactions. A wide decentralized network of computers around the world helps in verifying and securing the blockchains. Blockchains are ledgers that track and record transactions. The blockchain rewards the participating computers for their willingness to provide processing power to the blockchain by giving them coins. Therefore, the circle of mining cryptocurrencies keeps going. It starts with miners giving processing power to the blockchain. The endpoint which is also the starting point of the second circle is marked by the blockchain giving coins to the miners. 

Mining Cryptocurrencies: How Does it Work?

When Bitcoin initially came into existence, it was easy for a normal working computer to participate in the mining process of Bitcoin. However,  the coin became popular and the blockchain supporting it grew. Consequently, the computation power for mining Bitcoin also increased. This stole the ability to mine coins from the hobbyist miners. Now, only a group of mining companies or individuals can club their computation power to meet the required needs for Bitcoin mining. But it’s important for you to know how crypto mining works. So, here is a four-step process that generates cryptocurrencies.

Mining Cryptocurrencies
How does Mining Cryptocurrencies Work?

Calculation of Power

Every Bitcoin transaction consumes some power to verify itself and record every new transaction related to Bitcoin. In addition to this, the blockchain needs the power to keep itself secure and protected from unauthorized alterations. This power is massive and there are specialized computers that calculate these power requirements.

Gathering the Equipment

After the calculation of power requirements, the participating computers or companies buy the mining hardware. They also pay for the electricity requirements that are needed to keep the mining equipment running. The costs of mining coins must always be less than the number of coins that the blockchain rewards to the miners. This is to ensure the profitability of the project to the miners. 

Racing of Computers

After the setup of equipment, the participating computers race among themselves to guess the next hash of the blockchain at first. A hash is a 64-digit hexadecimal number on a blockchain. Why do computers do that? It is because the network has a lottery for the first computer to guess the number.

Validation of a New Block

The first computer to guess the hash right becomes the validator of the new block on the blockchain. It gets to update all the new and verified transactions related to the ledger. Also, the computer gets a predefined amount of a brand new Bitcoin. The reward in the form of Bitcoin gets reduced by half almost every four years. This reduction may also depend upon the complexity of the mining process. As the mining difficulty increases, the rewards decrease until there are no more Bitcoins left to be mined. 

The mining of a new Bitcoin takes place every 10 minutes. When weighed against the maximum amount of Bitcoin that can be mined (21 Million), the last Bitcoin should be mined in 2140. After that, the motivation for miners to supply the computation power to the blockchain will be the transaction fee and not the Bitcoin itself. 

Importance of Mining Cryptocurrencies

Mining doesn’t just release new cryptocurrencies into the crypto market. It also helps in verifying and securing the blockchain. This, in turn, allows cryptocurrencies to function on decentralized systems. The mining of cryptocurrencies eliminates the need for a third party to overlook the transactions or their security. This provides the mining performers an opportunity to lend some of their computing power to the decentralized network. 

Is it Legal to Mine Cryptocurrencies?

The legalities across the mining of cryptocurrencies are still unclear. This is due to the lack of regulatory bodies to govern and control the mining operations in relation to cryptocurrencies. Different countries across the world interpret cryptocurrencies and their mining according to different laws. While some countries may consider cryptocurrencies as a business and apply corporate laws on it, some on the other hand may totally ban the mining and use of cryptocurrencies. So, if it is legal to mine cryptocurrencies depends completely on your geographical locations and the way that you are using to mine cryptocurrencies. 

Environmental Effects of Mining Cryptocurrencies

Crypto mining has severe impacts on the environment. Studies show that the mining of the first cryptocurrency, that is, Bitcoin, generates 96 million tonnes of carbon dioxide every year. This emission is nearly equal to the carbon footprints of some smaller countries like Malaysia and Sweden. Similarly, Ethereum, which is the second most popular cryptocurrency, consumes over 46 Million tonnes of CO2 annually.

Secondly, the mining process of cryptocurrencies is majorly driven by fossil fuels. This poses a greater threat to the environment in a way that fossil fuels are nonrenewable natural resources. So, once they drain out, they will take thousands of years to regenerate. 

Thirdly, the mining of cryptocurrencies generates thousands of tonnes of electronic waste. This is because the mining machines of cryptocurrencies become useless after a certain amount of mining. This results in the accumulation of huge amounts of electronic waste over years. Research shows that Bitcoin mining produces 30 Thousand tonnes of electronic waste every year. 


Keeping in mind the process of mining cryptocurrencies and their effect on the environment, the European Emissions Trading System has introduced an emissions allowance. It allows the crypto miners to buy a permit as an emissions allowance for every tonne of carbon dioxide that they produce in a year. So, the crypto mining companies in Europe should buy these permits to mine cryptocurrencies. As an investor, you must be aware of the carbon footprint that the project is generating before investing in it. 

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