Mining 101: Your Basic Mining Dictionary
Mining is the process of extracting cryptocurrency. It involves performing complex computations to maintain the operation and security of blockchain networks. Sounds complicated? You’re not alone. Many beginner miners quickly drop it because they find the process too complicated.
But we can help you avoid this – learn the basic mining terms from the start with our little cheat-sheet.
Your 2024 Mining Dictionary
Blockchain: the technology of decentralized and securely encrypted information storage — it’s not operated by any single entity, instead, it’s run by otherwise unconnected participants in a horizontal structure. Essentially, it’s a chain of blocks containing information in a single and interconnected registry. Blocks are added to this network through mining. Cryptocurrency in the blockchain can be created, moved, and stored without any special permission. Each transaction is recorded in the blockchain and is public.
Block in the blockchain: the smallest unit containing transaction data, the time when the transaction was added to the block, and the hash of the previous block. It ensures the integrity and sequence of all blocks in the chain.
Cryptocurrency: a type of digital currency based on blockchain technology, in many cases technically closer to a stock or other investment tool than ‘fiat’ money you normally use to pay for goods and services. There can be two types of cryptocurrencies, or ‘crypto’: coins and tokens. The difference is that a coin has its own blockchain and a token is based on an pre-existing network, but in practice, they’re very similar: both have a value formed based on supply and demand. You can buy coins and tokens, sell them, and even use them for payments.
Miner: a person or a device connected to the blockchain network and performing computations that help support and run this network by ‘discovering’ new blocks and confirming transactions. In return, miners get rewards – new, previously unused coins or parts of coins. That’s why it’s called ‘mining’, miners are the first ones to extract these coins and put them into circulation.
ASIC (Application-Specific Integrated Circuit): a device designed to perform the cryptographic computations needed in cryptocurrency mining using specific encryption algorithms.
Hash: a set of characters in the header of each block — that’s how the next hash is calculated.
Hashrate: a key metric in the world of crypto used to assess the efficiency and safety of the blockchain. It’s the hashing speed, or the speed at which a PC can perform hashing computations while verifying transactions. It’s measured in hashes per second and can directly affect a miner’s profits — that’s why everyone wants to be the fastest hashrate in the Wild West of mining.
Mining Difficulty: this defines how easy it will be to find the correct hash for a specific network — to solve all the necessary math problems and create new blocks in the blockchain. In short, mining difficulty shows how much work an ASIC or a video card must do on average to find a block. Keep in mind that this isn’t a static parameter, the more complex a blockchain becomes the more difficult it gets to mine.
Node: a server with special software represented by a PC or other equipment connected to the crypto blockchain network. A full node stores a complete copy of all blocks in the chain and supports the network by participating in the process of verifying and transmitting transactions. A lightweight node doesn’t store a complete copy of the blockchain, just the necessary block headers for operation.
Worker: individual hardware participating in the mining process. If a miner is either a participant in crypto mining or software installed on a computer to start mining, then a worker is the login of this software used for mining. Creating workers lets you tell your equipment apart.
Mining farms: entire systems or hubs of multiple video cards or ASIC miners. An entire farm can seriously raise the ROI on mining, but it’s very expensive to set up.
Mining Pool: a group of miners who combine their computing power to increase their chances of successfully finding blocks in the blockchain. Each crypto enthusiast in the pool uses the power of their hardware for joint work and splits the rewards with their pool mates, and the pool takes a fee for facilitating this connection. For example, the EMCD pool takes just 1.5%.
Cloud Mining: a kind of pool, but with rented hardware. The advantage is that the miners don’t need to buy expensive equipment and maintain it, the key downside is full dependance on someone else’s tools.
Wallet: an app with a specific address in the blockchain network for storing crypto. Wallets can be ‘hot’ or ‘cold’ — custodial wallets based on crypto platforms and wallet apps that provide a user with an access key and ‘room’ for storage, or personal hardware wallets, like a flash drive. If your wallet is built into a crypto ecosystem, you can avoid extra transaction fees for moving your funds.
Key: a set of characters needed to access a cryptocurrency wallet, like a ‘seed phrase’ of multiple unconnected words.
Address: a set of characters used in the blockchain to identify a wallet.
Smart contract: a computer algorithm that automatically controls and executes the terms of transactions in the blockchain.
Halving: is an event in the blockchain where the reward for mining a new block is halved. Halving helps control the number of new coins introduced into circulation and thus prevent inflation; reduces the rate at which new coins are created, i.e., increases the value of cryptocurrency and reduce supply; encourages miners to continue mining, as the increase in cryptocurrency value can compensate for the decrease in the number of coins received.
Bitcoin: is the first cryptocurrency that appeared in 2009. It is a deflationary asset because only 21 million bitcoins can be created, no more. Moreover, bitcoin is available everywhere, including on the stock market in the form of Bitcoin-ETF. You can buy or sell your shares at any time, including on your phone. But don’t get carried away with high-risk trading, stick to safer options with the assets you don’t want to lose.
Now you are familiar with the basic terms in the field of mining. Happy coin mining and trading!
