Cryptocurrency works on the principle of decentralization, which means the power is distributed and unlike banks where the centralized database is used to verify and process transactions, crypto is dependent on community members to do that job.
In the cryptocurrency ecosystem, transactions are saved on nodes of that particular blockchain, and the peers on the network verify those transactions with the help of computational power. The person verifying the transactions are called miners and for verifying each transaction, these miners receive mining reward.
Each blockchain makes use of different mining protocols to ensure transaction privacy and security. We will look at how miners verify these transactions to earn a block reward.
How Transaction Verification is Done on a Blockchain?
Blockchain-based cryptocurrencies work on the Distributed Ledger Technology, where transactions on the network are encrypted with a hexadecimal digital signature. These encrypted signatures cannot be tampered with as any slight change in the input makes the output completely altered, thus chances of forging a transaction are next to negligible.
In order to solve the transaction, the miners need to input certain hash power or computational processing power to solve the encrypted signature. The better processing unit one have, the more chances the miner has to verify the transaction faster than others.
Among the most popular hashing algorithm used by various cryptocurrencies, Proof-of-work and Proof-of-stake are the two most prominent ones. Both the algorithms require the miners to input certain processing power to verify the transactions earlier than others.
The encrypted signature requires the computer to run hundreds of simultaneous codes in order to solve the encrypted message and verify the transaction. When Satoshi released the white paper, he intended that the transaction verification process should be an easy task which can be performed using a simple home PC.
However, as the cryptocurrencies gained public acceptance and rose the price charts, people realized that mining is one of the easiest ways to earn crypto riches and mining became a legitimate job.
Since the Block time of cryptocurrencies is fixed, mining difficulty is increased over time in order to ensure that the miners don’t manipulate the network by putting in extra hash power. Due to the crowded mining scene and increasing mining difficulty, the home-based computers could not keep up with the processing power required to verify the transactions. With time, specialized mining rigs became a fashion and necessity.
The Trend of Specialized Mining Rigs
Mining scene has come a long way from its initial days when a simple computer was enough to verify transactions and earn block reward in return. The trend shifted from normal PCs to GPU mining rigs especially produced for the mining operations. These GPU rigs were able to process a thousand lines of code simultaneously.
As time progressed and people realized the potential in mining, it became a legitimate business, where big firms with enough capital and resources started mining companies where hundreds of mining rigs were put in place and all of them ran round the clock to gain maximum profit. These mining farms hijacked the mining scene and made individual mining next to impossible even with a specialized GPU mining rigs.
Since the block time is fixed, no matter how powerful your machine is and the mining difficulty kept increasing. Now, even high-grade GPU mining rigs are also going out of fashion and ASIC chip based rigs are the dominant player. However, these mining rigs do not come cheap and can cost you anywhere from $500 to thousands of dollars.
Combine it with the monopoly and hijack of the mining scene by the big resourceful firms, individual mining is going out of fashion really fast. If anyone today wants to try their hands at mining and even earn some profit in return, the best option is to join a mining pool or buy a share in one 0f the mining farms.
Transaction verification is one of the most essential parts of the cryptocurrency as it ensures privacy and security without being dependent on a centralized body. However, the rise in the value of cryptocurrency has made the mining process quite complicated and almost unprofitable for the individual miners.
Different cryptocurrency blockchains are now looking to make amendments to the core of their cryptocurrency to find a better process to verify the transaction and take the power out of the hands of big giants who have hijacked the mining scene.
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