In this article, I will explain what miners are, what they do, how much they earn, and if there are any downsides to being one.
What Are Miners?
Miners are people who record and verify transactions on a blockchain. This is done by solving complex mathematical problems using hardware with a high processing power.
This results in the nonce – a number that, when obtained, reflects the restrictions of the difficulty level imposed by the hash function. The first miner to identify the nonce receives a reward in the cryptocurrency native to the blockchain.
As a result, miners aren’t responsible just for the verification of transactions and keeping the network safe, but they also introduce new coins into circulation.
This is done by relying on a specialized software that runs on an ASIC, which is a computing device specialized in mining, that stands for Application-Specific Integrated Circuit. The more powerful the hardware is, the more profitable the mining operation will be.
What Do Miners Actually Do?
In order for miners to actually receive the reward given for verifying transactions, two things must happen.
First, they need to verify one megabyte worth of transactions – depending on how much data a transaction stores, this can represent anywhere between one transaction to several thousand.
Secondly, in order to be able to add a block of transactions to the blockchain, miners are required to solve a complex computational math problem – this is known as Proof of Work. They need to discover a 64-digit hexadecimal number, known as a hash, that is less than or equal to the target hash.
This means that the computer of a miner creates hashes at various rates, all trying to identify, or better said guess the 64-digit number. The first one to guess it, gets the reward, which is the cryptocurrency that is being mined.
Basically, it’s a gamble that works if you are lucky. The more miners are trying to discover the solution, the more difficult the problem they need to solve becomes.
For example, for the Bitcoin network, the difficulty level as of August 2021 is at over 14 trillion which means that the chances of the hardware used by a miner for computing creating the hash below the target is 1 in 14 trillion. To put this in perspective, you have 1 chance in 14 million to win the lottery.
As a result, for those involved in the mining process, there is always a chance they won’t receive any reward.
How Much Does A Miner Earn?
So all of that hard work for nothing? Obviously, no. Eventually, someone is going to be the first one to guess the answer correctly and receive the reward.
Still, the rewards for Bitcoin mining are reduced by half every four years. Therefore, in 2009, when the first Bitcoin was mined, mining one block would have a miner a reward of 50 BTC. This was halved in 2012 to 25 BTC, in 2016 to 12.5 BTC, and to 6.25 BTC in 2020.
Taking into consideration the price that one Bitcoin is worth nowadays, it is no wonder that the number of miners is also higher than it was before.
Are There Downsides To This?
Mining has its own risks, usually financial ones. A person could spend thousands of dollars on mining equipment and not enjoy a return on their investment. Still, this can be avoided by joining a mining pool (a group of crypto miners who combine their computational resources over a network).
Another problem that miners can face is the one regarding regulations. While most countries haven’t taken steps towards banning mining activities, China has done so, enforcing a crackdown in the summer of 2021. As a result, many Chinese miners had to take their equipment and settle in other countries around Asia or in the US.
Conclusions
Miners are the ones responsible for creating new cryptocurrencies, record, and verify transactions on a blockchain. They do this by solving complex math problems which, in turn, could offer them a reward – if they are lucky. Despite some negative sentiment towards this, most countries welcome miners.