Mining

Mining and its effects

Mining is the process in which new bitcoins are put into circulation which is carried out by solving computational problems around every ten minutes. The computational problems themselves do not require any high levels of mathematical or computer knowledge to work out but rather consists of guesswork; the first minor to come up with a sixty-four-digit hash that is equal to or less than the target hash. The first miner that solves the problem is rewarded with a block of bitcoins and the process repeats itself.

Mining can be carried out alone or in pools. Each have their advantages and disadvantages. Mining alone is increasingly difficult, time consuming and rewards are less likely, but the rewards are kept by the single miner. Mining in a pool/network results in a higher probability of reward as more people are working to solve the computational problem, however, the reward must then be split between all miners taking part. Miners are also responsible for verifying transactions which helps to prevent the problem of double spending. This is the process by which someone is able to spend the same token more than once by creating a copy of the original.

In order to mine, one must invest in powerful equipment such as a graphics processing unit or an application-specific integrated circuit. These are usually quite costly and brings to light the financial risk that is posed by mining; a miner could purchase this equipment but receive no rewards through mining. In this case joining a mining pool is beneficial.

Mining also poses numerous environmental concerns with the main form of pollution being air pollution. The act of mining requires a large number of computers all working at the same time. Mining bitcoin is responsible for around 13000kg of carbon dioxide emissions per bitcoin mined and the annual electricity consumption for mining bitcoin is around 124.6 TWh which is greater than the consumption of Pakistan or Norway (5). And it is predicted that this consumption will continue to increase. Moreover, mining rigs also produce a substantial amount of heat which would need appropriate cooling systems and in turn more electricity is being consumed. There have been some proposals whereby the heat generated from these rigs would be used to heat up households etc.

A summary of advantages and disadvantages of mining cryptocurrency; • Advantages o Full control over one’s money unlike the normal banking system (decentralized system without government regulations) o The block reward o Very difficult to counterfeit

o Identity theft is made very difficult as miners are kept anonymous

• Disadvantages o energy and time consuming o contributes greatly to carbon emissions o Hardware/equipment expenses o Scams and frauds o The volatility and unpredictability of the cryptocurrency market poses financial and economic risks. o Ultimately cryptocurrencies are still not widely accepted and thus cannot be relied on as your only currency