The Mining of Cryptocurrencies

Abstract

Mining is the process by which new coins of a cryptocurrency are issued. The chapter describes the logic and the functioning of mining. Its knowledge is pivotal to understanding how cryptocurrencies work and how the number of units (coins) tends to increase by the time. The reading explains how cryptocurrencies can work without the need for a central bank or any other central authority, and how the system is planned to remain on balance by the application of a set of rules (the protocol) applied by running an algorithm. The analysis addresses both the Proof of Work (PoW) and the Proof of Stake (PoS) mechanisms used to “reach the consensus” in the blockchain, which is necessary to reward miners with new coins. The last part of the chapter addresses the concerns about the cost of mining, the waste of energy resources, the footprint of the process, and the sustainability issues.