How does cryptocurrency mining work?

When Satoshi Nakamoto, the alleged inventor of the Bitcoin, defined the specifications of this bank-independent currency, he had to imagine a transaction validation system. This work was originally devolved to private individuals, willing to use the computing power of their computer to operate a strict control of each movement monetary.

When Bob sends 1 BTC (Bitcoin) to Alice, several checks must be performed:

1. Make sure that Bob is really Bob and not a usurper of the latter’s account.
2. Also make sure that Alice is Alice.
3. Check that Bob’s account has the BTC he wants to send to Alice.
4. Verify that this BTC can only be transmitted once.
5. Perform a control calculation of this transaction specific to a precise cryptological formula.
6. Check at the end of the day that this BTC is present on Alice’s wallet and that it has been subtracted from Bob’s wallet.
7. Enter this new transaction in the register that is the blockchain Bitcoin so that such a trace is kept ad vitam aeternam.

To carry out these various verifications, the person carrying out the mining must make learned calculations involving the private key (identifier) ​​of Bob as of Alice, and also of public keys specific to this transaction, i.e. a series of numbers calculated from their private keys.

As we see in point 5, the Bitcoin algorithm has been designed so that each transaction can be verified according to a calculation linked to the cryptology. To do this, Nakamoto operated a mathematical formula called SHA-256. Applied to a number or to any text, this formula returns a sequence of 256 numbers called a “hash”.

Mining consists, by testing an enormous number of combinations, of what figure could generate the “hash” of a given transaction. The first miner to find the solution provides a “proof of work” (Proof of Work) who certifies that he has found the solution to the problem. He earn a commission – a minimal percentage of the transaction that he validated and also, regularly new Bitcoins. This is where theanalogy with traditional currency mining, since this work regularly results in the creation of new BTC.

Cryptocurrencies that emerged in the wake of Bitcoin (Litecoin, Ethereum, Cardano…) exploit this same principle of mining.

The mining of Bitcoin started showing its Achilles heel from 2017, when the demand for this currency suddenly took off. At the height of the wave, the processing of certain transactions took hours and sometimes days. Various solutions have been devised to remedy this.

Yet Bitcoin mining was designed from the outset to be increasingly complex over the years. The reason is that only 21 million units of this currency can ever be mined. However, by 2024, more than 20 million BTC will have already been generated and it will take the equivalent of a century to produce the last million. As a result, while in 2009, 50 new BTCs were created every 10 minutes; in 2021, that figure has dropped to 6.25 every 10 minutes. At the same time, the size of its blockchain swelled – it exceeded 350 GB at the beginning of October 2021.

Mining has therefore become more and more complex and the task is now carried out by gigantic server farms located in countries such as Mongolia, Iceland or Russia. This results in what some refer to as a ecological disaster. Cambridge University in a study published in 2021 estimated that the power consumption annual of Bitcoin exceeded that of countries such as Colombia or Bangladesh and was not far from that of countries such as Chile or Belgium.

In order to remedy the situation, new currencies such as Tezos, Pearcoin, or Mina are based on a simpler mechanism, called ” proof of stake (involving a reduced number of miners trusted by the community at any given time) and much smaller blockchains than Bitcoin.