Bitcoin mining has received considerable media exposure in the past years, which is very interesting, because this activity is done by a rather small sector of the population. However, few people know what it actually is and, most importantly, why miners do it. A common misconception is that people do mining in order to solve complex mathematical equations. This is indeed a part of the process, but it is only a means to an end. The actual goal of those who do it is different and not singular. Although the cost for mining a single block has increased, the activity remains very popular and miners have found new ways of hashing without investing a lot of money into electricity and hardware. If you would like to start cryptocurrency hashing, you should first understand some basic rules about this activity, as well as important terminology. For example, you should never confuse Bitcoin with Litecoin, because although these sound pretty much the same, there are certain differences between a Bitcoin and a Litecoin mining contract.
Many people have heard that mining involves solving complex equations, but those who purchase mining plans do not do it just for the sake of doing difficult math. The first reason why mining exists is to process transactions. In a regular bank, people are hired to do this, but since bitcoin does not have a central system, miners are the ones who do this and receive a reward for their service. The transactions are processed in terminal blocks and for every block processed there is a certain reward. Processing these transactions is a difficult and complex process which involves verifying the ownership of bitcoins from their source. A block can include any number of transactions, but there are some limits too.
The second purpose of mining is to release new funds into the Bitcoin economy and then use them on gambling websites like this one. Unlike regular banks, currency is not printed and then distributed from the central bank. Bitcoin is decentralized and therefore is not under anyone’s control. Without central authority, the only way of releasing new funds is mining. This process allows for the fair distribution of these funds, which also explains its high cost. It has been estimated that mining one single block costs approximately $2000 in hardware and electricity and the figures are expected to grow. For this reason, more and more miners do their activities in the cloud in exchange for a small monthly tax and then, at the end of the month/week, they receive payout in bitcoins.
The third and final purpose of cryptocurrency hashing is to secure the bitcoin network. Miners trace transactions from their original source to their destination and they also confirm the outgoing ownership of those coins. This prevents double spending, which means that a person cannot spend a bitcoin twice. The more mining power it is out there, the less likely it is that someone can control the bitcoin network by coming up with more power than everyone else combined. Mining is therefore an essential part in the bitcoin economy and although it involves solving mathematical problems, its purpose is completely different.
Last, but not least, you should not confuse a Bitcoin with a Scrypt mining contract, because they work in different ways and refer to different digital currencies.