For anyone unfamiliar with cryptocurrencies and the technical aspects behind them, the first thing that comes to mind when the term “mining” emerges probably has to do with raw mineral extraction, rather than coding.
Let us kick off the midway point of our Crypto Terminology: A to Z series with vernacular from the mining sector of the crypto industry today.
Most cryptocurrencies that exist on the market at present have been processed by miners. Miners solve cryptographic equations to obtain more cryptocurrency as rewards, validate data blocks and facilitate crypto-related transactions on a blockchain network.
Mining is a costly activity due to the expensive equipment required to sustain operations, such as advanced mining rigs, and the enormous amount of electricity needed to keep them running. While individuals can certainly mine cryptocurrencies on their own, for more popular assets such as Bitcoin, multiple large-scale mining farms exist across the globe.
A mempool is a good indication of how congested a network may be at any given time, as it reveals how many unconfirmed transactions are waiting to be processed. A larger mempool size means that transactions may take a longer time to clear due to an increase in network traffic. This is typically accompanied by higher priority fees. For traders who are unsure of how much to pay in transaction fees, they can refer to the mempool to ascertain if they are over- or underpaying in fees.
Put simply, hash rate measures the total computational processing power on Proof-of-Work networks such as Bitcoin. Blocks of verified transactions on the Bitcoin network have to undergo a process called “hashing”, which involves solving a complex mathematical equation. The hash rate can be used to determine the health of a network, as the higher the hash rate, the harder a network is trying to solve puzzles and have transactions processed every second. This makes the network less vulnerable to attacks, as malicious actors will need to obtain even greater hashing power to wrestle control away from active miners on the same network.