Cryptocurrency have risen in popularity over the last few years to become one of the most widely talked about forms of investment and payment methods for online shoppers. The emergence of Bitcoin over the last ten years has attracted a following of technology enthusiasts as well as speculators drawn to its tendency to fluctuate wildly in value. This digital token, however, is just one of many cryptocurrencies out there.

This blockchain-based form of currency has become more and more viable over time, despite its tendency to create unpredictable highs and lows in value, with organisations like PayPal letting users pay for goods using Bitcoin. The value of cryptocurrencies, however, is still a major stumbling block to widespread adoption and use, but this ever-changing reality is favourable for those seeking to use cryptocurrencies as an investment vehicle as well as for cryptocurrency miners.

It’s actually quite difficult to create cryptocurrency relative to how traditional money is printed by a central bank. These legacy currencies, also known as fiat currencies, are managed centrally, with the central bank of any particular country issuing new physical notes and coins to replace older variants in circulation, which are removed from the economy. Cryptocurrency, on the other hand, is generated through a process called ‘mining’.

How are new coins mined?

When a slew of transactions is assembled into a block, it is then appended to the blockchain However, in order to be rewarded with Bitcoin, a ‘mining’ user, or ‘miner’, needs to perform two tasks: validate 1MB worth of transactions as well as be the first to find out a unique 64-digit hexadecimal number – also called a hash.

Similarly to the blockchain, the network user, or ‘node’, also holds a record of every transaction. As it is notified, the transactions are validated with a series of checks in order to make sure they are legitimate. The checks include scanning the transactions for a unique Cryptographic signature, which is created at the beginning of the process, and confirming whether it is valid or not.

In order to be within a chance of securing new Bitcoin, every miner seeks to validate 1MB worth of these transactions. If successful, they then also have to solve a numeric problem which is otherwise known as ‘proof of work’. Users who are able to triumphantly generate the correct 64-digit hexadecimal number, or ‘hash’, which is either less than or equal to the target hash associated with the block, are then remunerated with Bitcoin.

Due to the difficulty of the task, the only feasible way to find the right hash is to calculate as many combinations as possible, and then wait until a match is found.

In order to stand a chance in being the first one to guess a hash, a user needs to have a high hash rate, or hash-per-second, and the more powerful setup, the more hashes a user can sift through – such are the high computing costs of mining. In order to visualise it, imagine a competition where contestants have to guess the correct weight of a cake. Participants have an unlimited number of guesses and the first one to submit the correct weight wins. In this competition, the winner is most likely to be the contestant who is capable of making the most guesses at the fastest rate.