Bitcoin, Litecoin, Ethereum, Dash, Ripple, Dogecoin, the list goes on – cryptocurrencies have captured the public imagination, and they’ve grown (and sometimes fallen) rapidly this past year.
Of the buzzwords often associated with cryptocurrencies, one is blockchain, which has the potential to impact a number of industries (like the Internet of Things). Another, which can be a bit more confusing, is coin mining. To help clarify the concept of mining, we talked with Wei-Tek Tsai, IEEE member and Professor at Beihang University (China), who specializes in cryptocurrencies.
Coin mining relates to the way digital currencies are issued. With Bitcoin, for example, in the mining process, “machines need to perform a computation that is tough to solve but easy to verify the solution,” says Tsai. The difficulty of the puzzle varies to keep the rate of block creation constant, allowing the currency to operate without a central regulator.
For solving this numeric puzzle, the miner gets to establish the next block in the blockchain, as well as newly-minted bitcoins. They also collect small transaction fees from users. You can read a detailed description on IEEE Spectrum here.
Speed and Energy
Since anyone can get a copy of the mining software, computing speed becomes the essential differentiator. Therefore, it’s no wonder that the process is energy intensive. And the fact that current mining methods use too much energy is hardly a secret. “Last year, Bitcoin took about the electricity demand of Ireland,” says Tsai. “People can design better hardware for mining, better machines that use less energy and produce more coins.”
For some, the sound of loudly-spinning fans during normal web browsing can prompt the question of whether their computer’s being used for mining. After all, crypto-mining malware had a big year last year. Don’t assume the worst, Tsai says: “some digital currencies (such as Bitcoin) need specialized hardware to be competitive in mining,” making your computer an unlikely candidate. So, what are the signs if you’re involved in the process? “If you see your GPU running hard, you know it’s mining Ethereum or similar digital currencies.”
The Future of Cryptocurrencies
In the future, issuing coins through means other than mining will improve efficiency. Just how efficient will depend partially on how security tokens are regulated. “The U.S. Securities and Exchange Commission (SEC) has imposed new rules on digital currencies, and likes them to be considered security tokens, meaning that issuing and trading tokens needs to follow SEC rules,” says Tsai. These rules, and modifications to them in the coming years, could have a “profound impact” on the technology and direction of the digital currency market.
To watch our latest interview with Wei-Tek Tsai on cybersecurity and cryptocurrencies, click here.
Written by IEEE on May 1, 2018