Cryptocurrency Mining 101

Our mining club is about to get underway so we thought we’d put together a post explaining exactly what cryptocurrency mining is, how it works, and some of the terms you may read about.

What is mining

The simplest way to explain mining is to compare the cryptocurrency model to the standard banking model. If we look at the most basic function that a bank serves, is to be a third party who validates transactions between parties. For providing this service we pay the banks fees. This is a centralized model, where all of the function and trust is concentrated in one, or a few banks.


With the cryptocurrencies, we are leveraging peer-to-peer (P2P) networks of willing participates who run servers that take on the roll of validating transactions between parties. These participants are called miners. When a miner approves a transaction that information is broadcasted to the rest of the network. Mining is a critical aspect of the cryptocurrency model. The miners take the function and power of the banks and distribute it amongst the entire community of miners. The miners are rewarded for their services by receiving fractions of a coin proportional to the amount of mining they do. Mining is all done anonymously - nobody’s name is associated with any of the transactions. All of the transaction data is written and encrypted in the blockchain.

How does Mining Work?

To mine cryptocurrencies requires specialized open source software that runs atop of specially designed hardware.


Cryptocurrency mining software is free open source software (FOSS.) The software provides two critical components of the cryptocurrency mining process:

  1. Hashing

    Simply put, hashing refers the algorithm used to write new transactions into the blockchain through the mining process. Hashing is resource intensive and requires a significant amount of energy to complete. The energy consumption is what makes up most of the operating expenses associated with mining. Hashing power refers to how much hashing a miner can perform.

  2. Communicating with the P2P network

    Mining software also plays the part of communicating between cryptocurrency miners on the P2P network. This function ensures that the blockchain is secure and up-to-date with every node on the network.


The mining software requires specially designed hardware to run. The biggest difference between mining hardware and hardware designed for traditional server workloads is the type of processer used.

  1. CPU

    A CPU (Central Processing Unit) literally provides the compute function of server or computer. The x86 architecture, manufacured by companies like Intel or AMD, is the most common CPU family that runs in most of today’s servers.

  2. GPU

    If the CPU is a general purpose processer, a GPU (Graphics Processing Unit) is a specialized processor originally designed to process high end 3D graphics. GPU’s can be an efficient processor type to mine cryptocurrencies.

  3. ASIC

    ASICs (Application Specific Integrated Circuit) are specifically designed for a use case. Often used in high end networking devices like switches and routers, ASICs designed for cryptocurrency mining are popular for their mining efficiency. The Crypto Noob Mining Club will leverage ASIC’s for our mining operation.


Definitions courtesy of


  • Short form for ‘Application Specific Integrated Circuit’. Often compared to GPUs, ASICs are specially made for mining and may offer significant power savings.


  • Blocks are packages of data that carry permanently recorded data on the blockchain network.


  • A blockchain is a shared ledger where transactions are permanently recorded by appending blocks. The blockchain serves as a historical record of all transactions that ever occurred, from the genesis block to the latest block, hence the name blockchain.


  • The act of performing a hash function on the output data. This is used for confirming coin transactions.

Hash Rate

  • Measurement of performance for the mining rig is expressed in hashes per second.


  • Mining is the act of validating blockchain transactions. The necessity of validation warrants an incentive for the miners, usually in the form of coins. In this cryptocurrency boom, mining can be a lucrative business when done properly. By choosing the most efficient and suitable hardware and mining target, mining can produce a stable form of passive income.


  • A copy of the ledger operated by a participant of the blockchain network.

Peer-to-peer (P2P)

  • Peer to Peer (P2P) refers to the decentralized interactions between two parties or more in a highly- interconnected network. Participants of a P2P network deal directly with each other through a single mediation point.