As we explained in the article „How cryptocurrency works,“ each online transaction regarding a specific cryptocurrency is written on a ledger that is shared with all the users, and which bits of information are distributed through an indefinite number of computers, so the information cannot be changed to commit fraud.
Ledger is called a blockchain, because, you guessed, it is made of blocks. Each block has some transactions, and each block needs to be validated.
How is it done?
Through mining. Using a computer power, a person can try to mine for a specific cryptocurrency, and it is done by trying to validate blocks of transactions. Each block contains a specific number, „proof“ which is made of transactions in it, and of a „proof“ number a previous block has. By mining, the computer tries to find a „proof“ of the next block. It happens every 10 minutes to someone in the world. When a block gets its „proof“ it is transmitted to all the users’ through a ledger, so they know these transactions are approved and true.
To commit a fraud by altering any data on the block, changing any transaction, you need to be the first in the world who would generate a „proof“ for that block to be the first who will transmit it to the world ledger. But not only that. You now need to be first forever in trying to generate „proofs“ for each block that will exist, and they get „proofs“ every ten minutes. But, now, you are not just trying to be first forever. You are also trying to find „proofs“ that contain a faulty number from your block that you change to commit fraud. And that is not possible. So, when someone in the world does finish a block before you, and someone else finishes the next one before you, and the next one, your blocks will be revealed as fraudulent, and they will be removed from the blockchain (ledger).
And how you earn with mining?
Every time you finish a block, you get rewarded by a cryptocurrency. That is how new cryptocurrencies are made. But finishing a block is harder every time a new one is „proofed“ because the next block contains a number that is longer than the number of a previous block. So, the time to find a block, the computer power you need, the electricity, these requirements get longer and larger in time.
And your reward? It gets smaller. Because there is no infinite number of a cryptocurrency. Why? Because having an infinite tokens or bills makes them worthless. So, you are getting less and less with each block you finish, but its value gets bigger and bigger. Why? Cause each time you get rewarded, the number of currency left to find gets smaller, and it gets harder to find it. So, how to be good enough in mining so you can earn currencies, and not just pay for electricity and computer power indefinitely? You need to invest in the semiconductor industry.