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Chances are you listen to the term bitcoin mining and your mind begins to wander to the Western fantasy of pickaxes, soil, and striking it rich. As it turns out, that analogy isnt too far off.
Far less glamorous but equally uncertain, bitcoin mining is performed by high-powered computers that solve complex computational science issues (read: so complicated they cannot be solved by hand). The luck and work required by a computer to solve one of these problems is the equivalent of a miner striking gold in the ground while digging in a sandbox.
The result of bitcoin mining is twofold. First, when computers resolve these intricate math problems on the bitcoin network, they produce new bitcoin, not unlike when a mining operation extracts gold in the ground. And second, by solving computational mathematics problems, bitcoin miners make the bitcoin payment network dependable and protected, by verifying its transaction information. .
Theres a fantastic chance all of that only made so much sense. In order to explain how bitcoin mining functions in detail, lets begin with a procedure thats just a little bit closer to home: the regulation of printed currency.
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Consumers tend to anticipate printed currencies, at least in the United States. Feeling because the U.S. dollar is backed by a central bank known as the Federal Reserve. In addition to a bunch of other responsibilities, the Federal Reserve regulates the production of new money and prosecutes the use of counterfeit currency. .
Even digital payments using the U.S. dollar are backed by a central authority. When you make an online purchase using your debit or credit card, by way of example, that transaction is processed by a payment processing company like Mastercard or Visa. In addition to recording your transaction history, those companies verify that transactions are not fraudulent, which is one reason that your credit or debit card may be suspended while traveling. .
Bitcoin, on the other hand, is not regulated by a central authority. Instead, bitcoin is endorsed by millions of servers across the world called miners. This network of computers performs the same function as the Federal Reserve, Visa, and Mastercard, but with a few important differences. Like the Federal Reserve, Visa, and Mastercard, bitcoin Bonuses miners record transactions and check their accuracy.
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When someone makes a purchase or purchase using bitcoin, we predict that a transaction. Transactions made in-store and online are documented by banks, point-of-sale systems, and bodily receipts. Bitcoin miners achieve the same effect with no institutions by clumping transactions together in blocks and adding them into a public record known as the blockchain. .
When bitcoin miners add a new block of transactions to the blockchain, a part of the job is to make sure that these transactions are accurate. (More on the wonder of how this happens in a second) In specific, bitcoin miners be sure that bitcoin are not being duplicated, a unique quirk of electronic currencies known as double-spending.
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Once you spend $20 in the shop, that invoice is in the clerks hands. With digital currency, however, it's a different story. .
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If the numbers were identical, the clerk could know the money had been replicated. This analogy is very similar to what a bitcoin miner does when they confirm new transactions. .
With as many as 600,000 purchases and sales occurring in a single day, nevertheless, verifying every one of those transactions can be a great deal of work for miners, which gets at one other key difference reference between bitcoin miners and the Federal Reserve, Mastercard, or Visa. As compensation for their efforts, miners are awarded bitcoin whenever they add a new block of transactions to the blockchain.
In 2009, it was 50. In 2013, it had been 25, at the time of writing it is 12.5, and sometime in the center of 2020 it will halve to 6.25. .
At this speed of halving, the total number of bitcoin in circulation will approach a limit of 21 million, making the currency more scarce and precious over time but also more expensive for miners to produce.
Here's the catch. In order for bitcoin miners to really earn bitcoin from verifying transactions, two things have to occur. To begin with, they must verify 1 megabyte (MB) value of transactions, which can technically be as small as 1 transaction but are more often several thousand, depending on how much information each read here transaction stores.