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Chances are you listen to the phrase bitcoin mining and your mind begins to wander to the Western fantasy of pickaxes, dirt, and striking it rich. As it turns out, that analogy isnt too far off.
Far less glamorous but equally uncertain, bitcoin mining is done by high-definition computers that solve complex computational science issues (read: so complicated that they cannot be solved by hand). The fortune and work required by a computer to solve one of those problems is that the equivalent of a miner striking gold in the ground while digging in a sandbox.
The end result of bitcoin mining is twofold. First, when computers solve these complex mathematics problems on the bitcoin network, they create new bitcoin, not unlike when a mining operation extracts gold in the ground. And second, by solving computational math issues, bitcoin miners make the bitcoin payment network dependable and secure, by verifying its transaction information. .
Theres a good chance all of that only made so much sense. In order to explain how bitcoin mining works in greater 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 trust printed currencies, at least in the United States. Thats because the U.S. dollar is backed with a central bank called 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 with a central authority. When you make an online purchase using your debit card or charge card, by way of example, that transaction is processed by means of a payment processing company such as Mastercard or Visa. In addition to recording your transaction history, those companies verify that transactions are not fraudulent, which is one reason that your debit or credit card could be suspended while traveling. .
Bitcoin, on the other hand, is not controlled by a central authority. Instead, bitcoin is backed by millions of computers throughout the world called miners. This network of computers plays the same function as the Federal Reserve, Visa, and Mastercard, but with a few key differences. Like the Federal Reserve, Visa, and Mastercard, bitcoin miners record transactions and check their accuracy.
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When someone makes a purchase or sale using bitcoin, we predict a transaction. Transactions generated in-store and online are documented by banks, point-of-sale systems, and physical receipts. Bitcoin miners achieve the same effect with no institutions by clumping transactions together in blocks and adding them to a public document known as the blockchain. .
When bitcoin miners put in a new block of transactions to the blockchain, a part of their job is to ensure that these transactions are accurate. (More on the wonder of how this happens in a second.) In particular, bitcoin miners be certain that bitcoin try this website are not being reproduced, a unique quirk of digital currencies called double-spending.
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Once you spend $20 in the store, that bill is in the clerks hands. With digital currency, however, it is a different story. .
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If the numbers were identical, the clerk would know the money had been duplicated. This analogy is similar to what a bitcoin miner does when they confirm new transactions. .
With as many as 600,000 purchases and sales my blog occurring in a single day, however, verifying every one of these transactions can be a great deal of work for miners, which gets at one other key difference between bitcoin miners and the Federal Reserve, Mastercard, or Visa. As compensation for their efforts, miners are awarded bitcoin whenever they include a new block of transactions to the blockchain.
In 2009, it had been 50. In 2013, it had been 25, in the time of writing it is 12.5, and sometime in the middle 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 happen. To begin with, they must Homepage confirm 1 megabyte (MB) value of transactions, which can technically be as small as 1 transaction but are more often a few thousand, depending on how much data each transaction shops.