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Chances are you hear the term 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 performed by high-definition computers that solve complex computational math problems (read: so complicated that they cannot be solved by hand). The fortune and work demanded 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. To begin with, when computers resolve these complex mathematics issues on the bitcoin networkthey create new bitcoin, not unlike when a mining operation extracts gold from the ground. And second, by solving computational mathematics problems, bitcoin miners create the bitcoin payment network dependable and protected, by verifying its transaction information. .
Theres a fantastic chance all that only made so much sense. In order to explain how bitcoin mining works in detail, lets begin with a process thats 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. 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 modulates the production of new money and prosecutes the usage 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 charge card, by way of instance, that transaction is processed by a payment processing company like Mastercard or Visa. In addition to recording your transaction history, these companies verify that transactions are not fraudulent, and that's one reason 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 backed by millions of servers Discover More Here throughout the world known as miners. This network of computers performs the same function as the Federal Reserve, Visa, and Mastercard, but using a couple of important 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, browse around this web-site point-of-sale methods, and physical receipts. Bitcoin miners achieve the exact same effect without these institutions by clumping transactions together in cubes and adding them to a public record known as the blockchain. .
When bitcoin miners add a new block of transactions to the blockchain, part of the job is to make sure that these transactions are true. (More on the wonder of the way this happens in a second.) In particular, bitcoin miners be certain bitcoin are not being duplicated, a unique quirk of electronic currencies called double-spending.
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Once you spend $20 in the store, that bill is in the clerks hands. With electronic currency, nevertheless, it's a different story. .
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If the numbers were identical, the clerk would know the money had been replicated. This analogy is very similar to what a bitcoin miner does when they verify new transactions. .
With as many as 600,000 purchases and sales occurring in a single day, nevertheless, verifying every one of these transactions can be a lot 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 given bitcoin whenever they add a new block of transactions to the blockchain.
In 2009, it had been 50. In 2013, it was 25, in the time of writing it's 12.5, and sometime in the middle of 2020 it will halve to 6.25. .
At this rate of halving, the entire number of bitcoin in circulation will approach a limit of 21 million, making the currency more scarce and precious over time but also more costly for miners to produce.
Here's the catch. In order to get bitcoin miners to really earn bitcoin from verifying transactions, two things have to happen. First, they must verify 1 megabyte (MB) value of transactions, which can theoretically be as little as 1 transaction but are more often a few thousand, depending on how much data each transaction shops.