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Chances are you hear the phrase 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 away.

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 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 math issues on the bitcoin network, they produce new bitcoin, not unlike when a mining operation extracts gold from the ground. And second, by solving computational math problems, bitcoin miners make the bitcoin payment network trustworthy 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 tiny 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 by a central bank known as the Federal Reserve. In addition to a host of additional responsibilities, the Federal Reserve regulates the production of new money and prosecutes the use of copyright 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 instance, that transaction is processed by means of a payment processing company like Mastercard or Visa. In addition to recording your transaction history, these companies verify that transactions are not fraudulent, which is one reason your debit or credit 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 miners record transactions and assess their accuracy.

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When someone makes a purchase or sale using bitcoin, we call that a transaction. Transactions made 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 cubes and adding them to a public record called the blockchain. .

When bitcoin miners add a new block of transactions to the blockchain, a part of their job is to ensure that these transactions are true. (More on the wonder of the way this happens in a second) In specific, bitcoin miners make sure that bitcoin are not being duplicated, a unique quirk of digital currencies called double-spending.

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Once you spend $20 at the store, that bill is in the clerks handson. With electronic currency, nevertheless, it is a different story. .

Digital information can be reproduced relatively easily, so with bitcoin and other electronic currencies, there is a threat that a spender can create copy of the you could try these out bitcoin and send it to another party while holding onto the original. Let us return to printed currency for a moment and say someone attempted to duplicate their 20 bill in order to spend both the original and the copyright at a grocery shop.

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If the numbers were identical, then the clerk would know the money had been replicated. This analogy is 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 crucial difference 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 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 speed of halving, the total number of bitcoin in circulation will approach a limit of 21 million, making the currency more scarce and valuable over time but also more expensive for miners to produce.

Here is the catch. In order for bitcoin miners to really earn bitcoin from verifying transactions, two things must occur. To begin with, they must verify 1 megabyte (MB) value of transactions, which can technically be as small as 1 transaction but are far more often several thousand, depending on how much data each transaction shops.