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Chances are you hear 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 away.
Far less glamorous but equally uncertain, bitcoin mining is done by high-definition computers which solve complex computational science issues (read: so complex they cannot be solved by hand). The luck 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 result of bitcoin mining is twofold. To begin with, when computers resolve these intricate mathematics issues on the bitcoin network, they create new bitcoin, not unlike when a mining operation extracts gold from the ground. And second, by solving computational mathematics issues, bitcoin miners make the bitcoin payment network dependable and protected, by verifying its transaction information. .
Theres a good chance all that only made so much sense. In order to explain how bitcoin mining functions 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 with a central bank called the Federal Reserve. In addition to a host of other responsibilities, the Federal Reserve regulates the production of new money and prosecutes the use of copyright currency. .
Even electronic payments using the U.S. buck are backed by a central authority. When you make an online order 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, which is 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 endorsed by millions of servers throughout the world called miners. This network of computers plays the identical function as the Federal Reserve, Visa, and Mastercard, but using a few 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 Related Site transaction. Transactions made in-store and online are documented by banks, point-of-sale visit homepage methods, and physical receipts. Bitcoin miners achieve the exact same effect with no institutions by clumping transactions together in cubes and adding them into a public document known as the blockchain. .
When bitcoin miners add a new block of transactions to the blockchain, part of their job is to ensure that these transactions are accurate. (More on the magic of how this happens in a second.) In specific, bitcoin miners be certain bitcoin are not being reproduced, a unique quirk of electronic currencies called double-spending.
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Once you spend $20 in the shop, that bill is in the clerks handson. With electronic currency, nevertheless, it's a different story. .
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When the numbers were identical, then the clerk would know the money had been duplicated. 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 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, navigate to this website 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 costly for miners to make.
Here's the catch. In order to get bitcoin miners to really earn bitcoin from verifying transactions, two things have to happen. To begin with, they need to confirm 1 megabyte (MB) worth of transactions, which can technically be as little as 1 transaction but are more often several thousand, depending on how much information each transaction shops.