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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 done by high-powered computers which solve complex computational science issues (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 in the ground. And second, by solving computational math issues, bitcoin miners create 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 functions in greater detail, lets begin with a procedure 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. Feeling 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 modulates the production of new money and prosecutes the usage of counterfeit 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 credit card, for example, that transaction is processed by means of a payment processing company like Mastercard or Visa. In addition to recording your transaction history, these companies affirm that transactions are not fraudulent, and that's one reason that your credit or debit card may be suspended while traveling. .
Bitcoin, on the other hand, is not controlled by a central authority. Instead, bitcoin is endorsed by millions of servers throughout the world known as miners. This network of computers performs the identical function as the Federal Reserve, Visa, and Mastercard, but with a couple of key differences. Like the Federal Reserve, Visa, and Mastercard, bitcoin miners record transactions and check their accuracy.
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When check my source someone makes a purchase or sale using bitcoin, we call that a transaction. Transactions generated in-store and online are documented by banks, point-of-sale methods, and bodily receipts. Bitcoin miners achieve the same effect with no institutions by clumping transactions together in blocks and adding them to a public record known as the blockchain. .
When bitcoin miners add a new block of transactions to the blockchain, a part of their job is to make sure that these transactions are accurate. (More on the wonder of how this happens in a second) In particular, bitcoin miners be sure bitcoin are not being reproduced, a unique quirk of electronic currencies known as double-spending.
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Once you spend $20 in the shop, that bill is in the clerks handson. With digital currency, however, it's a different story. .
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If the numbers were identical, then the clerk could know the money had been duplicated. This analogy is very similar to what a next bitcoin miner does when they verify new transactions. .
With as many as 600,000 purchases and sales occurring in a single day, nevertheless, verifying each of those transactions can be a great deal of work for miners, which gets at one other crucial difference between bitcoin miners and the Federal check here 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 was 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 valuable over time but also more expensive for miners to make.
Here's the catch. In order for bitcoin miners to actually earn bitcoin from verifying transactions, two things must happen. First, they need to confirm 1 megabyte (MB) worth of transactions, which can technically be as little as 1 transaction but are far more often a few thousand, depending on how much data each transaction stores.