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Chances are you hear 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-powered computers that solve complex computational science issues (read: so complex that they cannot be solved by hand). The luck and work demanded by a computer to solve one of these 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 resolve these complex math problems on the bitcoin networkthey produce new bitcoin, not unlike when a mining operation extracts gold from the ground. And second, by solving computational math issues, bitcoin miners make the bitcoin payment network trustworthy and secure, by verifying its transaction information. .
Theres a fantastic chance all that only made so much sense. In order to explain how bitcoin mining functions in detail, lets begin with a process thats 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 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. buck are backed by a central authority. When you make an online purchase using your debit card or charge 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, those companies verify that transactions are not fraudulent, which is one reason your credit or debit card could be suspended while traveling. .
Bitcoin, on the other get redirected here hand, is not controlled by a central authority. Instead, bitcoin is endorsed by millions of computers across the world called miners. This network of computers performs the same function as the Federal Reserve, Visa, and Mastercard, but using a few key 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 purchase using bitcoin, we predict a transaction. Transactions made in-store and online are documented by banks, point-of-sale methods, and physical receipts. Bitcoin miners achieve the same effect without these institutions by clumping transactions together in cubes and adding them into a public document called 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 true. (More on the magic of the way this happens in a second.) In specific, bitcoin miners make sure bitcoin are not being duplicated, a unique quirk of digital currencies known as double-spending.
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Once you spend $20 at the shop, that bill is in the clerks hands. With digital currency, however, it is a different story. .
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When the numbers were identical, the clerk could know the money had been duplicated. This analogy is similar to what a bitcoin miner does when they verify new transactions. .
With as many click this link as 600,000 purchases and sales occurring in a single day, however, 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 Reserve, Mastercard, or Visa. As compensation for their efforts, miners are given bitcoin whenever they include a new block of transactions to the blockchain.
In 2009, it had been 50. In 2013, it had been 25, at the time of writing it's 12.5, and sometime in the center 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 Go Here over time but also more costly for miners to produce.
Here is the catch. In order to get bitcoin miners to actually earn bitcoin from verifying transactions, two things have to happen. To begin with, they must verify 1 megabyte (MB) worth 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.