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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-definition computers that solve complex computational math problems (read: so complicated they cannot be solved by hand). The luck and work required 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. First, when computers solve these complex math 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 problems, bitcoin miners create the bitcoin payment network dependable and secure, by verifying its transaction information. .

Theres a fantastic chance all of that only made so much sense. In order to explain how bitcoin mining works in 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 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 additional responsibilities, the Federal Reserve regulates the production of new money and prosecutes the use of counterfeit currency. .

Even electronic payments using the U.S. dollar are backed with 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 affirm that transactions are not fraudulent, and that's one reason your debit or credit card may be suspended while traveling. .

Bitcoin, on the other hand, is not controlled by a central authority. Instead, bitcoin is backed 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 purchase using bitcoin, we predict a transaction. Transactions generated in-store and online are documented by banks, point-of-sale methods, and physical receipts. Bitcoin miners achieve the exact same effect with no institutions by clumping transactions index together in blocks and adding them into a public record called the blockchain. .

When bitcoin miners add a new block of transactions to the blockchain, a part of the job is to ensure that these transactions are accurate. (More on the magic of the way this happens in a second) In particular, bitcoin miners be certain that bitcoin are not being reproduced, 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's a different story. .

Digital information can be replicated relatively easily, so with bitcoin and other digital currencies, there's a threat that a spender can make copy of the bitcoin and send it to another party while still holding onto the original. Let's return to printed currency for a moment and say someone attempted to replicate their $20 bill in order to spend the original and the counterfeit at a grocery shop.

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When the numbers were identical, the clerk could know the money had been replicated. 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 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 awarded bitcoin whenever they include a new block of transactions to the blockchain.

In 2009, it was 50. In 2013, it was 25, Learn More Here at the time of writing it is 12.5, and sometime in the center of 2020 it will halve to 6.25. .

At this rate 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 produce.

Here's the catch. In order to get bitcoin miners to really earn bitcoin from verifying transactions, two things must happen. First, they need to verify 1 megabyte (MB) value of transactions, which can theoretically be as small as 1 transaction but are more often several thousand, depending on how much data each transaction description shops.