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Chances are you listen to 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 away.

Far less glamorous but equally uncertain, bitcoin mining is performed by high-powered 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 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 solve these intricate math issues on the bitcoin network, they 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 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 with a central bank called the Federal Reserve. In addition to a bunch of other responsibilities, the Federal Reserve regulates the production of new money and prosecutes the use 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 or charge card, for example, that transaction is processed by means of a payment processing company such as Mastercard or Visa. In addition to recording your transaction history, those companies verify 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 computers throughout the world called miners. This network of computers plays the identical function as the Federal Reserve, Visa, and Mastercard, but with a couple of 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 methods, and physical receipts. Bitcoin miners achieve the same effect with visite site 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, a part of the job is to make sure that these transactions are accurate. (More on the wonder of the way this happens in a second.) In specific, bitcoin miners be sure bitcoin are not being duplicated, a unique quirk of electronic currencies known as double-spending.

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

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Digital information can be replicated relatively easily, so with bitcoin and other electronic currencies, there is a threat that a spender can make backup of their bitcoin and send it to another party whilst holding onto the original. Let us return to printed currency for a moment and say someone tried to duplicate their $20 bill in order to spend the original and the counterfeit in a supermarket shop.

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When Check Out Your URL 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 verify new transactions. .

With as many as 600,000 purchases and sales occurring in a single day, however, 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 given bitcoin whenever they add a new block of transactions to the blockchain.

In 2009, it was 50. In 2013, it was 25, in the time of writing it is 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 precious 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 have to occur. To begin with, they must confirm 1 megabyte (MB) value of transactions, which can visit theoretically be as small as 1 transaction but are far more often a few thousand, depending on how much data each transaction shops.

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