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Chances are you hear the phrase 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 that they cannot be solved by hand). The luck and work required by a computer to solve one of these problems is the equivalent of a miner striking gold in the ground while digging in a sandbox.

The result of bitcoin mining is twofold. First, when computers solve 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 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 detail, lets begin with a procedure thats just 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. 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 modulates the production of new money and prosecutes the usage of counterfeit currency. .

Even digital payments using the U.S. buck are backed with a central authority. When you make an online order 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, these companies verify that transactions are not fraudulent, which is one reason your debit or credit 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 computers throughout the world called miners. This network of computers performs the same 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 check 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 systems, and bodily receipts. Bitcoin miners achieve the exact same effect without these institutions by clumping transactions together in cubes and adding them to a public document called the blockchain. .

When bitcoin miners put in a new block of transactions to the blockchain, part of their job is to make sure that those transactions are accurate. (More on the magic of the way this happens in a second) In specific, bitcoin miners make sure that bitcoin are not being duplicated, a unique quirk of digital currencies called double-spending.

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

Digital information can be reproduced relatively easily, so with bitcoin and other electronic currencies, there's a risk that a spender can create backup of their 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 both the original and the counterfeit at a grocery shop.

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If the numbers were identical, then the clerk would 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 each of those transactions can be a lot of work for miners, which gets at one other key 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, it had been 50. In 2013, it was 25, at the time of writing it is 12.5, go to this web-site 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 valuable over time but also more expensive for miners to produce.

Here is the catch. In order to get bitcoin miners to actually earn bitcoin from verifying transactions, two things must happen. First, they need to verify 1 megabyte (MB) worth of transactions, which can theoretically be as small as 1 transaction but are more often a few thousand, depending on how much data each transaction stores.