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Chances are you hear the term 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 off.

Far less glamorous but equally uncertain, bitcoin mining is performed by high-powered computers which solve complex computational math problems (read: so complicated that they cannot be solved by hand). The fortune and work required 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 result of bitcoin mining is twofold. First, when computers resolve these complex mathematics issues on the bitcoin network, they produce new bitcoin, not unlike when a mining operation extracts gold in the ground. And second, by solving computational mathematics 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 process thats just 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. Feeling because the U.S. dollar is backed by 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 electronic payments using the U.S. buck are backed by a central authority. When you make an online purchase using your debit card or credit card, for example, that transaction is processed by a payment processing company such as Mastercard or Visa. In addition to recording your transaction history, these companies verify that transactions are not fraudulent, and that's one reason that 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 endorsed by millions of servers across the world known as miners. This network of computers plays 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 call that a transaction. Transactions made in-store and online are documented by banks, point-of-sale methods, and bodily receipts. Bitcoin miners achieve the same effect without these institutions by clumping transactions together in blocks and adding them into a public record 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 accurate. (More on the wonder of the way this happens in a second) In specific, bitcoin miners make sure bitcoin are not being reproduced, a unique quirk of electronic currencies called double-spending.

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Once you spend $20 in the shop, that bill is in the clerks hands. With electronic currency, nevertheless, it's a different story. .

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Digital information can be reproduced relatively easily, so with bitcoin and other electronic currencies, there is a threat that a spender can make copy of the 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 replicate their 20 bill in order to spend the original and the counterfeit at a grocery shop.

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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 bitcoin miner does when they verify new transactions. .

With as a knockout post 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 key 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 had been 25, at 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 entire Homepage number of bitcoin in circulation will approach a limit of 21 million, making the currency more scarce and valuable over time but also more costly for miners to make.

Here is the catch. In order for bitcoin miners to actually earn bitcoin from verifying transactions, two things have to occur. To begin with, they need to confirm 1 megabyte (MB) worth of transactions, which can theoretically be as little as 1 transaction but are far more often a few thousand, depending on how much data each transaction stores.

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