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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 away.

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 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. To begin with, when computers solve these intricate math issues 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 create the bitcoin payment network trustworthy and protected, by verifying its transaction information. .

Theres a good chance all 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 trust printed currencies, at least in the United States. Thats because the U.S. dollar is backed with a central bank known as the Federal Reserve. In addition to a host of additional responsibilities, the Federal Reserve regulates 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 card or credit card, by way of example, that transaction is processed by a payment processing company like Mastercard or Visa. In addition to recording your transaction history, those 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 computers throughout the world called miners. This network of computers plays the identical function as the Federal Reserve, Visa, and Mastercard, but using 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 purchase using bitcoin, we predict a transaction. Transactions made this contact form in-store and online are documented by banks, point-of-sale systems, and physical receipts. Bitcoin miners achieve the exact same effect with no institutions by clumping transactions together in cubes and adding them to a public record called the blockchain. .

When bitcoin miners add a new block of transactions to the blockchain, a part of their job is to make sure that those transactions are true. (More on the wonder of how this happens in a second) In specific, bitcoin miners make certain bitcoin are not being duplicated, a unique quirk of electronic currencies called double-spending.

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

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

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When the numbers were identical, the clerk would know the money had been duplicated. 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, however, verifying every one of these transactions can be a great deal of work for miners, which gets at one other crucial difference between bitcoin miners and these details 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 speed of halving, the entire 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 make.

Here's the catch. In order for bitcoin miners to actually earn bitcoin from verifying transactions, two things must happen. To begin with, they need to verify 1 megabyte (MB) value of transactions, which can technically be as little as 1 transaction but are more often a few thousand, depending on how much information each transaction stores.