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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 away.

Far less glamorous but equally uncertain, bitcoin mining is done by high-powered 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. To begin with, when computers solve these complex mathematics 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 create the bitcoin payment network dependable 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 functions in greater detail, lets begin with a process thats a little 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 by a central bank called the Federal Reserve. In addition to a host of additional responsibilities, the Federal Reserve modulates 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 order using your debit card or credit card, by way of 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 affirm that transactions are not fraudulent, which is one reason that your credit or debit 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 called miners. More Help This network of computers plays the same 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 sale using bitcoin, we predict that a transaction. Transactions generated in-store and online are documented by banks, point-of-sale systems, and bodily receipts. Bitcoin miners achieve the same effect without these institutions by go to my blog clumping transactions together in cubes 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 the job is to make sure that those transactions are accurate. (More on the wonder of the way this happens in a second.) In particular, bitcoin miners make sure bitcoin are not being duplicated, a unique quirk of digital currencies known as double-spending.

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

Digital information can be reproduced relatively easily, so with bitcoin and other digital currencies, there's a threat that a spender can create 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 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, then the clerk would know the money had been replicated. This analogy is 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, 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 had been 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 valuable over time but also more expensive for miners to make.

Here's the catch. In order to get bitcoin miners to actually earn bitcoin from verifying transactions, two things have to happen. First, they must confirm 1 megabyte (MB) worth of transactions, which can technically be as little as 1 transaction but are far more often several thousand, depending on how much information each transaction shops.