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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, soil, and striking it rich. As it turns out, that analogy isnt too far off.

Far less glamorous but equally uncertain, bitcoin mining is done by high-powered computers which solve complex computational math problems (read: so complicated they cannot be solved by hand). The luck and work demanded 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 end result of bitcoin mining is twofold. To begin with, when computers resolve these intricate mathematics problems on the bitcoin network, they create new bitcoin, not unlike when a mining operation extracts gold in the ground. And second, by solving computational mathematics problems, bitcoin miners make the bitcoin payment network trustworthy 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 works in greater detail, lets begin with a process 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. Feeling 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, for example, that transaction is processed by means of a payment processing company like Mastercard or Visa. In addition to recording your transaction history, those companies affirm that transactions are not fraudulent, which is one reason your debit or credit card could be suspended while traveling. .

Bitcoin, on the other hand, is not regulated by a central authority. Instead, bitcoin is endorsed by millions of servers across the world called miners. This network of computers plays the same function as the Federal Reserve, Visa, and Mastercard, but with a couple of key 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 call straight from the source that 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 blocks and adding them into a public document called the blockchain. .

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

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

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Digital information can be replicated relatively easily, so with bitcoin and discover here other digital currencies, there is a threat that a spender can make copy of their bitcoin and send it to another party whilst holding onto the original. Let's 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 at a grocery store.

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When 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 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 awarded bitcoin whenever they add a new block of transactions to the blockchain.

In 2009, it had been 50. In 2013, it had been 25, in the time of writing it's 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 costly for miners to make.

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

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