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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 away.

Far less glamorous but equally uncertain, bitcoin mining is performed by high-definition computers that solve complex computational math problems (read: so complicated that they cannot be solved by hand). The luck and work demanded 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. To begin with, when computers resolve these intricate math problems on the bitcoin networkthey create new bitcoin, not unlike when a mining operation extracts gold in the ground. And second, by solving computational math problems, bitcoin miners create the bitcoin payment network dependable and protected, by verifying its transaction information. .

Theres a good chance all of 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 trust 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 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 charge card, for instance, that transaction is processed by a payment processing company such as Mastercard or Visa. In addition to recording your transaction history, those companies verify that transactions are not fraudulent, which is one reason that your debit or credit card could 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 with a few 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 that a transaction. Transactions made in-store and online are documented by banks, point-of-sale methods, and physical receipts. Bitcoin miners achieve the same effect without these institutions by clumping transactions together in blocks and adding them to a public record known as the blockchain. .

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

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Once you spend $20 at the store, that bill is in the clerks hands. With electronic see this site currency, however, it is a different story. .

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Digital information can be replicated relatively easily, so with bitcoin and other digital currencies, there's a threat that a spender can make backup of their bitcoin and send it to another party whilst still 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 both the original and the counterfeit in a supermarket store.

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When the numbers were identical, then the clerk could 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 these 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 include a new block of transactions to the blockchain.

In 2009, it was 50. In 2013, it was 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 number of bitcoin in circulation will approach a limit of 21 million, making the currency more scarce and precious over time but also more expensive for miners to produce.

Here's the catch. In order for bitcoin miners to really 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 little as 1 transaction but are far more often several thousand, depending on how much information each transaction shops.

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