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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, dirt, 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 that solve complex computational science issues (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 mathematics problems on the bitcoin networkthey produce new bitcoin, not unlike when a mining operation extracts gold in the ground. And second, by solving computational math problems, bitcoin miners make 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 functions in greater 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. 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 electronic payments using the U.S. dollar are backed with a central authority. When you make an online order using your debit or charge card, for instance, 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 could be suspended while traveling. .

Bitcoin, on the other hand, is not controlled by a central authority. Instead, bitcoin is backed by millions of servers throughout the world called miners. This network of computers plays the same 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 check 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 methods, and physical receipts. Bitcoin miners achieve the exact same effect without you can find out more these institutions by clumping transactions together in blocks 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 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 make sure that bitcoin are not being duplicated, a unique quirk of electronic currencies known as double-spending.

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Once you spend $20 in the store, that invoice is in the clerks handson. With digital currency, however, 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 while still holding onto the original. Let us 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 in a supermarket shop.

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When the numbers were identical, the clerk would know the money had been replicated. 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 each of these transactions can be a great click here to read 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 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, at the time of writing it's 12.5, and sometime in the center of 2020 it will halve to 6.25. .

At this rate 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 produce.

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

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