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Chances are you hear the phrase 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 performed by high-powered computers which solve complex computational science issues (read: so complicated that they cannot be solved by hand). The fortune 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 result of bitcoin mining is twofold. First, when computers resolve these complex 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 math problems, bitcoin miners make the bitcoin payment network trustworthy 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 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 called the Federal Reserve. In addition to a bunch 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. dollar are backed by a central authority. When you make an online purchase using your debit or credit card, for 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 your debit or credit card may be suspended while traveling. .

Bitcoin, on the other hand, is not regulated by a central authority. Instead, bitcoin is backed by millions of servers throughout the world known as 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 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 same effect without these institutions by clumping transactions together in cubes and adding them into a public document called the blockchain. .

When bitcoin miners put in a new block of transactions to the blockchain, a part of the job is to ensure that these transactions are accurate. (More on the magic of how this happens in a second) In specific, bitcoin miners be certain that bitcoin are not being reproduced, a unique quirk of digital currencies called double-spending.

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

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Digital information can be reproduced relatively easily, so with bitcoin and other digital currencies, there is a threat that a spender can create 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 replicate their 20 bill in order to spend the original and the counterfeit in a supermarket shop.

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If 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 each of those transactions can be a lot 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, in 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 total number of bitcoin in check this site out circulation will approach a limit of 21 million, making the currency more scarce and valuable over time but also more costly for miners to produce.

Here is the catch. In order to get bitcoin miners to actually earn bitcoin from verifying transactions, two things have to happen. First, they must verify 1 megabyte (MB) value 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.

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