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Chances are you hear 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-powered computers that solve complex computational science issues (read: so complex they cannot be solved by hand). The fortune and work required 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 complex mathematics issues on the bitcoin network, they produce new bitcoin, not unlike when a mining operation extracts gold in the ground. And second, by solving computational mathematics issues, 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 greater detail, lets begin with a procedure 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. Feeling because the U.S. dollar is backed by a central bank known as 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 by a central authority. When you make an online order using your debit or credit card, by way of instance, that transaction is processed by means of a payment processing company like Mastercard or Visa. In addition to recording your transaction history, these 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 regulated by a central authority. Instead, bitcoin is backed by millions of computers throughout 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 assess their accuracy.

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When someone makes a purchase or sale using bitcoin, we call that a transaction. Transactions generated in-store and online are documented by banks, point-of-sale methods, and bodily receipts. Bitcoin miners achieve the exact same effect without these institutions by clumping transactions together in cubes and adding them to a public document called the blockchain. . like this

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

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

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Digital information can be replicated relatively easily, so with bitcoin and other electronic currencies, there's a risk that a spender can make copy of their 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 both the original and the counterfeit in a supermarket shop.

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When the numbers were identical, 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 great site sales occurring in a single day, nevertheless, verifying every one of these 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 include a new block of transactions to the blockchain.

In 2009, it was 50. In 2013, it had been 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 costly for miners to make.

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

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