Bitcoin Trading Company - The Facts
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Chances are you listen to the phrase 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 done by high-definition computers that solve complex computational math problems (read: so complicated they cannot be solved by hand). The luck and work required by a computer to solve one of those problems is 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 solve these intricate mathematics problems on the bitcoin networkthey create new bitcoin, not unlike when a mining operation extracts gold in the ground. And second, by solving computational mathematics problems, bitcoin miners create 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 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 by 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 by a central authority. When you make an online order using your debit card or charge 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 may be suspended while traveling. .
Bitcoin, on the other hand, is not regulated by a central authority. Instead, bitcoin is endorsed by millions of servers throughout the world known as miners. This network of computers plays the identical function as the Federal Reserve, Visa, and Mastercard, but with a few 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 purchase using bitcoin, we call 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 with no institutions by clumping transactions together in blocks and adding them to a public document known as the blockchain. .
When bitcoin miners put in a new block of transactions to the blockchain, part of the job is to ensure that those transactions are accurate. (More on the wonder of the way this happens in a second.) In particular, bitcoin miners make certain bitcoin are not being duplicated, a unique quirk of digital currencies known as double-spending.
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Once you spend $20 at the store, that invoice is in the clerks hands. With electronic currency, however, it is a different story. .
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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, nevertheless, verifying every one of those transactions can be a great deal of work for miners, which gets at one other news crucial 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, in the time of writing it's 12.5, and sometime in the middle of 2020 it will halve to 6.25. .
At this rate get more 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 to get bitcoin miners to really earn bitcoin from verifying transactions, two things must happen. First, they need to confirm 1 megabyte (MB) value of transactions, which can technically be as little as 1 transaction but are more often a few thousand, depending on how much information each transaction stores.