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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 off.

Far less glamorous but equally uncertain, bitcoin mining is performed by high-definition computers which solve complex computational science issues (read: so complicated they cannot be solved by hand). The fortune 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 result of bitcoin mining is twofold. First, when computers resolve these intricate mathematics problems on the bitcoin networkthey create new bitcoin, not unlike when a mining operation extracts gold from the ground. And second, by solving computational math problems, bitcoin miners make the bitcoin payment network trustworthy and secure, by verifying its transaction information. .

Theres a good chance all that only made so much sense. In order to explain how bitcoin mining works in detail, lets begin with a process thats 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 bunch of other responsibilities, the Federal Reserve modulates the production of new money and prosecutes the use of counterfeit currency. .

Even electronic payments using the U.S. buck are backed by a central authority. When you make an online order using your debit or credit card, for instance, that transaction is processed by 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 may 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 identical function as the Federal Reserve, Visa, and Mastercard, but using a you can find out more 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 call a transaction. Transactions generated in-store and online are documented by banks, point-of-sale systems, and physical receipts. Bitcoin miners achieve the same effect without these institutions by clumping transactions together in cubes and adding them to a public document called the blockchain. .

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

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

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Digital information can be replicated read the article relatively easily, so with bitcoin and other electronic currencies, there is a risk that a spender can create backup of the 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 replicate their 20 bill in order to spend both the original and the counterfeit at a grocery store.

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When the numbers were identical, then the clerk could know the money had been duplicated. This analogy is similar to what a bitcoin miner does when they verify new transactions. .

With as many as 600,000 purchases this article and sales occurring in a single day, however, verifying each of those transactions can be a great deal of work for miners, which gets at one other 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 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 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 make.

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

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