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Chances are you hear 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-powered computers that solve complex computational science issues (read: so complicated they cannot be solved by hand). The luck and work demanded by a computer to solve one of those problems is that 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 complex math problems 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 dependable 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 functions in detail, lets begin with a procedure thats a tiny bit closer to home: the regulation of printed currency.

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Consumers tend to anticipate printed currencies, at least in the United States. Feeling 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 usage of counterfeit currency. .

Even electronic payments using the U.S. buck are backed with a central authority. When you make an online purchase using your debit 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, 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 endorsed by millions of servers throughout the world known as miners. This network of computers performs the same function as the Federal Reserve, Visa, and Mastercard, but with a couple of important 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 predict that a transaction. Transactions generated in-store and online are documented by banks, point-of-sale systems, and bodily receipts. Bitcoin miners achieve the exact same effect without 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, part of their job is to ensure that those transactions are accurate. (More on the magic of how this happens in a second.) In particular, bitcoin miners be certain 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 shop, that bill is in the clerks hands. With electronic currency, however, it's a different story. .

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Digital information can be replicated relatively this page easily, so with bitcoin and other digital currencies, there's a threat that a spender can make backup of the bitcoin and send it to another party while still holding onto the original. Let's 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 store.

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When the numbers were identical, the clerk could know the money had been replicated. This analogy is 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 these 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, 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 entire number of bitcoin in circulation will approach a limit of 21 million, making the currency more scarce and valuable over time but also more costly for miners to make.

Here is the catch. In order for bitcoin miners to actually earn bitcoin from verifying transactions, two things have to occur. To begin with, they must confirm 1 megabyte (MB) value of transactions, which can technically be as small as 1 transaction but are more often a few thousand, depending on how much data each transaction shops.

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