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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 away.

Far less glamorous but equally uncertain, bitcoin mining is performed by high-powered computers which solve complex computational math problems (read: so complicated that 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 end result of bitcoin mining is twofold. First, when computers resolve these complex math issues on the bitcoin networkthey create new bitcoin, not unlike when a mining operation extracts gold from 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 that only made so much sense. In order to explain how bitcoin mining functions in greater 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 trust printed currencies, at least in the United States. Feeling because the U.S. dollar is backed by a central bank called the Federal Reserve. In addition to a host of additional responsibilities, the Federal Reserve modulates the production of new money and prosecutes the usage of counterfeit currency. .

Even digital payments using the U.S. buck are backed with a central authority. When you make an online order using your debit or charge card, for instance, that transaction is processed by means of a payment processing company like Mastercard or Visa. In addition to recording your transaction history, those companies verify 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 controlled by a central authority. Instead, bitcoin is endorsed by millions of servers across the world known as miners. This network of computers performs the identical function as the Federal Reserve, Visa, and Mastercard, but using a few 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 call that a transaction. Transactions made 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 record called the blockchain. .

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

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

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

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If the numbers were identical, the clerk could know the money had been duplicated. This analogy is click here for more 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, 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 add a new block of transactions to the blockchain.

In 2009, it had been 50. In 2013, it was 25, at the time of writing it is 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 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 to get bitcoin miners to really earn bitcoin from verifying transactions, two things have to occur. First, they this page must verify 1 megabyte (MB) worth of transactions, which can theoretically be as small as 1 transaction but are more often a few thousand, depending on how much data each transaction stores.

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