Bitcoin mining is the process of having transactions that are verified and added to the public ledger, which is known as the Blockchain. Bitcoin mining is also a medium by which new Bitcoins are released. This process involves the compilation of recent transactions into blocks, trying to solve a computationally difficult puzzle.
Now, Digital Currency indeed has great potentials to starting a revolution in finance. However, many people find it difficult to fully understand how it really works. You got to deal with a whole lot of maths and numbers.
Mining for Bitcoin
Bitcoin mining is just like mining gold. There’s a limited amount of gold, and there’s limited amount of Bitcoin. In fact, there will only be 21 million Bitcoin. The more you take out, the more difficult and resource intensive it will become for you to find it.
Except for that, Bitcoin works in ways quite different from the precious metal. Once you wrap your head around it, you might even think that Bitcoin is a work of genius, which, in a way, it actually is.
For one, Bitcoin doesn’t really create Sell and Buy Bitcoin. Bitcoin miners get or receive Bitcoin as a form of reward for validating the previous transactions.
In order to do some Bitcoin mining, you need to have a computer and a special program, which miners will use with a lot of computer resources to compete with other miners while solving mathematical problems.
In about every ten minutes, miners try to solve a block that has the most recent transaction data in it using cryptographic hash functions.
A cryptographic hash function is basically one-way encryption without a key. It takes an input and gives you an apparently random, but fixed length hash value.
If you change even one letter of the original input, a completely different hash value will be given, and such randomness makes it impossible to know what the output will be.
And because of this impossibility, hash functions can be used for proof of work and validation. Bitcoin miners will compete to find a certain input value that will give a specific hash value. You cannot cheat on this puzzle simply because there’s really no way to perform better than guessing and a shot in the dark.
The goal of mining is to use the computer to make guesses until it reaches a hash value that’s lower than what the target may be. If you are the first one to accomplish this, it means you have mined the block. Typically, this process takes millions and billions of computer-generated guesses from all over the world.
The winner of the block should ensure that it becomes part of the longest Blockchain, and this person will be rewarded around 12.5 Bitcoins. The winner doesn’t really make the Bitcoin, but the coding of the Blockchain algorithm enables the person to get a reward for accomplishing the mining, helping to verify the Blockchain in the process.
Each block is created in sequence and this includes the hash of the previous block. Since each block contains the hash of a prior block, it’s evidence that it came afterward.