BITCOIN MINING EXPLAINED
Before starting the topic, Bitcoin mining explained. First, you need to understand where do bitcoins come into existence? Any central government does not control Bitcoin it is decentralized, it is not like paper money that government can print and distribute them.
Bitcoin mining requires a computer hardware and a unique program. Bitcoin mining is like a lottery where miners compete with other miners using their hardware resources to solve complicated mathematical problems or in other words. One can say miners compete with other miners to earn Bitcoin on a network.
In every ten minutes, they will try to solve the block that has the latest transaction data in it, using cryptographic hash functions. Faster mining hardware is used to attempt more tries per second to earn more bitcoins while the network adjusts itself every two weeks to keep the rate of finding winning block hash to every ten minutes.
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How Bitcoin Mining works
As I explained above Bitcoin is not controlled by any central government hence it is not printed like paper money. Bitcoin mining is more like traditional mining than to printing money. Yeah, Bitcoin mining is like mining Gold.
Just like Gold, there is only limited quantity of Bitcoin can be mined only 21 millions of them. Bitcoin was created in such a way that only 21 million of them can come into existence. Currently, 16 million Bitcoins have been mined.
Now the only one-quarter of Bitcoins left to mine. So Bitcoin is like expensive metal more you take out, more challenging and resource intensive it is to find. Similarly more the time passes by more will be the value of Bitcoin.
Unlike Gold mining, Bitcoin mining is not done with axes and shovels. But it is done by thousands of computers with powerful CPU that must use their full resources to mine Bitcoin.
To explain Bitcoin mining process first, we have to understand Blockchain
Let me first explain it in common analogy to make it simple for you. The blockchain is like a full history of banking transaction, Bitcoin transactions occurred or stored in a ‘block.’ (BLOCK is the collection of transactions occur on a Bitcoin network at a set period. ) and a countless number of blocks are connected to each other in linear and chronological order inside blockchain.
Now let me explain it is in technological analogy
Blockchain described as a type of distributed ledger, or decentralized database that keeps a record of Bitcoin transactions and the technology prevents the same Bitcoin from using more than once.
As the block is the current part of blockchain which records all the recent transactions and when one block gets completed it stored in blockchain in a permanent database. After completion of a block, a new block is generated which has a hash of the previous block now they are connected to each other in linear, chronological order inside the blockchain.
Hence blockchain is the connection of a countless number of blocks in linear and chronological order where every block containing a hash of the previous block and are stored as permanent database inside it(blockchain).
The blockchain database is shared by all nodes participating in a system. The full copy of blockchain contains every Bitcoin transaction ever occurred. So it can provide an insight of any Bitcoin transaction took place at any time in past and thus can reveal how much Bitcoins belonged to a particular Bitcoin address.
So, the blockchain is a long list of blocks which is permanent or unmodifiable.
The transactions which are recorded in the block must be witnessed by the connected network of computers.
These computers have to prove that they did hard work to record the transactions. This is called a proof-of-work.
If we try to understand the proof of work in plain language than it involves solving complex mathematical problems that require billions of steps to resolve.
Once a group of computers proves it has approved the transaction and provided the proof-of-work, they are rewarded for their effort to validating the transaction in the form of Bitcoin. Hence Bitcoin is created.
Once Bitcoins been mined, they can be used for trading or either they can be sold.
Remember as I mentioned before Bitcoins is like precious metal they are expensive currencies because only 21 million of them can be mined. Hence Bitcoin is valuable currency.