Have you ever wondered where bitcoins come from? Since bitcoin operates as a peer-to-peer network, it means that anyone who uses bitcoin has a tiny fraction of the bitcoin bank? But, bitcoin does not have a central bank, like paper money. Whenever they see it as necessary, governments,, decide to print money. The most recent time when the U.S. decided to print money was to pay for the coronavirus stimulus packages.
But bitcoin does not have this privilege. It cannot be printed, instead, it can be mined.
Bitcoin mining explained
Mining is a process of adding transaction records to bitcoin’s public ledger, called the Blockchain. Miners use special software to solve math problems and are issued a certain number of bitcoins in exchange. Thus providing a smart way to issue the cryptocurrency and also creates an incentive for more people to mine.
The difficulty of math problems is changed automatically by the bitcoin network, depending on how fast they are being solved. Back in the early days, miners solved these math problems from home, using their computers. But later, since mining requires a lot of energy and generates a lot of heat, mining started being done by specialized computers.
Specifically, the miner’s role is to secure the network and process every bitcoin transaction.
The popularity of bitcoin increased throughout the years, making it more difficult for miners to solve the math problems. To avoid this issue, miners started working together, creating the so-called “Mining pools.” So, pools of miners can find solutions way faster than individuals. Each miner is awarded proportionally to the amount of work he/she does.
It is up to you if you want to mine on your own or join a mining pool. To join a mining pool is like signing up to any other web service. You have to create an account and then a “worker.”
Banks and physical receipts document transactions that are made online or in-store. A “transaction” is also when someone sends bitcoin somewhere. Bitcoin miners document these transactions by clumping transactions together in “blocks” and adding them to a public record called “blockchain.”
When miners add a new block to the chain, they make sure that bitcoin is not being duplicated, making the transaction accurate.
Basically, miners serve the bitcoin community by confirming all transactions and making sure they are legitimate. Verifying the transactions can be a lot of work, so as compensation for their hard work each time a new block of transactions is added to the Blockchain, miners get their reward.
Moreover, there is an amount of new bitcoin released with each mined block that is called the “block reward.” The block reward is halved every 210,000 blocks or approximately every four years.
The first halving took place in 2009, and it was 50. In 2013, it was 25, and then in 2018, it was 12.5. Bitcoin successfully halved its mining reward for the third time recently, on May 11th, 2020.
In a way, miners are the ones who allow us to trade bitcoin, by creating them. Trading bitcoin now can also be done by using trading bots such as bitcoinloophole.io.
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