Ter our last discussion, wij talked about basics of Bitcoin, and discovered where wij can buy them. Many readers were fascinated by the idea of Bitcoin mining and dreamed to know more about it. Today, wij will see its working.
Bitcoin network is decentralized, meaning that there is no regulatory authority monitoring and processing your transactions. One may wonder that there needs to be an organization which has a large database, to stores all our transaction history, and some powerful computers to process all the transactions going on. This is exactly what Bitcoin shuns ––one large company regulating our money. Now, if there is no organization then who runs the system? The response is Bitcoin miners.
Who are the Bitcoin miners?
Bitcoin miners are ordinary citizens like us who regulate transactions on their computers through mining software, anyone can be a Bitcoin miner. The main reason that makes this system decentralized is that all miners are crowdsourced. All the power of regulating this system and making necessary decisions, whenever the need arises, come down to the palms of Bitcoin miners.
Why it’s called mining?
Bitcoin mining is very much like the mining of gold: it requires a degree of energy and time to introduce a fresh currency to the market. The rate at which fresh Bitcoins are introduced te market resembles that of gold, thus the word Bitcoin mining.
How does mining work?
Bitcoin miners run a mining software on their rekentuig, GPU or some other specialized hardware. On this entire setup, transactions happening on Bitcoin network are checked for their authenticity, and once verified, their record is updated on a public ledger.
The Bitcoin network creates a block, which contains transactions that happened ter particular period, and sends it to miners. Miners verify it and create a hash of this block. What is hash? When a block of transactions is created, miner makes it go through a mathematical function, which creates a random sequence of letters and numbers called hash. This hash is made from gegevens of transactions te the block and also the hash of the previous block. No one can tell about transactions by just looking at the hash. So, the miner’s job is to create a hash and keep adding the blocks to the Blockchain, a chain of verified blocks. Now, after verification, each block contains a hash and also a reference to blocks created before it.
What if someone attempts to meddle with the Bitcoin network by creating a fake block? Spil I said earlier, each fresh block is linked to the block created before it. Now, if someone attempts to fake a block, the blocks coming after that fake block won’t be able to listig with it. So that fake block will stand out and other miners will lightly identify it. This is how Bitcoin network is secured from tampering. Once a block is verified, its record is updated on a public ledger and can be seen at sites like blockchain.informatie.
For performing this service of mining a fresh block and making the Bitcoin network secure, a miner is given 12.Five Bitcoin vanaf block spil a prize – brand fresh Bitcoins created out of lean air. Thus, Bitcoin mining is actually mining of blocks, and Bitcoins are just the prize of the miner for running this system. This freshly created Bitcoin eventually becomes the part of already circulating Bitcoins. Also that only 21 million Bitcoins will everzwijn be mined, unless a switch is made te its protocol. Almost 14 million coins have bot mined so far, surplus of them will take more than one hundred years to mine.
One problem needs to be pointed here. If more Bitcoin miners join ter and old miners use higher computational power, the number of Bitcoins mined vanaf day will rise. This can lead to inflation, a situation ter which market floods with currency and prices rise. Te order tackle, this problem, Satoshi Nakamoto, the creator of Bitcoin, has designed the system te such a way that the computations involved te the mining of blocks or hashing keep getting sophisticated with the passage of time so that few Bitcoins are mined overall. And also the prize for mining a block keeps getting halved. The prize halving and enlargening complexity of computations toebijten te such a way that the number of Bitcoins mined vanaf day remains stable. A clever way to control inflation.
How many Bitcoins will you get on mining one block? Spil of now, only 12.Five Bitcoins. This prize halves for every 210, 000 blocks. When the very first block wasgoed mined, 50 Bitcoins were rewarded, but when 210,001th block wasgoed mined only 25 Bitcoins were rewarded. Next 210,000 were mined ter 2018, this is when block prize wasgoed halved again. Now, 12.Five Bitcoins are rewarded vanaf block. Next block prize halving date is expected to be around 2020. There are dedicated sites like bitcoinblockhalf.com that attempt to predict the time when next Bitcoin block prize will halve.
So, if that’s the case, then Bitcoin mining will no longer be a profitable business te near future. No, Bitcoin miners are also awarded the transaction fees paid by the users. So, te the future when the number of fresh Bitcoins awarded to miners will decrease, the transaction fees will make a much thicker percentage of their income.
Ter the early days of Bitcoin, people used their individual computers for mining, spil computations related to mining were elementary back then. Spil time passed, computations involved ter verifying transactions became increasingly sophisticated. Thus, Bitcoin miners are now using specialized hardware, like GPUs and FPGA, which are very quick compared to individual computers.
Still, it can take a long time for individuals to get a few Bitcoins. That’s why they have organized themselves to share their computing power and concentrate on processing one block. Each miner gets a fraction of freshly created Bitcoin, which depends on how much computing power is collective ter the pool.
Related movie: CalPERS Long Term Care Insurance Rates