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Chances are you hear the term bitcoin mining and your mind begins to wander to the Western fantasy of pickaxes, dirt, and striking it rich. As it turns out, that analogy isnt too far away.

Far less glamorous but equally uncertain, bitcoin mining is done by high-definition computers that solve complex computational science issues (read: so complicated they cannot be solved by hand). The fortune and work required by a computer to solve one of those problems is that the equivalent of a miner striking gold in the ground while digging in a sandbox.

The result of bitcoin mining is twofold. To begin with, when computers resolve these intricate mathematics issues on the bitcoin network, they produce new bitcoin, not unlike when a mining operation extracts gold from the ground. And second, by solving computational math problems, bitcoin miners make the bitcoin payment network trustworthy and secure, by verifying its transaction information. .

Theres a good chance all of that only made so much sense. In order to explain how bitcoin mining works in greater detail, lets begin with a process thats a little bit closer to home: the regulation of printed currency.

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Consumers tend to anticipate printed currencies, at least in the United States. Thats because the U.S. dollar is backed with a central bank known as the Federal Reserve. In addition to a bunch of additional responsibilities, the Federal Reserve regulates the production of new money and prosecutes the use of counterfeit currency. .

Even electronic payments using the U.S. dollar are backed by a central authority. When you make an online purchase using your debit card or charge card, for instance, that transaction is processed by means of a payment processing company such as Mastercard or Visa. In addition to recording your transaction history, these companies affirm that transactions are not fraudulent, and that's one reason your debit or credit card may be suspended while traveling. .

Bitcoin, on the other hand, is not regulated by a central authority. Instead, bitcoin is backed by millions of computers throughout the world known as miners. This network of computers performs the identical function as the Federal Reserve, Visa, and Mastercard, but using a couple of important differences. Like the Federal Reserve, Visa, and Mastercard, bitcoin miners record transactions and check their accuracy.

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When someone makes a purchase or purchase using bitcoin, we predict a transaction. Transactions generated in-store and online are documented by banks, point-of-sale systems, and bodily receipts. Bitcoin miners achieve the exact same effect with no institutions by clumping transactions together in cubes and adding them into a public record called the blockchain. .

When bitcoin miners add a new block of transactions to the blockchain, a best site part of the job is to make sure that those transactions are accurate. (More on the wonder of the way this happens in a second.) In specific, bitcoin miners be sure bitcoin are not being reproduced, a unique quirk of electronic currencies known as double-spending.

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Once you spend $20 in the store, that bill is in the clerks hands. With electronic currency, however, it's a different story. .

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Digital information can be replicated relatively easily, so with bitcoin and other electronic currencies, there is a risk that a spender can create backup of their bitcoin and send it to another party whilst holding onto the original. Let's return to printed currency for a moment and say someone attempted to replicate their $20 bill in order to spend both the original and the counterfeit at a grocery store.

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If the numbers were identical, the clerk would know the money had been replicated. This analogy is very similar to what a bitcoin miner does when they confirm new transactions. .

With as many as 600,000 purchases and sales occurring in a single day, nevertheless, verifying each of those transactions can be a lot 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 awarded bitcoin whenever they include a new block of transactions to the blockchain.

In 2009, it had been 50. In 2013, it had been 25, at the time of writing it's 12.5, and sometime in the center of 2020 it will halve to 6.25. .

At this rate of halving, the entire number of bitcoin in circulation will approach a limit of 21 million, making the currency more scarce and precious over time but also more costly for miners to produce.

Here is the catch. In order to get bitcoin miners to really earn bitcoin from verifying transactions, two things have to occur. First, they need to verify 1 megabyte (MB) worth of transactions, which can technically be as small as 1 transaction but are far more often several thousand, depending on how much data each transaction stores.

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