Bitcoin is the first cryptocurrency that was created in 2008 by an unknown person. Among all other digital currencies, bitcoin is still the most popular and valuable currency. The value of Bitcoin has gone through a rapid growth within a few years. Its value had soared high when Elan Musk (the founder of aerospace transportation services company, SpaceX) in 2020 said that “Bitcoin is a good thing”. After his comment, it was witnessed that Bitcoin value has risen from £3,600 to £27,000. The Bitcoins are earned through the mining process. But wait the mining does not mean that you have to pick up your axes and start mining. Bitcoin mining is performed through computers by solving complex cryptologic puzzles.
If you are interested to know more about the Bitcoin Mining and how it works. Do read this explainer to know all about Bitcoin mining.
What is Bitcoin?
Bitcoin is a virtual or digital currency created in 2008. Some researchers say that this currency’s creator is unknown, but some said that it is created by Satoshi Nakamoto, the same person who created cryptocurrency. In Bitcoin, the transactions are done with no middlemen or banks. The user directly transfers the Bitcoin currency to each other. The Bitcoins are also used for purchasing products or services. For instance, you can purchase Xbox games with Bitcoin, and you can book a hotel on Expedia, and you can also buy furniture on Overstock. Last year the PayPal Company also announced that it would allow its users to buy and sell Bitcoins.
What is Bitcoin Mining?
The mining process is the integral function, or you can say it is the Bitcoin’s backbone. Without the mining process, the miners will not be able to secure and confirm the transactions, and the hackers can attack the network, and it can also become dysfunctional.
Bitcoin mining is performed through computers solving complex computational math problems. These problems are so complex that they cannot be solved by hand and not even by the ordinary computer. They are solved through high powered specialized computers. The miners do the mining on the computers. The miners confirm the transactions and make sure that the network is secure. As a result, the miners are rewarded with new Bitcoins.
What is the Purpose of Bitcoin Mining?
Three main functions are done through Bitcoin mining.
- Issuance of new Bitcoin through mining
- Miners confirm the transactions through mining
- Security of the network.
Each of the function is discussed here:
1) Issuance of new Bitcoins through mining:
Bitcoin currency is not issued like traditional currencies. The traditional currencies are issued by a centralized body such as state bank or central bank of the country whenever deemed necessary. But it is not the case with Bitcoins. Bitcoins currency is issued when miners solve a complex computational math problem, and the miners are rewarded with new Bitcoin every ten minutes. There are specific codes, and that code sets the issue rate of the biotin, so the miners do not manipulate the system.
2) Miners confirm the transactions through mining:
Another important function of mining is that miner confirms the transactions. The transaction is considered as secured and complete when it is included in the Bitcoin Blockchain. The blockchain is an online ledger that records all the transactions done through the network. A group of secure and completed transactions is termed as “Block”, and all the blocks tied together are called “Blockchain”. When miners solve the computational math problem, they add one block to the chain.
Once the miner confirms the payment and adds the block to the blockchain, the payment cannot be reversed. The payment with zero confirmation can be reversed.
3) Security of the network.
The Bitcoin network cannot work without the miners, and even the number of miners cannot fall below a certain level because without miners, this network will not be practical. The miner’s secure the network by solving the complex computational math problem. Solving these problems or puzzles need high level computational and electric power. The miners make it impossible to hack or attack or even stop the network.
Once you earn the Bitcoin through mining, they will go to the wallet. One cannot earn Bitcoin without the Bitcoin wallet. The Bitcoin wallet is a digital wallet, and its purpose is to store Bitcoins. This wallet exists in the user’s computer or cloud. This wallet works like an online bank account. You can buy and sell goods with it and send and receive Bitcoins.