Bitcoin Mining Explained
As the popularity of Bitcoin is increasing day by day, people are getting curious about Bitcoin mining and cryptocurrency mining as well. Those who early entered into Bitcoin mining say in 2010-11 are now world’s first most Bitcoin Billionaires. But most of the people still don’t know what is Bitcoin Mining.
In this article, we will explain you “What the hell is Bitcoin Mining?”
To begin with, let us first mention what happens in the world of fiat currencies. When the government feels their is a need for more money in circulation, they simply print more currency notes as per the demand of the need. So here, the supply of money is in the hands of a centralised organisation which can print as much money as they want, which results in increase in inflation. (The concept of gold pegged currency has been abolished in most of the countries)
But in case of Bitcoin, the number of Bitcoins are fixed to 2,10,00,000 and it cannot be increased anyhow. Thus, the supply of Bitcoins has been fixed which will not cause any inflation but rather deflation. With rising popularity of Bitcoins, the demand for bitcoin is increasing but the supply is limited. As a result, the price of One Bitcoin is increasing. (Bitcoin price use to be $1000 in Januray 2017 and it increased till $20,000 in December 2017 due to surge in demand for bitcoins.)
But how new Bitcoins are issued and generated? – Here comes the process of Bitcoin Mining.
Take an example of a bank. A banker passes and validates a transaction and debits/credits the account of payer/receiver accordingly. For providing the services, the banker is paid in salary. Similar is the case in Bitcoin.
A Bitcoin miner (usually high-end computers) are placed in the Bitcoin network who validates and verifies the bitcoin transaction. After successful verification of the Bitcoin transactions, the miner is rewarded with new Bitcoins which are generated from the Bitcoin network.
The computers are created with the special configuration of required important hardware and software. The whole process of Bitcoin mining depends upon the specialized computer specifically created for this purpose of mining of bitcoins in order to protect the system from the harmful cyber attacks and to validate the bitcoin transaction process reliably.
A Bitcoin miner does not verifies each transaction individually, rather, a set of transactions is stored in a “Block”. The Bitcoin miners verifies the set of a transactions stored in the “Block”. Each Block contains two pieces of information, first is the timestamp that keeps the record or you can say that keep track of the creation and modification time of that block and the second a link to previously added block ( also known as hash) .
Each time any Bitcoin transactions take place, it gets stored in the blocks which are then broadcasted to all the Bitcoin miners in the Bitcoin network. In order to verify the block of transactions, all the bitcoin miners enters into a race to solve a mathematical puzzle to find a “Nonce” of that block. (Imagine Nonce is like a key to a lock).
Once this Nonce has been found, it unlocks the block of transactions which now the bitcoin miners can verify in order to earn Bitcoins as rewards. The first Bitcoin miner to find the nonce will get the right to verify the transactions and earn rewards in Bitcoins.
Once the bitcoin miner finds the nonce to the block and verifies the transactions, it is then again broadcasted to other miners who confirms the verification. After receiving the verification from other miners, the block of transactions gets added into a chain of previously confirmed blocks. All these blocks are stored in a public unalterable ledger called “Blockchain”.
How Bitcoin miners work?
Bitcoin miners are the spine of bitcoin network. With the use of special software the bitcoin miners solves a mathematically puzzled encrypted data (nonce). Once the nonce is found and transactions are verfied, it is then stored in a public ledger.
The Bitcoin miners are responsible for the secure network and secure process of every bitcoin transactions and as per their work, they are awarded the respective amount of incentive.
- First, when each time the transactions are taking place, the record of it is added to the tally list of Blockchain by the miners.
- After that, the miners check about the legal information of the coin like whether the person who has transacted it have the valid right to do this or whether the respected encrypted code of it is valid or not.
- A proper security check is done. After the approval of permission of taking it further.
- Then miners create a lottery which prevents anyone to easily create or add a new block in the main chain.
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Rohit Kukreja is a Commerce graduate with Financial Markets expertise involving Stocks, Forex, Futures & Options Market and now Bitcoins & Cryptocurrency Markets. Blockchain Enthusiast but not a techie, Rohit is an active member of various Blockchain & Crypto communities all over India.