Bitcoin is the first cryptocurrency created by an unknown person in 2008. Among all other digital currencies, Bitcoin is still the most popular and valuable currency. Bitcoin’s value has grown rapidly in just a few years. Its value had risen high when Elan Musk (the founder of aerospace company SpaceX) said in 2020 that “Bitcoin is a good thing”. Following his comment, the Bitcoin value was found to have increased from £ 3,600 to £ 27,000. The bitcoins are earned through the mining process. But wait, mining doesn’t mean you have to pick up your axes and start mining. Bitcoin mining is carried out by computers by solving complex cryptological puzzles.
If you want to learn more about Bitcoin mining and how it works. Read this explainer to learn all about Bitcoin mining.
What is bitcoin
Bitcoin is a virtual or digital currency that was created in 2008. Some researchers say the creator of this currency is unknown, others said it was created by Satoshi Nakamoto, the same person who created the cryptocurrency. In Bitcoin, transactions are carried out without intermediaries or banks. The user transfers the bitcoin currency directly to each other. The bitcoins are also used to buy products or services. For example, you can buy Xbox games with Bitcoin, book a hotel on Expedia, and buy furniture from Overstock. Last year, the PayPal Company also announced that it would enable 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 backbone of the Bitcoin. Without the mining process, the miners cannot secure and confirm the transactions, and the hackers can attack the network and it can also malfunction.
Bitcoin mining is done through computers that solve complex mathematical computing problems. These problems are so complex that they cannot be solved manually or even by a normal computer. They are solved by powerful special computers. The miners do the mining on the computers. The miners confirm the transactions and make sure the network is secure. As a result, the miners will be rewarded with new bitcoins.
What is the purpose of bitcoin mining?
Three main functions are performed by Bitcoin mining.
- Issuance of new bitcoin through mining
- Miners confirm the transactions through mining
- Network security.
Each of the functions is explained here:
1) Issuance of new bitcoins through mining:
Bitcoin currency is not issued like traditional currencies. The traditional currencies are issued by a central body such as the state bank or the central bank of the country whenever this is deemed necessary. However, this is not the case with bitcoins. Bitcoins currency is issued when miners solve a complex computational math problem and miners are rewarded with new bitcoin every ten minutes. There are specific codes, and this code sets the rate at which the biotin is released so the miners don’t tamper with the system.
2) Miners confirm the transactions through mining:
Another important function of mining is for the miner to validate the transactions. The transaction is considered secured and completed when it is included on the Bitcoin blockchain. The blockchain is an online ledger that records all transactions that are carried out over the network. A group of secure and completed transactions is called a “block” and all of the blocks that are linked together are called a “blockchain”. When miners solve the computational math problem, they add a block to the chain.
Once the miner confirms the payment and adds the block to the blockchain, the payment cannot be reversed. Payment without confirmation can be canceled.
3) Network security.
The Bitcoin network cannot function without the miners, and even the number of miners cannot go below a certain level, since this network is impractical without miners. The miner secures the network by solving the complex mathematical calculation problem. Solving these problems or puzzles requires a lot of computing power and electrical power. The miners make it impossible to hack, attack, or even stop the network.
Once you have earned the bitcoin through mining, it will be moved to your wallet. Bitcoin cannot be earned without the Bitcoin wallet. The bitcoin wallet is a digital wallet and is used to store bitcoins. This wallet resides on the user’s computer or in the cloud. This wallet works like an online bank account. You can use it to buy and sell goods and send and receive bitcoins.