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Chances are you listen to 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 off.

Far less glamorous but equally uncertain, bitcoin mining is performed by high-powered computers that solve complex computational math problems (read: so complicated that they cannot be solved by hand). The fortune and work required by a computer to solve one of these 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. First, when computers resolve these complex math issues on the bitcoin network, they produce new bitcoin, not unlike when a mining operation extracts gold in the ground. And second, by solving computational math issues, bitcoin miners make the bitcoin payment network trustworthy and protected, by verifying its transaction information. .

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

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

Even electronic payments using the U.S. dollar are backed with 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 like Mastercard or Visa. In addition to recording your transaction history, those companies affirm that transactions are not fraudulent, and that's one reason that your credit or debit card could be suspended while traveling. .

Bitcoin, on the other hand, is i was reading this not regulated by a central authority. Instead, bitcoin is endorsed by millions of servers across the world known as miners. This network of computers performs the same 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 call a transaction. Transactions generated in-store and online are documented by banks, point-of-sale methods, and bodily receipts. Bitcoin miners achieve the exact same effect without these institutions by clumping transactions together in blocks and adding them into a public record known as the blockchain. .

When bitcoin miners put in a new block of transactions to the blockchain, part of the job is to ensure that those transactions are true. (More on the magic of the way this happens in a second.) In particular, bitcoin miners be sure that bitcoin are not being duplicated, a unique quirk of digital currencies called double-spending.

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Once you spend $20 at the store, that invoice is in the clerks hands. With digital currency, however, it is a different story. .

Digital information can be reproduced relatively easily, so with bitcoin and other electronic currencies, there's a threat that a spender can make copy of the bitcoin and send it to another party while holding onto the original. Let us return to printed currency for a moment and say description someone tried to replicate their 20 bill in order to spend both the original and the counterfeit at navigate here a grocery shop.

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If the numbers were identical, then the clerk would know the money had been duplicated. 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, however, verifying every one of these transactions can be a lot of work for miners, which gets at one other key difference between bitcoin miners and the Federal Reserve, Mastercard, or Visa. As compensation for their efforts, miners are given bitcoin whenever they include a new block of transactions to the blockchain.

In 2009, it was 50. In 2013, it was 25, at the time of writing it is 12.5, and sometime in the middle of 2020 it will halve to 6.25. .

At this speed of halving, the total number of bitcoin in circulation will approach a limit of 21 million, making the currency more scarce and precious over time but also more expensive for miners to make.

Here is the catch. In order to get bitcoin miners to actually earn bitcoin from verifying transactions, two things have to occur. To begin with, they need to confirm 1 megabyte (MB) value of transactions, which can technically be as little as 1 transaction but are far more often a few thousand, depending on how much data each transaction stores.