Bitcoin is the world’s first successful decentralized cryptocurrency as well as a payment system. Nevertheless, bitcoin mining is shrouded in mystery for millions of people.
What you need to know is bitcoin mining is the process of creating a new cryptocurrency by solving puzzles. Notably, it consists of computing systems equipped with specialized chips competing to solve mathematical puzzles. What’s important, the first miner (as these systems are called) to solve the puzzle is rewarded with bitcoin. The mining process also verifies transactions on the cryptocurrency’s network and makes them trustworthy.
For a short period of time, after bitcoin was launched, it was mined on desktop computers with regular central processing units (CPUs). However, the process was extremely slow. At the moment, this cryptocurrency is generated using large mining pools spread across many geographies.
Today, bitcoin miners aggregate mining systems that consume a lot of electricity to mine the cryptocurrency.
For instance, in regions where electricity is generated using fossil fuels, bitcoin mining is considered detrimental to the environment. Consequently, many miners have moved operations to places with renewable sources of energy in order to reduce the cryptocurrency’s potential impact on the climate.
Bitcoin mining and people
Bitcoin mining uses big systems akin to data centers. They solve mathematical puzzles generated by the cryptocurrency’s algorithm to produce new coins.
By solving computational math problems, miners also make the cryptocurrency’s network trustworthy by verifying its transaction information. Bitcoin miners verify 1 megabyte (MB) worth of transactions—the size of a single block.
What’s interesting, these transactions can theoretically be as small as one transaction; however, in many cases, there are several thousand, depending on how much data each transaction stores. It is worth noting that the idea behind verifying transaction information is to prevent double-spending.
In the case of printed currencies, counterfeiting is always an issue. But usually, when you spend $20 at the store, that bill is in the clerk’s hands. With digital currency, nevertheless, it’s a different story.
It is noteworthy that digital information can be reproduced comparatively easily, so with bitcoin and other cryptocurrencies, there is a chance that a spender can create a copy of their bitcoin and send a copy to another party while still holding onto the original.
Interesting details
It is important to remember that bitcoin transactions are aggregated into blocks that are added to a database called a blockchain. Notably, full nodes in the network maintain a record of the blockchain as well as authenticate transactions occurring on it.
Miners download the entire history of the blockchain and assemble valid transactions into a block. Importantly, if the block of assembled transactions is accepted as well as authenticated by other miners, then the miner receives a block reward.
What’s important, bitcoin halved its mining reward – from 12.5 to 6.25 – for the third time on May 11, 2020.
Interestingly, the block reward is halved every 210,000 blocks. In 2009, it was 50. In 2013, the reward amount fell to 25, and in 2016, it became 12.5. In 2020, the reward was changed to 6.25.
Photo Credit: stock photo
So bitcoin IS nothing and is backed by nothing, similar to the non existent “Emperor’s New Clothes”? No wonder I’ve never felt any interest in investing in cryptocurrency!
You summed it up nicely, Karen.