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Bitcoin Mining - How Bitcoin Mining Works (For Beginners)

Bitcoin Mining - How Bitcoin Mining Works (For Beginners)


bitcoin mining how bitcoin mining works


Bitcoin was established as a decentralized banking system alternative.

This means that the system can work without a central authority and move funds from one account to another.

With a central authority, transferring money is easy. Just tell the bank you want to remove N3000 from your account, and add it to someone else account.

In this instance, the bank wields complete control, as it is the only entity permitted to amendthe ledger that records everyone's balances.

But how can you make a decentralized ledger in a system?

How do you offer someone the capacity to update the ledger without giving them too much authority and risking corruption or negligence?

Well,

The protocol, or set of rules that govern the bitcoin system, handles this in a very innovative way that I like to refer to as "Who Wants to Be a Banker?"

To summarize, 

Anyone who wishes to contribute to the updating of the Bitcoin transaction log, known as the Blockchain, is welcome to do so.

All you have to do is pick a random number that will answer an equation that the system will produce.

Sounds simple right?

Of course, this ‘guessing’ is all done by your computer (or mobile device).

The more power your computer, the more guesses it can make per second. Thus, increasing your chances of winning this ‘game’.

You earn bitcoins and get to write the next page of bitcoin transactions on the Blockchain if you guess correctly. 



Here's a more in-depth look at the mining process:

Your mining program determines which of the currently pending transactions will be grouped together into the next block of transactions once your mining computer has made the correct estimate.

Compiling this block is your moment of triumph, as you've now become a temporary bitcoin banker, with the ability to update the bitcoin transaction ledger, also known as the Blockchain.

The block you’ve created, along with your solution, is sent to the whole network; so that other computers could validate it.

In the next block, each machine that confirms your solution changes its copy of the bitcoin transaction ledger with the transactions you selected.

As you may expect,…

 because mining is based on guessing, a different miner will guess the number for each block and be granted the opportunity to update the Blockchain.

Of course, miners with more computational power are more likely to succeed. But, due to the law of statistical probability, it is highly unlikely that the same miner will do so, every time.

After this stage is complete, the system generates a fixed amount of bitcoin, and rewards them to you – as a compensation for the time and energy you’ve spent in solving the math’s problem.

Additionally, you get paid any transaction fees that were attached to the transaction you inserted into this block.

So,… That’s bitcoin mining in a nutshell.

It’s called ‘mining’, because this process helps mine new bitcoin from the system.

But if you think about it, the ‘mining’ part, is just the by-product of the transaction verification process. Because the fundamental objective of mining is to maintain the ledger in decentralized manner, the name is little misleading.



Mining Difficulty:

Well, now that you know what bitcoin mining is, you might be thinking,... ‘Cool!' you might be thinking now that you know what bitcoin mining is. 

...It's free money,... 

So, where do I go to register?'

Well,… 

Not so quickly!

The rules for mining were created by Satoshi Nakamoto, the creator of bitcoin, in such a way that the more mining power the network has, the more difficult it is to guess the answer to the mining math problem.

As a result, the difficulty of the mining process self-adjusts to the network's collected mining power.

The problem will get more difficult to fix as more miners join. 

It will get easier if a large number of them go. 

This is referred to as the 'Mining difficulty.'

So, why on earth did Satoshi do this?

Well,….

He wanted to create a steady flow of new bitcoins to the system.

In a sense,… This was done, to keep inflation in check.

The mining difficulty is configured so that new block is added every 10 minutes on average.

 

See the Current (live) Price of Bitcoin, and other Cryptocurrencies on our  Home page.

 

Mining Evolution:

There weren't many bitcoin miners around when it initially started. In fact, Satoshi – the inventor of bitcoin, and his friend, were some of the very few people mining bitcoin back at the time; with their own personal computer.

Back in 2009, mining bitcoin with your CPU (Central Processing Unit), or your computer's brain, was sufficient because the mining difficulty was low.But, as bitcoin started to catch on, people looked for more powerful mining solutions.

And gradually,… People moved to GPU-mining.

GPU, or Graphics Processing Unit, is computer component that allows for more complicated calculations to be performed.GPUs, were originally intended to allow gamers to run computer games, with intense graphics requirements.

Because of their design,... 

In the realm of cryptography, they became well-known. 

Around 2011, they were also being used to mine bitcoins.

For reference,… The mining power of one GPU, equals that of over 30 CPUs!

 

Post Title: Bitcoin Mining - Beginner Guide

 

 

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