Bitcoin mining

Bitcoin mining is the process of verifying, confirming and accepting transactions on the Bitcoin blockchain. The blockchain is a digital public ledger that is updated by ‘miners’ solving complex mathematical equations then being rewarded in Bitcoin if they are first to solve the equation.  The ledger is called the Bitcoin Blockchain and it is just that, a chain of digital blocks. When operating the blockchain establishes that all previous blocks have been consistently verified to be correct on the longest Bitcoin Blockchain. Once confirmed it then looks at the new transaction and verifies that transaction is correct.  By using this method of checking the blockchain is correct and true prior to adding any more transactions the Bitcoin nodes can see that the transaction about to take place is on the correct chain and is true. This stops double spending.

Back to Bitcoin mining, now that we have a basic understanding of what the blockchain is we can look again at why we call it ‘Bitcoin Mining’.  First of all the reason we call it ‘Mining’ is because it resembles digitally the physical properties of mining a real physical commodity. For example:  Mining gold in the physical world is difficult, it requires hard labour and expensive equipment. This in turn gives gold a value, Bitcoin is no different (Proof of Work).  The more people attempting to confirm transactions on the blockchain by solving the complex mathematical equation the more difficult the next equation is to solve.  This in turn gives Bitcoin a value.

Mining as you can tell does more than one positive thing for the Bitcoin Blockchain.  Not only does it encourage miners to continually keep the blockchain protected by constantly using their hash power to verify the integrity of the blockchain but it also serves as a way to distribute new Bitcoins into the community at a certain rate.

Due to people mining Bitcoin all over the world, miners CPU’s, GPU’s and more recently ASIC miners (Application Specific Integrated Circuits) are all connecting to the Bitcoin Blockchain. The greater the amount of miners and nodes, the more decentralised the network is. The more decentralised the network is the safer and more secure it is.  This is a near perfect solution against security breaches because in order to hack the Bitcoin network you would have to change the blockchain. But in order to change this digital ledger you would have to concurrently have over 50 percent of the networks mining power (hash rate) on the network worldwide. The logistics of achieving this are extremely high.

Digging Deeper

Hashrate just so we all know is the unit which represents the number of double SHA-256 computations completed in one second on the bitcoin network when mining Bitcoin or other relevant cryptocurrencies.

Because mining difficulty is ever increasing people have started to ‘pool’ their Hashpower or Hashrate to increase their chance of solving the equation as a team and receiving the Bitcoin reward.  This reward is then split depending on the pool’s settings. Some are split evenly but most are split in ratio with how much hashrate you attributed to the pool attempting to solve that particular block.

This brings us to the Bitcoin Mining Reward.  When the equation is solved and a new block is discovered the person or pool which solved the equation is rewarded with a certain amount of Bitcoins which the network have accepted.  At present the reward is around 12.5 Bitcoins and having every 210, 000 blocks. They will also receive fees from user transactions. As less and less Bitcoins is created the fees from transactions will increase keeping miners happy with the rewards they are getting for keeping the network safe and functional.

Next: What is a distributed ledger?