BITCOIN MINING: A BRIEF OVERVIEW
The primary questions that remain unanswered to many are: What is bitcoin mining or where do bitcoins come from?
Let’s have a look at it in an interesting manner.
We know that money as a medium of exchange solved many problems like double coincidence of wants and thereby eliminated the barter system. Similarly the use of cryptocurrency as an advanced way, promises easy, secure and timely transfers. Thereby it is likely to replace the traditional means like paper money.
Money is created by a central agency but bitcoins are created by the process of mining.
The mining process involves compiling recent transactions into blocks and trying to solve a computationally difficult puzzle. The first participant who solves the puzzle gets to place the next block on the block chain and claim the rewards. The rewards incentivize mining and include both the transaction fees as well as the newly released Bitcoin.
1. Firstly, there are a group of bitcoin miners who attempt to try and find a new block by solving puzzles. Statistics show that once in about every ten minutes a miner succeeds. Consequently he adds a new block to the block chain.
2. Secondly, anyone can become a bitcoin miner to try and earn these coins. However, bitcoin mining has become increasingly specialized over the years and nowadays its mostly done by dedicated professionals with specialized hardware, cheap electricity and often big data centers.
3. Thus, bitcoin mining is about finding the new block in a specific time frame as there is immense competitiveness in the market. You need to invest significant time and resources to achieve the same.
Thus, bitcoin mining is the means by which new Bitcoins are brought into circulation. Additionally as more and more computing power is used in mining, the difficulty of the puzzles increase, keeping profitability in check.