Bitcoin is the world’s first successful decentralized cryptocurrency as well as payment system. However, Bitcoin mining is shrouded in mystery for millions of people.
You need to know that Bitcoin mining is the process of creating new cryptocurrency by solving puzzles. Notably, it consists of computing systems equipped with specialized chips that compete in solving mathematical puzzles. Importantly, the first miner (as these systems are called) to solve the puzzle is rewarded with bitcoins. The mining process also verifies the transactions in the cryptocurrency network and makes them reliable.
For a short period of time, after Bitcoin was launched, it was mined on desktop computers with conventional central processing units (CPUs). However, the process was very slow. At the moment, this cryptocurrency is generated with the help of large mining pools spread across different regions.
Today, Bitcoin miners combine mining systems that consume a lot of electricity to mine the cryptocurrency.
For example, in regions where electricity is generated using fossil fuels, Bitcoin mining is considered harmful to the environment. Consequently, many miners have moved their operations to renewable energy locations to reduce the cryptocurrency’s potential climate impact.
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Bitcoin mining and people
Bitcoin mining uses large systems similar to data centers. They solve the mathematical puzzles created by the cryptocurrency algorithm to produce new coins.
By solving computational math problems, miners also make the cryptocurrency network trustworthy by verifying transaction information. Bitcoin miners verify transactions of 1 megabyte (MB) — the size of one block.
Interestingly, these transactions could theoretically be as small as a single transaction; however, in many cases there are several thousand, depending on how much data each transaction stores. It should be noted that the idea behind verifying transaction information is to prevent double spending.
In case printed currencies, counterfeiting is always a problem. But usually, when you spend $20 in a store, that bill is in the hands of the retailer. Digital currency, however, is a different story.
It should be noted that digital information can be reproduced relatively easily, so with Bitcoin and other cryptocurrencies there is a chance that a spender could create a copy of their Bitcoin and send the copy to another party while still keeping the original.
It is important to remember that Bitcoin transactions are combined into blocks that are added to a database called the blockchain. Notably, the full nodes in the network keep a record of the blockchain as well as verify the transactions that take place on it.
Miner download completely history of blockchain and collect valid transactions into a block. It is important to note that if a block of collected transactions is accepted as well as authenticated by other miners, then the miner receives a block reward.
Importantly, on May 11, 2020, Bitcoin reduced its mining reward for the third time, from 12.5 to 6.25.
Interestingly, the block reward is halved every 210,000 blocks. In 2009, there were 50. In 2013, the amount of the award dropped to 25, and in 2016, it became 12.5. In 2020, the reward size was changed to 6.25.
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