A Biased View of How To Make Money Mining Bitcoin
However, just how can you create a system Which Has a decentralized ledger How do you give someone the ability to update the ledger without giving them too much powerin case they become corrupt or negligent in their job
Well, Bitcoins rulesalso known as the Bitcoin protocolsolves this in a Really creative way I like to call Who Wants to Be a Banker
In short, anyone who wants to take part in updating the ledger of Bitcoin transactions, known as the blockchain, can do this. All you need is to guess a random number that solves an equation generated by the computer system. Sounds easy, right
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Of course, this guessing is done by your PC. The stronger your computer is, the more supposes you can make in a second, increasing your chances of winning this game. If you manage to guess right, you earn bitcoins and have to write the next page of Bitcoin transactions on the blockchain. .
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1. Once your mining computer comes up with the ideal suspect, your mining system determines which of the current pending transactions will be grouped together into the next block of transactions. Compiling this block represents the moment of glory, as youve now become a temporary banker of Bitcoin who gets to update the Bitcoin transaction ledger known as the blockchain. .
2. The block youve generated, along with your solution, is sent to the whole network so other computers can affirm it. Its a bit similar to some Rubiks cube: The solution is quite hard to attain but quite easy to validate.
3. Each computer that validates your solution upgrades its copy of the Bitcoin transaction ledger together with the transactions you opted to include in the block.
4. The system generates a predetermined amount of bitcoins (currently 12.5) and rewards them as compensation for time and energy you spent solving the math problem.
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5. Additionally, you get paid any transaction fees that were attached to the transactions you inserted into the next block.
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6. All the transactions in the block youve only entered are now confirmed from the Bitcoin network and therefore are virtually irreversible.
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Therefore thats Bitcoin mining in a nutshell. Its called mining because of the fact that this process helps mine new Bitcoins from the computer system. But if you think about it, the mining part is merely a by-product of this transaction confirmation process. So that the name is a bit misleading, since the main objective of mining is to maintain the ledger in a decentralized manner. .
As you can imagine, since mining is based on a form of guessing, for every block, a different miner will guess the number and be granted the right to upgrade the blockchain. Of course, the miners with more computing power will succeed more often, but due to the regulation of statistical probability, its highly like it unlikely that the same miner will succeed each time. .
Now that you know what Bitcoin mining is, you might be thinking, Cool! Free money! Where do I sign up Well, not so fast
Satoshi Nakamoto, who invented Bitcoin, crafted the principles for mining in a way that the further mining energy the network has, the harder it is to imagine the answer to the mining math issue. So that the difficulty of the mining method is really self-adjusting to the useful reference accumulated mining power the network owns. .
If more miners join, it will get more difficult to address the issue; if many of them fall off, it will get easier. This can be known as mining difficulty.
Now, rememberthis is on average. We can have two blocks being inserted minute after minute and then wait an hour to the next block. In the long run, this will even out to ten minutes on average.
As you can imagine, this type of self-adjusting mechanism has made a type of arms race to acquire her response the most efficient and powerful miners as soon as possible.
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When Bitcoin first started out, there werent a great deal of miners out there. In reality, Satoshi, the inventor of Bitcoin, and also his friend Hal Finney were a couple of the only people mining Bitcoin back at the time using their own personal computers.
Using your CPU (central processing unityour computers brain and an integrated component in any computer) was enough for mining Bitcoin back in 2009, since mining difficulty was low. Since Bitcoin started to catch on, folks looked for more powerful mining solutions.