As the name implies, Bitcoin mining is a somewhat rigorous process of harvesting Bitcoin. Like mining for a rare commodity like gold or rubies, mining for Bitcoins is time-, energy- and money-consuming, but the return on investment is worth it. The procedure is intensive and has a uniquely designed protocol. It adds transactions to the blockchain and introduces new Bitcoins into the Bitcoin ecosystem.
Just as different governments around the world create their fiat currencies, Bitcoin mining is used for the creation of cryptocurrency but no government interference is involved, and it can be done from any location, by anybody in the world, as long as the resources are available. Think of it as making currency on the internet. It’s all digital. Bitcoin mining is not as simple as printing money notes, however. The supply is limited and regulated to stabilize the general flow of Bitcoins. Before understanding the entire concept of Bitcoin mining, it is important to have a good knowledge of the following terms.
- Bitcoin
Bitcoin is a digital currency that is globally accepted as a form of cryptocurrency payment. It is a decentralized currency, meaning it is generated sans any central bank or government agency. The Bitcoin network comprises a peer-to-peer system of participants that carry out encrypted transactions which are verified via cryptography. These transactions are saved in a public worldwide ledger called the blockchain. This makes the whole system transparent and void of fraud. - Proof of work
A proof of work is a piece of data that must be produced for a mining process to be successful. It is difficult to produce, and it must satisfy certain requirements. Bitcoin mining has been compared to playing a lottery because the proof of work is like the requirement for your “win” and the whole process is stringently random with low probability. Miners go through a lot of trial and error before proof of work is accepted.
Hashcash is the proof of work used in Bitcoin mining for block generation. Finding a block is what gives miners the incentive to earn Bitcoin as a reward. That is the ultimate goal.
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