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Bitcoin Mining: what it is and how it works

Bitcoin Mining: what it is and how it works

By daniele

Nowadays, people talk a lot about bitcoin, its fluctuations, advantages, disadvantages, and how to invest, right? But do you really know how they are produced? Have you ever heard about bitcoin mining? 

Well, knowing that could help us better understand this new investment world in digital assets, which is gaining more ground and more followers. However, first we have to learn a couple things about this subject for background. 

Understanding Bitcoin

To begin with, you have to know that Bitcoin is one of the most popular types of cryptocurrencies, which are digital mediums of exchange that exist solely online. This kind of money runs on a decentralized computer network or distributed ledger that tracks transactions in the cryptocurrency

When computers on the network verify and process transactions, new bitcoins are created, or “mined.” These networked computers, or miners, process the transaction in exchange for a payment in Bitcoin.

Moreover, it is managed by blockchain, a specialized technology that powers many cryptocurrencies. In case you’re wondering, blockchain is a decentralized ledger that records all network transactions. 

Groups of approved transactions together form a block and are joined to create a chain. Consider it a long public record that functions similarly to a long running receipt. Bitcoin mining is the process of adding a block to the chain.

Furthermore, it is currently a cryptocurrency that’s gained wide popularity due to its wild price swings and surging value since it was first created in 2009.

What is Bitcoin mining?

Now it is time to talk about bitcoin mining, a process for creating bitcoins by solving extremely complicated math problems that verify transactions in the currency. When a bitcoin is successfully mined, the miner receives a predetermined amount of bitcoin. On the other hand, in current times, the prices of cryptocurrencies (and Bitcoin in particular) have skyrocketed so much that interest in mining has picked up as well.

Nonetheless, for most people, the prospects for Bitcoin mining are not good due to its complex nature and high costs. Then we’ll go over the fundamentals of how Bitcoin mining works in case you want to start exploring this world in depth.

How Bitcoin mining works

In order to successfully add a block, Bitcoin miners compete to solve extremely complex math problems that require the use of expensive computers and enormous amounts of electricity, which has drawn criticism from environmental groups and limits the profitability of miners. To win the contest, miners must first arrive at the correct or closest answer to the question, and the process of guessing the correct number (hash) is known as proof of work.

Miners guess the target hash by randomly making as many guesses as they can, which requires major computing power. The difficulty only increases as more miners join the network. At the end, if a miner is able to successfully add a block to the blockchain, they will receive 6.25 bitcoins as a reward. The reward amount is cut in half roughly every four years, or every 210,000 blocks. As of September 2022, bitcoin traded at around $20,000, making 6.25 bitcoins worth $125,000.