What is bitcoin mining?
Bitcoin mining is the pillar that keeps the Bitcoin system upright, functioning, and thriving. It is based on a type of governance mechanism called a distributed proof-of-work (PoW), designed to incentivize participation and facilitate Bitcoin’s network growth, security, and decentralization.
Bitcoin issuance is identified as mining because it recalls mining gold and other minerals, even though there’s no digging deep underground or in caves. In short, bitcoin mining can be explained as the process that enters new bitcoin into circulation and adds new transactions to the Bitcoin timechain (also called a blockchain).
These two apparently simple performances are possible due to a robust system of computation operating in conformity with the rigorous Bitcoin protocol and governance to create the solid, decentralized, and innovative monetary system we know today.
This article explains how such a technological and economic structure works while trying to debunk misconceptions around its energy consumption with accurate data and solid reasoning. Don’t forget to scroll through the FAQ section to explore the highlights of Bitcoin mining.
The solution to transaction fraud
Bitcoin mining creates new blocks and adds them to the ledger adhering to predefined rules. The network’s participant nodes must agree that users, identified publicly by cryptographic addresses, are the legitimate owners of bitcoin balances.
Miners perform a coordination function for the Bitcoin network that, in traditional payment systems, is executed by a trusted intermediary, like a bank or any other financial institution.
To eliminate the reliance on a trusted third party, Bitcoin needs to prevent funds from being double-spent or spent by anyone other than its owner.
The use of digital signatures, a cryptographic invention of the 1970s, prevents unauthorized users from spending other people’s money. A private-public key pair is a strong proof of ownership that allows only the private key holder to spend or move bitcoins.
However, digital signatures alone do not ensure that the bitcoin received as payment have not also been spent somewhere else (the double-spending problem).
To resolve this issue, Satoshi used Adam Back’s hash-based PoW to allow transactions to be ordered chronologically into blocks and the network to achieve agreement on the ledger’s current state by pursuing the longest chain of blocks.
This mechanism secures the blockchain from attacks since transactions only become reversible if a malicious actor redoes all the preceding blocks’ PoW. Given that new blocks are constantly added to the chain, it is virtually impossible for such actors to catch up.
How does bitcoin mining work
Mining requires a massive effort translated into an enormous amount of computation using systems similar to data centers. Application-specific integrated circuit (ASIC) computers are employed to provide the computational power to miners, who compete to be the first to append the next block to the blockchain, issuing new coins and making the cryptocurrency’s network trustworthy.
Mining creates trust by ensuring that transactions are confirmed only when enough computational power has been committed to the block that contains them. The more blocks are generated in the chain, the more trust is created.
Miners add a variable amount of transactions which are bundled in a block. There’s no set number of transactions included in a block because it depends on their stored data so that each block can contain from one single transaction to several thousand. The amount of bitcoin to be issued is fixed and diminishes with time through the halvening (aka halving) event occurring every four years.
Why mine Bitcoin
Just like gold or any other mineral requires hard physical work to be mined and entered into circulation, Bitcoin requires hard computational work to be issued . This computational effort is a necessary step to ensure its security.
Why…
Read More: bitcoinmagazine.com
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