7 Easy Facts About Cloud Mining Profitable Explained
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Chances are you listen to the phrase bitcoin mining and your mind begins to wander to the Western fantasy of pickaxes, soil, and striking it rich. As it turns out, that analogy isnt too far away.
Far less glamorous but equally uncertain, bitcoin mining is done by high-definition computers which solve complex computational science issues (read: so complicated they cannot be solved by hand). The luck and work required by a computer to solve one of those problems is that the equivalent of a miner striking gold in the ground while digging in a sandbox.
The end result of bitcoin mining is twofold. First, when computers resolve these complex mathematics issues on the bitcoin network, they produce new bitcoin, not unlike when a mining operation extracts gold in the ground. And second, by solving computational mathematics issues, bitcoin miners create the bitcoin payment network trustworthy and secure, by verifying its transaction information. .
Theres a good chance all that only made so much sense. In order to explain how bitcoin mining functions in detail, lets begin with a procedure thats a little bit closer to home: the regulation of printed currency.
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Consumers tend to trust printed currencies, at least in the United States. Thats because the U.S. dollar is backed by a central bank known as the Federal Reserve. In addition to a bunch of additional responsibilities, the Federal Reserve modulates the production of new money and prosecutes the usage of counterfeit currency. .
Even digital payments using the U.S. buck are backed with a central authority. When you make an online order using your debit card or credit card, by way of instance, that transaction is processed by a payment processing company such as Mastercard or Visa. In addition to recording your transaction history, those companies verify that transactions are not fraudulent, which is one reason your credit or debit card may be suspended while traveling. .
Bitcoin, on the other hand, is not regulated by a central authority. Instead, bitcoin is endorsed by millions of servers across the world known as miners. This network of click computers performs the same function as the Federal Reserve, Visa, and Mastercard, but using a couple of important differences. Like the Federal Reserve, Visa, and Mastercard, bitcoin miners record transactions and check their accuracy.
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When someone makes a purchase or purchase using bitcoin, we call that a transaction. Transactions generated in-store and online are documented by banks, point-of-sale methods, and bodily receipts. Bitcoin miners achieve the exact same effect with no institutions by clumping transactions together in blocks and adding them to a public record called the blockchain. .
When bitcoin miners put in a new block of transactions to the blockchain, part of the job is to make sure that those transactions are true. (More on the magic of how this happens in a second) In specific, bitcoin miners make certain that bitcoin are not being duplicated, a unique quirk of electronic currencies known as double-spending.
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Once you spend $20 at the store, that invoice is in the clerks handson. With digital currency, however, it is a different story. .
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If the numbers were identical, the clerk would know the money had been duplicated. This analogy is similar to what a bitcoin miner does when they confirm new transactions. .
With as many as 600,000 purchases and sales occurring in a single day, however, verifying every one of those transactions can be a lot of work for miners, which gets at one other crucial difference between bitcoin miners and the Federal Reserve, Mastercard, or Visa. As compensation for their efforts, miners are awarded bitcoin whenever they include a new block of transactions to the blockchain.
In 2009, it had been 50. In 2013, it had been 25, in the time of writing it's 12.5, and sometime in the center of 2020 it will halve to 6.25. .
At this rate of halving, the total number of bitcoin in circulation will approach a limit of 21 million, making the currency more scarce and valuable over time but also more costly for miners to produce.
Here is the catch. In order to get bitcoin miners to actually earn bitcoin from verifying transactions, two things must occur. To begin with, they must verify 1 megabyte (MB) value of transactions, which can theoretically be as small as 1 transaction but are more often a few thousand, depending on how much information each transaction shops.