If you’ve ever wondered where Bitcoin comes from, or what Bitcoin mining is, you’ve come to the right place. Learning about Bitcoin or other crypto currencies is a bit like opening Pandora’s box, for every new term you learn it seems there’s100 more you now need to look up. So me and some of the investing experts at Finder put together this simple guide to explain
Bitcoin: The basics
What Bitcoin mining is and how it works. Before we get stuck in, let’s cover some Bitcoin basics. Bitcoin is a form of digital currency known as a crypto currency. It was originally created as a quicker, easier and cheaper alternative to using regular money, but these days most people buy it as a speculative investment. What’s really special about Bitcoin compared to regular money is that no single bank or institution is in control of it. Instead, Bitcoin works on a decentralised, distributed ledger, which is essentially a massive network of computers around the world that keeps track of all the payments and transactions. In this way, it’s very hard to defraud the Bitcoin network. This is because, with computers all over the globe verifying the same transactions, if one were to record an inconsistency the system would reject it and the transaction would be cancelled. The Bitcoin ledger or record is called a block chain, because the data can be thought of as blocks chained together by what’s called a has code, in this case, a 64 digit string of letters and numbers.
What is Bitcoin mining?
Bitcoin mining is the process by which new Bitcoin are created, or excavated from the Bitcoin network. But it is also the process by which the Bitcoin ledger is maintained. Similar to gold, part of the reason Bitcoin has value is because there is a finite amount of it. To stop the system spiraling out of control, plus a number of other very complicated mathematical reasons, there can only ever be a maximum amount of 21 million Bitcoin. And to date, over 18 million Bitcoin have been mined, so you can imagine it’s become a very lucrative business. Back in the day, with the right software, you could have mined Bitcoin on your home computer in front of the tele. Today, however, people have set up these massive computer systems in the race to mine Bitcoin as quickly as possible. So, how does it actually work?
How does Bitcoin mining work?
The first step is for Bitcoin miners to verify or process at least 1 MB of Bitcoin transactions, which effectively amounts to a new block of data on the Bitcoin block chain. This initial step is key in helping to maintain the Bitcoin ledger. Once they’ve done this, they’re eligible for a reward as long as they can crack a code. This code is the has code, remember that 64digit string of letters and numbers, that links the new block onto the existing block chain. This is where those powerful computer systems come into play as they can crunch a ridiculous amount of numbers very quickly, giving the miner who owns the system the best chance of being the first to get the correct or closest has code.
How much Bitcoin can you earn from mining?
These days, a new Bitcoin block is created on average every 10 minutes. With the number of Bitcoin available to be mined decreasing every 10 minutes, the amount of Bitcoin you can win for your hard work will reduce roughly every four years. Back in 2009, mining 1 block got you around50 Bitcoin. In 2012, that amount halved to 25 Bitcoin. This happened again in 2016 and 2020, so the amount of Bitcoin you get for mining 1 block today is only 6.25. If you want to keep track of these reductions, I’ve put a link to a really cool Bitcoin clock in the description below, that tells you the days, hours, minutes, seconds and blocks until the next halving. It’s worth noting that with so many millions of miners and systems working to crack the code, it’s very unlikely that one miner will ever earn the full 6.25 Bitcoin. Instead, most only get a fraction of this amount. But with 1 Bitcoin worth tens of thousands of pounds at the time of publishing this video, a fraction half bad. For more information on Bitcoin and other crypto currencies, visit finder.com.
You must be logged in to post a comment.