Bitcoin Mining
What is Bitcoin Mining?
Bitcoin mining is done by specialized computers. The role of miners is to secure the network and to process every Bitcoin transaction. Miners achieve this by solving a computational problem which allows them to chain together blocks of transactions (hence Bitcoin’s famous “blockchain”). For this service, miners are rewarded with newly-created Bitcoins and transaction fees.
What is Bitcoin Mining Actually Doing?
What is the point of Bitcoin mining? This is something we're asked everyday! There are many aspects and functions of Bitcoin mining and we'll go over them here. They are:
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Issuance of new bitcoins
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Confirming transactions
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Security
Mining Is Used to Issue new Bitcoins
Traditional currencies--like the dollar or euro--are issued by central banks. The central bank can issue new units of money ay anytime based on what they think will improve the economy.
Bitcoin is different.
With Bitcoin, miners are rewarded new bitcoins every 10 minutes. The issuance rate is set in the code, so miners cannot cheat the system or create bitcoins out of thin air. They have to use their computing power to generate the new bitcoins.
Miners Confirm Transactions
Miners include transactions sent on the Bitcoin network in their blocks. A transaction can only be considered secure and complete once it is included in a block.
Why?
Because only a when a transaction has been included in a block is it officially embedded into Bitcoin's blockchain. More confirmations are better for larger payments. Here is a visual so you have a better idea:
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Payments with 0 confirmations can still be reversed! Wait for at least one.
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One confirmation is enough for small Bitcoin payments less than $1,000.
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Enough for payments $1,000 - $10,000. Most exchanges require 3 confirmations for deposits.
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Enough for large payments between $10,000 - $1,000,000. Six is standard for most transactions to be considered secure.
Why Does Bitcoin Need Miners?
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In short, miners secure the Bitcoin network.
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They do this by making it difficult to attack, alter or stop.
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The more miners that mine, the more secure the network.
The only way to reverse Bitcoin transactions is to have more than 51% of the network hash power. Distributed hash power spread among many different miners keeps Bitcoin secure and safe.
Most Bitcoin mining is specialized and the warehouses look something like this:
How to Mine Bitcoins
Actually want to try mining bitcoins? Well, you can do it. However, it's not profitable for most people as mining is a highly specialized industry. Most Bitcoin mining is done in large warehouses where there is cheap electricity.