What is Bitcoin mining? Why are Bitcoin miners important?

Bitcoin Mining “Discovers” New Bitcoin

Traditional economies are focused around the transactions that occur with fiat money. In the USA, our fiat currency is created by the Federal Reserve and printed by the US Treasury. The underlying mechanics can get complicated, but essentially, the government controls the production of money, paper money (fiat currency). Bitcoin is quite different, rather than being printed; it is discovered. This process of discovering new bitcoin is known as “bitcoin mining”. Bitcoin mining can be done on any computer capable of running the program, but is typically done on highly specified hardware, known as bitcoin miners. These miners can be plugged into computers USB ports, but are typically high-powered stand-alone units. The discovery of new bitcoin is one aspect of bitcoin mining while the other half is confirming transactions on the ledger.

Since people are constantly sending bitcoin, the miners need to be mining 24-7. It is also a decentralized network though, which means that the nodes work interdependently of each other, but with a common goal. Thus, each miner helps facilitate the record of transactions and are rewarded with bitcoin. albeit small, for confirming the transaction of bitcoin from one address to another. Without anyone recording the transactions, they wouldn’t exist. This is why bitcoin is so safe, because every node on the network eventually has the same ledger, verifying the balance of every address.

We believe understanding mining will assist in realizing the power of bitcoin.

Bitcoin Mining is Necessary to Maintain the Bitcoin Network

This ledger of all bitcoin transactions is known as the blockchain. It can be accessed and explored at blockchain.info, and a random (actual) transaction can be viewed here. Bitcoin miners are attempting to create a key through a set of calculations known as hashes. The greater the number of hashes per second, the larger the chance of generating a key. The key unlocks a new block, and all the miners responsible for calculating that key are approriately rewarded according to their hashes donated.

Antminer S7, 4.7 THs 2.85 BTC ($1228.26 at time of posting) – Courtesy BitMainTech © 2015

Bitcoin Mining Pool

But a general ledger has to be trusted, and all of this is held digitally. How can we be sure that the blockchain stays intact, and is never tampered with? This is where the miners come in.

When a block of transactions is created, miners put it through a process. They take the information in the block, and apply a mathematical formula to it, turning it into something else. That something else is a far shorter, seemingly random sequence of letters and numbers known as a hash. This hash is stored along with the block, at the end of the blockchain at that point in time.

Simply put, bitcoin mining doesn’t create bitcoin, it “finds them”

Although there are hundreds of mining calculators out there we prefer to use this bitcoin mining profitability calculator. It allows input for hardware cost, power consumption and shows daily, weekly, monthly, and annual returns. It also calculates for changes in bitcoin mining difficulty.

Bitcoin Mining is Necessary to maintain the Bitcoin network infrastructure

bitcoin minersBitcoin miners ensure that the transactions are confirmed on the blockchain. This also assists in verifying and disseminating the correct transaction information to other nodes on the bitcoin network. Fees may be added to all bitocin transactions in order to prioritize the placement of the new transaction on the blockchain.

Sending bitcoin doesn’t require a fee, but a higher fee guarantees the transaction is logged on other nodes quicker… confirming the payment and completing the transfer of bitcoin from one wallet to another

 

You can read Coindesk’s thorough article for all the techno-babble and geek-speak at: What is a Bitocoin Mining?

 

Michael

We believe Bitcoin has importance past it's monetary value. Decentralized systems have applications beyond economic theory. Keep following us, even if everything we write doesn't interest you our plan is to keep you interested. The future is now!

You may also like...