Bitcoins are considered to be a very popular digital currency which is used like traditional currencies for buying products and services. Over the years, Bitcoin transactions are increasing, and many enthusiasts are excited about this new concept. Have you ever wondered where where digital currencies come from? With traditional currencies, governments or central bank decides when to print money. What about Bitcoin? It is an autonomous system which is not dependent on any single authority or government. There is where Bitcoin mining comes into the equation.
What is Bitcoin mining?
Bitcoin mining is like a lottery where the miner is competing with mining hardware and other miners on the same network to earn digital currencies. Bitcoin mining is a complicated process, and there are many new ranges of Bitcoin mining hardware becoming available in the market. With faster Bitcoin mining devices you can attempt more tries at solving a pre-determined mathematical equation virtually every second and this will help you win the lottery. The Bitcoin network adjusts itself every two weeks. Bitcoin mining secures all transactions which are recorded in the blockchain. In these random lotteries, electricity and mining equipment need enough investment; costs that must be shouldered by Bitcoin miners.
Miners use special software to solve a complex math problem, and with successful completion, they are issued a certain number of digital currencies in exchange. This is a smart and secure way to issue currency and at the same time provides an incentive for many people to mine. Bitcoin miners keep the network secure by approving transactions. Bitcoin mining is one important and integral part of this whole cryptocurrency concept and ensures equality by keeping the network safe, stable and secure.
How Bitcoin Mining Works?
Here is an explanation of Bitcoin mining process:
- Let us assume user A wants to buy goods from user B. User A sends a Bitcoin to user B.
- User B’s wallet announces a Bitcoin payment and this transaction is broadcasted to Full Nodes that are connected to user B. Full Node is a transaction relaying wallet that maintains a copy of complete Blockchain transactions.
- Full Nodes check user B’s spending against all pending transactions. Full Nodes broadcast this transaction across the network if there is no conflict. The transaction is not yet confirmed and here comes the role of Miners.
- Miners maintain a copy of Blockchain transactions and carefully monitor all newly announced transactions. User B’s transaction reaches a miner directly before it is relayed through the Full Node. Now miners start a race to complete the work so that it is accepted to rest of the network. Miners need to invest inexpensive hardware devices isa as to solve complex blocks. The reason being, a successful recording and verification of the transaction gives a miner some Bitcoin as a reward.
- The first miner who successfully solves the block containing user B’s payment announces it to the network. When other Nodes agree the block is valid, this new block is added to the Blockchain. With this, the payment status goes from pending to confirmed.
Now the question is: why mining is so difficult? There are only 21 million Bitcoin to ever be available and knowing this, why then is the distribution of Bitcoin not accelerated with growing power or advancements in mining hardware? This is the million dollar question, and every Bitcoin user needs to understand it. Distribution of Bitcoin is regulated by an algorithmic difficulty which adjusts the “Proof of Work” problem alongside how easily blocks are solved in a certain timeframe. This timeframe roughly takes “2016 block.” or 2 weeks. The difficulty falls and rises with computerized hashing power to maintain the average time between blocks at 10 minutes.
Is mining legal?
It’s legal, but it also depends on the circumstance and location of the miner. For instance, if someone is mining in a country where digital currencies are prohibited by law, you may find yourself in violation and subject to prosecution. But the good news is that there are very few countries where Bitcoin is forbidden by law. Presently, Bitcoin is permitted or unregulated in most countries. Mining is not an easy process and you need to double check current legal status with your country of residence and accordingly invest in the proper equipment for the mining process.