How does Bitcoin mining work?

Bitcoins are a type of currency unlike any other. The system is entirely based in the virtual world, and it has no centralized controlling entity residing over its operations. The system is based on cryptography, which essentially means that it uses computational protocols as opposed to human regulation. The result is a system that can’t be tampered with from the outside, and it creates an unusual opportunity for those willing to put forth a bit of effort. The opportunities are attributed to the way in which bitcoin transactions are verified. When a transaction takes place, it must be verified in order for it to be completed. Since there are no overarching regulatory figures to process the transactions, it must be done within the system, which is where bitcoin mining comes into play. As an incentive to get users to help with verifying transactions, bitcoins are paid to those who successfully verify a set of transactions. This is known as bitcoin mining.

Why Is It Called Mining?

The bitcoin network is a volatile system that works due to the trust of those using the system. The system has a maximum capacity of 21 million bitcoins, which means no more than that will ever exist, unless the bitcoin protocols are completely changed. The odd thing is that all 21 million bitcoins are not in circulation. In a strange way, they don’t even technically exist yet. The potential for them is there, but they must be unlocked or ‘mined’ from the system in order for them to reach circulation. Only about 75 percent of all bitcoins have been mined, and due to the increase in difficulty to find remaining bitcoins as more are found, it has been estimated that all bitcoins won’t be successfully mined under the current protocols until the year 2140.

The term ‘mining’ was applied to bitcoin creation because it is the closest real world practice to what is actually happening when you mine for bitcoins. Real miners put forth physical effort in the hopes of finding something valuable, whether it be gold, diamonds, platinum, or anything in high demand and low supply. Bitcoin miners also put forth effort, but their effort is in the form of computational power allocated to the bitcoin system to help verify transactions. When bitcoin transactions takes place, they are collected in the network in batches called blocks. These blocks are locked with a block chain that can only be removed if the correct key is used. The problem is that it takes roughly 2 billion attempts for a key to be correctly deciphered. Essentially, bitcoin miners are looking for a single germ on a needle in a haystack. Of course, when a miner successfully cracks one of the block chains, they are rewarded with 25 bitcoins. Even with the large amount of miners working consistently to unlock the block chains, it only occurs once about every 10 minutes.

Is Mining Bitcoins Safe?

Bitcoin mining requires a specific hardware and software configuration in order to access the network, and there are new systems being developed that are designed only to mine bitcoins. If you end up investing money in a system to mine bitcoins, you may end up loosing money if you never successfully unlock the block chain. The process is entirely safe in itself, since all you are doing is offering a portion of your computer’s processing power to verify bitcoin transactions. Many people use dedicated hardware modules separate from their computer to perform the calculations, which prevents your primary system from being affected by the process.

The nature of the system does make bitcoin mining quite competitive, though. It becomes harder for your system to unlock block chains as more people join in the effort, which maintains the 10-minute average time it takes to find a block. It works a lot like a lottery, because more participants means a smaller individual likelihood to win. The system is secure enough to stop cheating of any sort since individual bitcoin nodes automatically prevent corrupted software from entering the network.

What You Need

The first thing you’ll need if you want to start bitcoin mining is a bitcoin wallet. A bitcoin wallet is a piece of software that functions like your actual wallet, only in a digital sense. It is the place where you’ll store your bitcoins once you acquire them, and it protects your bitcoins against others just as your real wallet does. There are many different bitcoin wallets out there, and there are even some that come in a dedicated hardware shell, making them fully portable and completely protected from outside detection.

The next thing you’ll need is a piece of bitcoin mining software, and there are many examples of those available online as well. Once you download the software and start it up, the system will function on its own and you can start to see some earnings.