How does Bitcoin Mining works
You want to start mining and earn bitcoin? Here we tell you the basics about Bitcoin Mining.
Why do you need Bitcoin Mining?
Mining ensures that only legitimate transactions are verified in the blockchain of a given cryptocurrency. Mining provides the network of a cryptocurrency with a stable settlement mechanism.
In the context of cryptocurrencies, „miners“ refer to computer owners who provide the computing power of their computers to the peer-to-peer network. A Bitcoin miner, just like a gold miner, requires two things:
Equipment and power. Instead of picks and shovels, however, the „mining“ of cryptocurrencies uses computing power as „equipment.“
Miners are computer owners who provide the computing power of their computers to the network of a cryptocurrency based on a „proof-of-work“ protocol. The first to verify a new block is rewarded with newly generated units of cryptocurrencies. This reward is called a „block reward.“
How does Mining work?
You already know how a Bitcoin blockchain works. Every 10 minutes, the computers of miners (nodes) collect and bundle the transactions into blocks. This time period corresponds to the Bitcoin block time. After that, cryptographic computational tasks have to be solved. The first person to solve the calculation task and thus verify a new block in the blockchain is rewarded with units of the cryptocurrency. The goal of each miner is to be the first to solve the arithmetic task in order to be rewarded with a certain number of Bitcoins.
Once a miner solves a computational task, the entire network is notified. The other nodes check the solution for correctness (proof-of-work) and the block is appended to the blockchain. In return, the miner receives a Block Reward.
Block Rewards are intended to encourage all users in the network to participate in mining and thus maintain and sustain the system.
Without mining, blockchain technology would not work.
As more Bitcoins are created, the computational tasks to be solved become more difficult. That is, miners must increase the computing power of their computers to continue receiving block rewards for solving the computational task.
Solving computational tasks is so important because it protects the Bitcoin network from outside attacks. Attempting to reverse a transaction in the blockchain would take 51% of the computing power of the entire network (= 51% attack).
Such an attack would prove to be very expensive and equally unsuccessful, as it is very costly to change transactions that have already been verified before the attack. The longer the transactions date back, the more costly an attack.
As can be seen from the Bitcoin protocol, a maximum of 21 million Bitcoins are created (also „mined“ or „prospected“). Limiting the amount of Bitcoins available could lead to a significant boost in value.
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