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However, just how can you create a system that has a decentralized ledger How can you give someone the ability to upgrade the ledger without giving them too much powerin case they become corrupt or negligent in their job

Well, Bitcoins rulesalso known as the Bitcoin protocolsolves this in a very creative way I like to call Who Wants to Be a Banker

In short, anyone who wants to take part in updating the ledger of all Bitcoin transactions, known as the blockchain, can do so. All you need is to guess a random number that solves an equation generated by the computer system. Sounds simple, right

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Of course, this guessing is all done by your computer. The more powerful your computer is, the further supposes you can make in one second, increasing your chances of winning this game. If you manage to guess right, you earn bitcoins and have to write the next page of Bitcoin transactions on the blockchain. .

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1. Once your mining computer comes up with the right suspect, your mining system determines which of these current pending transactions will be grouped together into the next block of transactions. Compiling this block represents the moment of glory, as youve now become a temporary banker of Bitcoin who has to update the Bitcoin transaction ledger known as the blockchain. .

2. The block youve created, along with the solution, is sent to the entire network so other computers can affirm it. Its a bit similar to some Rubiks cube: The solution is very hard to attain but very easy to validate.

3. Every computer which validates your solution upgrades its copy of this Bitcoin transaction ledger with the transactions you chose to include in the cube.

4. The system generates a predetermined amount of bitcoins (currently 12.5) and benefits them to you as compensation for time and energy you spent solving the math issue.

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5. Additionally, you get paid any transaction fees that were attached to the transactions you inserted into the next block.

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6. Each of the transactions in the block youve just entered are now confirmed from the Bitcoin network and are virtually irreversible.

How To Make Money Mining Bitcoin - An Overview

So thats Bitcoin mining in a nutshell. Its called mining because of the simple fact that this process helps mine new Bitcoins from the computer system. But if you think about it, the mining component is merely a by-product of this transaction confirmation process. So that the name is a bit misleading, since the main goal of mining would be to maintain the ledger in a decentralized manner. .

As you can imagine, since mining is based on a form of guessing, for each block, a different miner will guess the number and also be granted the right to update the blockchain. Of course, the miners with more computing power will succeed more often, but on account of the regulation of statistical probability, its highly unlikely that the same miner will succeed every time. .

Now you know what Bitcoin mining is, you might be thinking, Cool! Free money! Where do I sign up Well, not so fast

Satoshi Nakamoto, who invented Bitcoin, crafted the principles for mining in a way that the more mining energy the network has, the harder it is to guess the answer to the mining mathematics problem. So the difficulty of the mining process is actually self-adjusting into the accumulated mining capability the network owns. .

If more miners join, it will get more difficult to solve the issue; if many of them fall off, it is going to get easier. This is known as mining difficulty.

Well, he wanted to make a steady stream of new bitcoins into the system. In a sense, this has been done to keep inflation in check. Mining difficulty is set so that, on average, a new block will be inserted every ten minutes (i.e., the number is going to probably be guessed each ten minutes on average). .

Now, rememberthis is on average. We can have two cubes being inserted minute after minute and then wait an hour for the next block. In the long run, this may even out to ten minutes on average.

As you can imagine, this type of self-adjusting mechanism has made a type of arms race to get the most efficient and strong miners as soon as possible.

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When Bitcoin first started out, there werent a great deal of miners on the market. In fact, Satoshi, the inventor of Bitcoin, and his friend Hal Finney were a few the only people mining Bitcoin back in the time using their own personal computers.

Using your CPU this page (central processing unityour computers brain and an integrated component in any computer) was enough for mining Bitcoin back in 2009, since mining difficulty was low. Since Bitcoin began to catch on, people looked for more powerful mining solutions.