How Bitcoin is Mined (In Plain English)

Stephen Pelzel
Apr 5 · 3 min read
bitcoinist.com

Bitcoin is the worlds leading cryptocurrency, with a value of nearly $60,000 per coin at the time of writing this article. With new coins being mined every single day, and a steadily increasing value, mining Bitcoin must be the secret to becoming a cyrpto millionaire overnight… right? Well, not exactly. The act of mining Bitcoin is something almost anyone can do, but is a lot harder than the average person can reasonably invest in due to its highly competitive scene and the expensive hardware required to get coins. However, if you want to learn more about this process, or would like to get into mining yourself, I will explain how coins are generated and how people all over the world are getting involved in the race to mine this digital gold.

Where do Coins Come From?

To understand how coins are made first you must understand the system of trade that is Blockchain. Blockchain is the decentralized system that Bitcoin relies on to make transactions, and is also the source of Bitcoins themselves. In order for a transaction to occur in the blockchain, independent servers (aka Bitcoin miners) must decode an algorithmic password generated by a transaction request. Once the password is decoded, that server becomes the host for the transaction itself, updating the ledger of the blockchain. Upon completing the transaction on the host server, the owner of that server is rewarded in Bitcoin as well as a transaction fee reward. This is where Bitcoins come from. Essentially the Bitcoins are an incentive to keep the decentralized system of blockchain running smoothly by rewarding the servers that keep the system alive.

How are Coins Mined?

The code that generates the transaction passwords for blockchain is called the “SHA-256 Hash Algorithm.” This algorithm generate a ‘random’ password consisting of numbers, letters, and symbols. The ONLY way to crack this password is to make random guesses…. literally. Computers must input numbers, letters, and symbols as fast as computationally possible until they stumble upon the correct password for that transaction. This must mean the more powerful the computer, the faster the code is cracked, right? Wrong. The creator of Bitcoin made the algorithm so that the more powerful the computer processor, the more complex the password is to break. This is to ensure that a steady flow of Bitcoin is generated (about 1 every 10 minutes) and prevents inflation from someone who could own a $1,000,000 NASA supercomputer from mining all the bitcoin.

If that is the case, then you might be wondering why some companies and ventures invest in huge storage houses dedicated to mining bitcoins with the highest end tech. This is simply due to optimization the hash rate of generating coins (1 every 10 minutes), and typically these large operations are a congregation of people pooling together their resources to mine as efficiently as possible; with the reward of Bitcoin being evenly dispersed among the investors.

The current top producers of Bitcoin are in China (which produces nearly 70% of all new coins) and Iceland (about 12%). Although these locations are localized within geographical locations, the system of blockchain prevents any government from controlling the transactions themselves, protecting against central powers such as China from monopolizing Bitcoin. Anyone can get into Bitcoin mining from anywhere on Earth so long as you have the funds to invest and the will to push through potential volatility, which is what makes it so special.

If you liked this post, read “Why Blockchain is the Future of Digital Trading (Cryptocurrency),” where I write about the potential for blockchain to revolutionize the digital marketplace and the grown since the rise in popularity, and value, of Bitcoin and its crypto-competitors.

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Stephen Pelzel

Written by

Computer Engineering student at NOVA Community College. Coder, gamer, & tech enthusiast.

Upskilling

Upskilling is a collaborative platform for experts and learners to share knowledge. Bloggers, experts, and learners welcome. Email upskilling@pm.me to be added as a writer.

Stephen Pelzel

Written by

Computer Engineering student at NOVA Community College. Coder, gamer, & tech enthusiast.

Upskilling

Upskilling is a collaborative platform for experts and learners to share knowledge. Bloggers, experts, and learners welcome. Email upskilling@pm.me to be added as a writer.

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