As Cryptocurrencies become popular, more people ask what is Bitcoin and blockchain, how Bitcoin mining does work, is investing in Cryptocurrencies worthy. Unlike paper money, where governments controll the print and destribution of money, central autorithy does not govern bitcoin. The participants use special software to solve mathemathic problems and by doing so they receive sertain amount of bitcoins as a reward. This is how the currency is distributed. This also gives people incentive to mine.
How Bitcoin mining does work
The Blockchain takes key part in Bitcoin mining. This is the public ledger. The purpose of the blochchain is to add and verify transactions. Those transactions are compiled into blocks and the miners try to solve math problems with increasing difficulty. The one who solves the problem claims the reward and places the new block on the blockchain. Both the newly released Bitcoin and the fees associated with it are the reward.
What is The Blockchain
The Blockchain is rather not a completely new technology. Diffrent components of it are used before the introduction of Bitcoin. But combining all of them with encryption is what make sit revolutionary. A person or a group of people known as Satoshi Nakamoto introduced the Bitcoin Blockchain. In it’s core the Blockchain allows people to contact directly with each other. Thus it removes the need of a middle man, such as banks. The blockchain allows distribution of information without coppying it.It basicaly provids decentralized database, that everyone can see(digital ledger). In order to verify an exchange every computer in the chain must approve it.
Proof of Work
The proof of work is a piece of data that must satisfy certain requirements and was time consuming and dificult to produce. Because of how Bitcoin mining does work it requires a lot of trials and errors on average in order to produce a valid proof of work. The reason is that it can be a random process with low probability. Bitcoin uses the hashcash system as a proof of work.
Hashcash proof of work
Adam Back introduced the Hashcash proof of work in 1997. This is the Bitcoin netwok mining core. The bitcoin miners create hashcash proofs of work which are basicaly votes in the blockchain and validate it’s transaction log.
Bitcoin Mining Dificulty
Mining a Bitcoin block is difficult because the hash must be bellow the Global Bitcoin difficulty target.Mining pools also have a specific difficulty. In simple words the hash of every block starts with a number of zeroes. The more zeroes it has the more calculations we must make in order to solve the math problem. The bitcoin mining difficulty is stored in blocks and the minium difficulty is 1. The maximum is large enough number to not worry that the limit will be a problem in the future.The maximum difficulty is 2^224.
What is the purpose of Bitcoin Mining Difficulty
The bitcoin protocol allows the ceration of a new bitcoin every 10 minutes so it regulates the release of new bitcoins. The difficulty regulates how quickly they solve the math problem and release a new bitcoin. They calculate the updated every 2016 blocks, so the blocks don’t come too fast or slow. Because there is more computing power added to the network every day, there is the need to increase difficulty. The difficulty is an important metric for miners. When they point their hash power to the Bitcoin network, the difficulty shows them how fast they will make their investment back.
In the bitcoin network miners approve transactions. This is the reason it is so secure. Mining and miners are integral part of the network and make sure it is safe and stable, also more secure.