through the computerized medium. In order to explain how to invest in bitcoin and how Bitcoin mining works in greater detail here is FinanceShed’s analysis.
What Exactly Bitcoin Mining Is?
In a simple layman’s language mining is nothing but a record keeping service done by using computer processing. Bitcoin mining is a peer-to-peer computer process used to secure and verify bitcoin transactions on a decentralized network. Mining in a general sense means adding bitcoin transaction data to Bitcoin's global public ledger of past transactions.
This group of transaction formed is called a block. These blocks are built on top of each other by the miners and forms the chain. This chain of past transactions is called the block chain. The nods of Bitcoin use the blockchain to distinguish actual Bitcoin transactions from attempts to re-spend coins that have already been spent elsewhere. Bitcoin does not involve any government of any country as it is in the case of paper money. In this case, the Bitcoin miners use special software to solve math problems and then certain specific number of
Bitcoins are issued in exchange.
How Does Bitcoin Mining Work?
As the miners receive the transaction the first thing they do is verify that the transactions are valid or not and that all inputs to a transaction are completely used. If the inputs are already used, the transaction is invalid. If the ransaction is valid, the miner includes the same in the blockchain and then group these transactions into pairs and hash them together. The structure thus formed is called merkle tree and it is proof of every transaction in the block.
What Is Proof Of Work?
A proof of work is a piece of data that is to produce. In Bitcoin this difficulty self- adjusts every 2016 blocks which is roughly two weeks and it self-adjusts to get it to take 10 minutes to mine a block. So basically if it takes less than two weeks to get 2016 blocks, the difficulty increases and if it takes more than two weeks to get 2016 blocks, then the difficulty decreases.
How Does Mining Create New Bitcoins?
The basic objective of mining is to allow Bitcoin nodes to reach a secure, tamper- resistant consensus. Mining is the mechanism which is used to introduce bitcoins to the whole chain and the miners are rewarded on the newely created coins. This serves two purposes at a time which are:
(1) Disseminating new coins in a decentralized manner.
(2) Motivating people to provide security for the system through mining.
How Does Miner Get Reward?
When new block is discovered, the discoverer may be rewarded certain number of Bitcoins which can be agreed upon by everyone in the network. Additionally, the miner is also awarded the fees paid by users sending transactions which is an incentive for the miner to include the transaction in their block.