What is Bitcoin mining?
Does it mean I can generate
free Bitcoin from my computer?
Is it still profitable to
mine Bitcoin these days?
Well, stick around...
Here on The VIP Show,
I’ll answer these questions and more.
Bitcoin was created as
a decentralized alternative
to the banking system.
This means that the system
can operate and transfer funds
from one account to the other
without any central authority.
With a central authority,
transfering money is easy:
Just tell the bank you want to remove
$50 from your account
and add it to someone else’s account.
In this case,
the bank has all the power,
since the bank is the only one
who is allowed to update the ledger
that holds the balances of
everyone in the system.
But how do you create a system
that has a decentralized ledger?
How do you give someone
the ability to update the ledger
without giving them so much power
that they will become corrupt
or negligent in their work?
Well, the rules of the Bitcoin system,
known as the protocol
solves this in a very creative way
I like to call
“Who Wants to Be a Banker?”
In short,
anyone who wants to participate in
updating the ledger of Bitcoin transactions,
known as the blockchain, can do so.
All you need to do is
guess a random number that solves
an equation generated by the system.
Sounds simple, right?
Of course this guessing
is all done by your computer.
The more powerful of a computer you have,
the more guesses you can make per second,
this increasing your chances of
winning this game.
If you managed to guess right -
you earn Bitcoins and get to write
the “next page” of Bitcoin transactions
on the blockchain.
Here’s a more detailed breakdown of
the mining process:
Once your mining computer
comes up with the right guess,
your mining program determines
which of the currently pending transactions
will be grouped together into
the next block of transactions.
Compiling this block
represents your moment of glory
as you have now become
the temporary banker of Bitcoin
who gets to update
the Bitcoin transaction ledger
known as the blockchain.
The block you’ve created,
along with your solution
is sent to the whole network
so other computers can validate it.
Each computer that validates your solution
updates its copy of
the Bitcoin transaction ledger
with the transactions that
you chose to include in the next block.As you can imagine,
since mining is based on
a form of guessing;
for each block,
a different miner will guess the number
and be granted the right to
update the blockchain.
Of course the miners with
more computing power
will succeed more often,
but due to the laws of
statistical probability,
it is highly unlikely that
the same miner will do so every time.
After this stage is complete,
the system generates
a fixed amount of Bitcoins
and rewards them to you
as a compensation for the time and energy
you spent in solving the math problem.
Additionally, you get paid
any transaction fees
that were attached to the transactions
you inserted into this block.
So that’s Bitcoin mining in a nutshell.
