Bitcoin is an increasingly popular method of investment in 2017 especially as currency becomes more digitised. Whilst people in the world of Fintech are very much aware of Bitcoin, Blockchain, mining and all these terms, most people haven‚Äôt a clue what any of it means. To help you further understand Bitcoin and to potentially get you started up on this new crypto currency we have created this short and informative guide. If you are interested in the future of currency, keep reading.
What exactly is mining? It‚Äôs a term that comes up a lot with Bitcoin but seems a bit of a foreign concept in terms of computers. Effectively, because Bitcoins are continuously being sent back and forth from person to person through transactions every day, in order to track it all there needs to be a record of where Bitcoins go. All of this information is collected and separated into periods of time and put into a list which is called a Blockchain- another phrase you might have heard. It is then the job of the miners to confirm all of these transactions and write them into a public ledger.
Blockchain is another term you may have heard as it is the underlying technology of Bitcoin and is effectively lists of transactions made between any Bitcoin users within the network. When new blocks of transactions are created they are added to the Blockchain and this is a ledger that is constantly updated. Everyone who has participated in this transaction has a copy of this too so they can see every aspect of the transaction in real time.
For this process of mining to take place it all begins with miners going through and confirming the transactions by taking all the information from the block and applying a mathematical formula to it. This will then turn this lengthy block of information into a much shorter sequence called a ‚Äòhash‚Äô. The hash is made up of random numbers and letters and is stored with the block at the bottom of the Blockchain at that specific point in time. It is this hash that conforms the legitimacy of the transactions and proves that nothing has been tampered with or altered since that point in time. If any part of the Blockchain data is changed it changes the hash completely and everyone involved would know.¬† This is what makes this system so much more safe and secure than almost anything else in terms of data storage.
Ultimately what you see is miners constantly competing with each other trying to seal off a block first. The incentive to do so is that every time you successfully create a hash you receive 25 Bitcoins and the Blockchain is updated. Whilst this process sounds simple it is actually very difficult and has been made so by Bitcoin otherwise all the Bitcoins in circulation would be mined in a day. This process is very tech specific but if it were to be simplified, miners are constantly having to create new hashes by changing the data they have until they find the right sequence and the hash is a match. This is the process of how you mine Bitcoins.