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Understanding Bitcoin

Bitcoin

Bitcoin isn’t like traditional print based currencies in that it operates completely online as a crypto currency. As a result most people aren’t aware of how exactly it works as it is a relatively new technology that only came to light in 2009. If you have heard of Bitcoin before it is likely you’ve heard the phrase ‘mining’ a lot and probably were confused with what it meant. In order to get Bitcoins, computers all across the globe ‘mine’ for coins by competing against one another.

What is mining?

Because Bitcoins are constantly being sent from person to person in transactions there needs to be a record in order to keep track of where Bitcoins have gone. 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

Blockchain 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.

The Mining Process

In terms of the process miners go through to confirm the transactions it starts with 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 ‘hash’. 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.

How Miners Compete?

Effectively miners spend their time 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.