July 28, 2021

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What is Blockchain and How Bitcoin Mining Works?

4 min read
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Bitcoin has made a mark in the minds of the people through the Internet, but in reality the state-of-the-art Internet technology like Bitcoin is still beyond the understanding of a common man.

The process of updating a transaction (transfer) in the public ledger of bitcoin is called bitcoin mining. Just like when you go to the bank to get the details of your transactions printed on your passbook, similarly the transactions of Bitcoin are also updated in its online ledger and this process is called mining. As your passbook contains the details of old transactions and after that you keep updating new details in the same way it happens in Bitcoin too.

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What is Blockchain?

The information of each past transaction is called a block and the transaction ledger of the previous transaction is called the blockchain in the world of Bitcoin. That is, when you go to update your old passbook, then the process of this updation can be called mining in the language of Bitcoin. The printed passbook with the previous transaction is your blockchain and the information of every debit/credit written on that passbook is the block. The blockchain serves to confirm transactions in the Bitcoin network.

People with better knowledge of the software work on it to do mining, that is, to verify the transaction of bitcoin and to add it online to the public ledger (ledger). People who do this work i.e. mining are called miners in the language of Bitcoin. And you will be surprised to know that in return the miners also get their fees and also get new bitcoins which are made in this mining process.

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Bitcoin Mining does both the things as it adds the new transaction to the block chain and also releases the newly created Bitcoin. Bitcoin Mining mainly consists of compiling recent transactions and preparing blocks and solving computationally difficult puzzles.

What is the purpose of mining?

The main purpose of bitcoin mining is to provide bitcoin nodes with a secure, phishing and tamper-free permission. Mining is also a mechanism that launches bitcoin into the system. Miners also receive fees for mining, as well as “subsidies” for new bitcoins.

This leads to the dissemination of the new coin in a decentralized manner as well as the purpose of providing the security of the system to the public. It is called Bitcoin mining because it is similar to mining other commodities: it requires labor and gradually provides new currency at a rate similar to mining gold from the ground.

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Apart from getting bitcoin from this mining process, you can also get it for currency exchange, online games, sale of products and services.

Bitcoin mining is deliberately designed to be extremely complex and to be processed by no resource. This helps to keep the block numbers mined every day constant for each miner. The validity of each block is determined by the “proof of work” associated with it, and this “proof of work” is checked by other bitcoin nodes in every transaction. And each time Bitcoin uses a function called hashcash to check this “proof of work”.

What is Proof of Work?

Proof of Work is a small piece of bitcoin data that forms the complex and time-consuming process of mining. The production of Proof of Work information can be a random process with little probability, so it takes several attempts to produce a valid Proof of Work. 

Bitcoin Mining, Big Source of Earning:

When a miner discovers a block, he receives a certain number of Bitcoins as a reward, which is the amount accepted by everyone in the network. And according to today’s price, the cost of 1 Bitcoin is approx $40,000 USD.

Bitcoins are like any other currency: they fluctuate just like the value of other currencies. Every time a bitcoin is purchased, its ownership changes, and its value is determined by the mutual consent of the seller and buyer at the time of exchange. It is the seller’s responsibility to pay a fair price. The difference between Bitcoins and other currencies is that there is no centralized bank that prints the currency and sets the prices. The value of bitcoin fluctuates through supply and demand in transactions.

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