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What is Bitcoin mining?

16 August 2021 Andrew Ludwig



Click on the video link to watch the short interview with David Farelo, Head of Operations and Trading @ CURRENCY HUB.

Bitcoin mining is performed by high-powered computers that solve complex, computational mathematical problems. These problems are so complex that they tax even the most powerful computers.

The results of bitcoin mining are twofold. When computers solve these complex problems on the Bitcoin network, they produce new Bitcoin (not unlike when a mining operation extracts gold from the ground). By solving these complex problems, Bitcoin miners earn Bitcoin and ensure that the Bitcoin payment network is trustworthy and secure by verifying the transaction information.

When a person sends Bitcoin somewhere, it's called a transaction. Transactions made in-store or online are documented by banks, point-of-sale systems and physical receipts. Bitcoin miners achieve the same result by linking transactions together in “blocks” and adding them to a public record called the “blockchain”. There are now an estimated 100,000 nodes actively maintaining records of these blocks so they can be verified into the future.

When Bitcoin miners add a new block of transactions to the blockchain, they need to make sure that the transactions are accurate and that Bitcoin is not being duplicated, a unique quirk of digital currencies called “double-spending”.

There are millions of Bitcoin purchases and sales every day and verifying each transaction can be a lot of work for miners. Miners receive Bitcoin whenever they add a new block of transactions to the blockchain.

The amount of new Bitcoin released with each mined block is called the “block reward”. The block reward is halved every 210,000 blocks or roughly every 4 years. This event is known as “halving” and last took place in May 2020.

This system will continue until around 2140. After that, miners will be rewarded with fees for processing transactions, which will be paid by network users. These fees will incentivise miners to continue mining and keep the network going. The idea is that competition for these fees will keep them low once halvings are finished.

 Article written by Andrew Ludwig https://www.linkedin.com/in/andrewjohnludwig/ , Head of Distribution @ CURRENCY HUB https://currencyhub.co.za/and founder of BLACK ONYX https://blackonyx.co.za/ and FUND HUB https://fundhub.co.za/.

Disclaimer: This article does not constitute financial advice. While the author and his firms are regulated by the FSCA, cryptocurrencies are not a regulated investment.  Please refer to CURRENCY HUB https://currencyhub.co.za/ a juristic representative of BLACK ONYX (FSP 47701) https://blackonyx.co.za/ for more information.

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