Without mining, the Bitcoin network would collapse because this process allows the peer-to-peer network to verify transactions and enable decentralized consensus building.
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- Without mining, the Bitcoin network would collapse
- Transactions made on the network are verified by miners. For this they are rewarded with newly generated units of the cryptocurrency
- Miners compete to solve complex arithmetic problems and generate new blocks in this way
- Mining is very complex and requires a lot of energy
- Special hardware is required to keep mining profitable
In this lesson you will learn the basics of Bitcoin mining.
Why do you need Bitcoin Mining?
Mining ensures that only legitimate transactions on the blockchain of a given cryptocurrency are verified. When mining, a stable settlement mechanism is provided to the network of a cryptocurrency.
In the context of cryptocurrencies, “miners” are computer owners who make the computing power of their computers available to the peer-to-peer network.
A bitcoin miner, just like a gold digger, needs two things:
Equipment and Energy . Instead of pickaxes and shovels, however, cryptocurrency “mining” uses computing power as “equipment.”
Miners are computer owners who provide the processing power of their computers to the network of a cryptocurrency based on a “Proof-of-Work” protocol. The first to verify a new block will be rewarded with newly generated units of cryptocurrencies . This reward is called “Block Reward”.
How does bitcoin mining work?
You already know how a Bitcoin blockchain works. Every 10 minutes, the miners’ computers (nodes) collect and bundle the transactions in blocks. This period of time corresponds to the Bitcoin block time. After that, cryptographic arithmetic tasks have to be solved. Whoever solves the arithmetic task first and thus checks a new block in the blockchain is rewarded with units of the cryptocurrency.
The goal of each miner is to be the first to solve the arithmetic task in order to be rewarded with a certain number of bitcoins.
As soon as a miner solves a math problem, the entire network is notified. The other nodes check the solution for correctness (proof-of-work) and the block is attached to the blockchain. For this, the miner receives a block reward.
Block rewards are intended to encourage all users in the network to participate in mining and thus maintain and maintain the system.
Without mining, blockchain technology would not work.
The more Bitcoins are created, the more difficult the arithmetic problems to be solved become. This means that miners have to increase the processing power of their computers in order to continue receiving block rewards for solving the math problem.
Solving arithmetic problems is so important because it protects the Bitcoin network from foreign attacks. Attempting to reverse a transaction in the blockchain would take 51% of the computing power of the entire network (= 51% attack).
Such an attack would prove to be very expensive and equally unsuccessful, since it is very expensive to change transactions that were already checked before the attack. The longer the transactions are in the past, the more complex an attack is.
As can be seen from the Bitcoin protocol, a maximum of 21 million Bitcoins are created (also “mined” or “mined”). Limiting the amount of bitcoins available could result in a significant boost in value.
Once all 21 million bitcoins are on the blockchain, miners are no longer rewarded with newly generated units, but with a percentage of the transaction fees.
What happens after all 21 million bitcoins have been mined?
As of August 28, 2019, there are 17,901,575 bitcoins in the blockchain. It is estimated that the last bitcoin will be created in 2140. So there is no reason to worry about this question just yet.
