How is bitcoin Made?

A common question these days are ‘How is bitcoin made?’ Rather than giving you a long answer, let’s go with the small simple one: ‘bitcoin Mining!’ Here is a short video about bitcoin mining.

The purpose of mining

Mining has three purposes: to confirm and clear transactions, to create new coins and to make the blockchain secure and decentralized.

Mining is a competition with an economic incentive to confirm bitcoin transactions. The goal is to be the first one to solve a mathematical problem. By doing so, the miner will be the one to put the block of transactions permanently in to the blockchain, a public ledger. The winner creates new bitcoin that they will receive in their wallet. They also collect a fee from each transaction they have cleared. By mining, the miners support the decentralized blockchain structure.

How mining works

Coins are generated during the creation of each block at a fixed and constantly decreasing rate. As the times passes, the difficulty of the equations gets higher. The difficulty of the mining process also change depending on the amount of computing power connected to the network. More computing power makes it harder, less computing power makes it easier. This mechanism is built in to the system to make sure no more coins than intended are generated each day.

Mining can be seen as a guessing game. Miners are trying to find a solution to a mathematical problem, by guessing with different inputs. The first one to guess right, wins the block. Miners earn coins both from the transaction-fees and from creating new blocks.

The miners prove that they expended computing power when creating a new block for the blockchain. This block-specific proof-of-work is added to the blockchain together with the transaction records.

Every new block that is created contains both information about previous transactions and the new bitcoin that was created simultaneously with the new block.

Confirms bitcoin transactions

Besides minting new coins, miners also audit transactions and make sure that only the valid ones are approved and put in to the blockchain. The process is in place to eliminate double spending of the digital currency. Miners get paid for the auditing.

Can anyone mine bitcoin and other coins?

Working with cryptocurrency mining is growing in popularity. Pool mining means more people sharing the reward, but the technology behind it is the same: computational power is used to create new blocks and simultaneously create new coins. Companies invest millions in developing technology and/or purchasing equipment being used for mining coins.

As an individual you can be part of a mining pool. You dedicate your computer to a network of computers digging together.

Another alternative of pool mining is to buy computing power from the bitcoin cloud mining, which in most cases are large central computer systems. Be sure to research beforehand if you decide on this - there is a risk of fraud.