What Is Bitcoin Mining?
What Is Bitcoin Mining? While what it is, how it works, and how it can be spent may be foreign to some, its name likely is not. Its name is Bitcoin. Bitcoin is of interest to polished investors, just as the newbies that are just trying their luck. Bitcoin as it is a high-risk investment that has gained a return of nearly six hundred percent since 2009. It is amazing, it is high risk, and it is intriguing to everyone from blue-collar workers to executives and business owners.
Bitcoin is a virtual currency, and while not exactly real it is worth a small fortune. Bitcoin’s intrigue is due to many different factors- an unknown creator, an investment that has skyrocketed since its release, and virtual technology that has even the most knowledgeable genius’ bidding for net power to crack codes. There is also the intrigue of only 21 million of these little Bitcoins being made, purposely designed for the coin to inflate in a steady and predictable pace. The real intrigue is how these Bitcoins are released. They are buried deep under complicated mathematical problems or codes that must be cracked for the coins to be released. As time goes on, the mathematical problems get tougher, so Bitcoins are harder to release. There is also the need for quite a bit of computer power to solve the equations, which leads to computers to being hacked for power.
Mining for Bitcoins is solving the mathematical problems or codes, which then releases Bitcoins. Bitcoin mining is much like the Gold Rush Days, only with Bitcoin there are only a certain number of Bitcoins, so the adrenaline is taking over with miners and hackers alike seeking their fortunes.
Mining for Bitcoins is not simple as many resources are necessary, as well as a great deal of energy. Mining for Bitcoins is not as simple as switching on the computer and entering a few numbers. Perhaps, if you are lucky enough to hit the right number through a sheer guess. However, it requires a great deal of energy to be burned and mathematical problems to be solved to earn or release Bitcoins. To mine for Bitcoins, a computer with a special program is necessary; and, of course, energy and some smarts or good luck. Bitcoins are hidden in “blocks” which are files with information about the Bitcoin network, and a permanent record. Blocks can be considered something like a page of a ledger book.
Finding a block is not mining Bitcoins as a mathematical problem must be solved. Bitcoin miners compete for mine Bitcoins, something like a race, racing to complete the current block to win and release the Bitcoins as their winnings. When a mathematical problem is solved that is linked to a block, Bitcoins are released. When Bitcoins were first released in 2009, 50 Bitcoins were released per block. As time goes on, the problems get harder to solve, and fewer Bitcoins are released, with currently 12.5 Bitcoins being released per block.
To mine, Bitcoins is having a computer, a special program, many resources, and a supply of energy as well as the smarts or luck to solve a complicated mathematical problem. When the problem is solved by a miner, the miner is awarded 12.5 BTC or Bitcoin currency symbol. The creation rate of Bitcoins is created on the difficulty of the mathematical problem. When a miner solves an equation, it is the difficulty of the mathematical problem that regulates the creation rate of new Bitcoins; so, in other words, the problems get tougher. Every four years, the number of Bitcoins awarded is halved. Also, when miners solve the equation, releasing the Bitcoins, they can keep any mining fees attached to the transactions they included in their blocks.
Hash functions are one-way encryptions without a key. You enter the hash value, and a fixed length hash value is returned. For instance, if you were to enter “how does mining work?” A hash value would be entered, and a message would be returned in a has value, which is coded to the correct response.
Hash values like “how do mining work?” would be entered as SHA-256, and the response would be a hash value in numbers and letters which comprise a code for the answer. For example, the response would be a sequence of number something like 46550fef 26… that would be decoded for the answer.
In Bitcoin, hash functions may be used to validate or prove work. When mining Bitcoins, miners compete to find an input that provides a has value. When mining miners’ computer is essential as it is used to guess and come up with a hash value that is lesser than the target. The miner first to succeed is awarded the Bitcoins for that block.
Who Mines Bitcoins?
Mining Bitcoins can be done by nearly anyone with a computer, the program, and enough energy to mine. There are those that simply compete, and those that hack to compete, and those that have set up Bitcoin mining as a business adventure, setting up warehouses with low electricity prices, and mine for profit.
When Bitcoins are released to, or purchased by, individuals they go into an e-wallet. Unlike traditional money, Bitcoins are not regulated by the government and cannot be insured in Banks, etc. They are a virtual money and one that if the site where they are stored is hacked, the owner has no recourse or claim for their Bitcoins.
As for who mines Bitcoins; anyone can mine Bitcoins provided that they have the equipment and energy. One needs to know that Bitcoin mining is highly specialized and typically it is people with the specialized hardware to mine, as well as cheap electricity and often big data centers. Knowledge and resources are necessary to mine Bitcoins.
Anyone interested in Bitcoin investments or mining should research the Bitcoin currency thoroughly. There is plenty of information on the Internet, as well as forums to gather information.
What Is Bitcoin Used For?
Bitcoin is a virtual currency that is considered a high-risk investment. High risk or not, it is an investment that has grabbed the attention of consumers and investors alike from around the world as it has gone from a value of pennies per coin from its first release in 2009 to a present value of around $600 a coin. The inflation of the coin is real; however, the coin itself is a virtual coin.
As a virtual currency, Bitcoins are stored in an e-wallet through a platform, and used online; however, there are Bitcoin kiosks that allow Bitcoin owners to cash in their Bitcoins for real money. Bitcoins can also be stored in a software wallet but the software needs to be purchased, as well as disk space on the user’s computer is necessary.
Bitcoin is the world’s first and most popular cryptocurrency, and since its early days where it could only be used on the net, and not through all net market sites, it can now be used for buying and selling everyday merchandise; as well as, can be exchanged for real dollars through Bitcoin kiosks.
Bitcoin is considered a high-risk currency; but, as of today it is predicted to be a stable currency that will gradually and predictably increase in value; however, it can rise and drop. Since its release, it has become a usable currency with no capital controls. This has its downfalls, as unlike banks where your money is insured should there be theft or fire or the like, your Bitcoin currency is not. Also, the lack of government regulations of the currency has led it to be a likable currency in the underworld such as with drug dealers. With no regulations, as well as owners being a number and not a name, drug dealers, etc. can exchange a high volume of Bitcoins without any recourse. If they were to take money in and out of the country, the government would have regulations and limits, as well as records of the personal information of the person, banks, amounts, etc. With Bitcoins, they can be exchanged from users in one country to another without any record.
As for the question of “what can Bitcoins be used for?” The answer is many things. Bitcoin is a virtual currency that needs to be accepted by online storefronts to use the currency. That is not to say that you’ll only find stores that you haven’t heard of accepting the currency. There are many top manufacturers like Dell that accept Bitcoin. Dell is possibly the largest retailer that accepts the virtual currency, allowing Bitcoin users to buy computers and accessories through their Dell site, and to pay for their purchases in Bitcoins. However, there are processing fees when using Bitcoin currency, which can reach up to 2.75 percent.
What else can Bitcoins be used for? How about that new trip you’ve been dreaming of? Mine a few Bitcoins and the trip is paid for. AirBaltic, a flag carrier of Latvia airlines now accepts Bitcoins as a source for airline tickets. Air Lituanica is also another airline that accepts the currency, so you can get up in the air, heading towards your vacation getaway. You can also have your room waiting and fully paid for when you arrive as many Hotels like can be purchased through sites like CheapAir, using the virtual currency.
There are also merchandisers like Prague Espresso Bar and Bitcoin Coffee that accept Bitcoins as payments. Pizza from Dominos Pizza and other like pizza chains can be purchased through PizzaForCoins. In 2010, a pizza purchase by Laszlo Hanyecz was among the first pizza for Bitcoin transaction where Laszlo exchanged nearly 10,000 Bitcoins he had mine for two piping hot pizzas. Today, those 10,000 Bitcoins would be worth over 4 million dollars.
Consumers have a wide selection of merchandise they can purchase with Bitcoins with merchandisers like OverStock and TigerDirect currently accepting the digital currency.
What Is The Future of Bitcoin
The Bitcoin digital currency is a high-risk investment; and, while the digital currency is predicted to continue to steadily inflate in value, there is no telling the future of the coin. There are many wealthy investors that are predicting that it will continue to rise, eventually being worth large values.
There are only 21 million Bitcoins that can be mined. As of today, 10 million Bitcoins have been mined, leaving 11 million unmined. Bitcoins have come a long way from a value of pennies per coin to hundreds of dollars per coin. They have also “hit the big time” with large corporations like Dell Computers accepting the digital currency, as well as Bitcoin kiosks where bitcoins can be exchanged for cash. As of today, the currency is not regulated by the government; however, in some countries like Australia, they are trying to change this. It is likely that more and more merchandisers will begin to accept the currency as it is a currency that is predicted to steadily increase in value.
For all newbies to Bitcoin currency, before deciding as to whether to invest in the currency, do your homework as there is plenty to learn about the currency.
How Cryptocurrency Works
Easily put, cryptocurrency is a virtual currency. It is an encrypted decentralized digital currency that is transferred between miners and investors and confirmed in a public ledger through mining for coins like Bitcoins.
Let’s consider the basics, such as public ledgers of cryptocurrency. Being a digital currency there is no actual dollar or coin, but simply record of the coin in the virtual world; a record that is stored in a public ledger. The coin owners are encrypted, and the cryptographic techniques of the system ensure the legitimacy of record keeping. The currency is kept in e-wallets through platforms or on software on the Bitcoin currency owners’ computers.
Cryptocurrency is used by transferring the funds between wallets. For instance, you may have a Bitcoin that is valued at $600 and can exchange the Bitcoin for goods at merchandisers like Dell Computers or transfer the Bitcoin to another e-wallet. When Bitcoins are exchanged, the transaction is recorded in a public ledger. The currency is taken from the e-wallet or wallet, and the wallet uses an encrypted electronic signature that provides mathematical proof that the currency / transaction is the rightful owner of the wallet.
With cryptocurrency, there is no printing of money, nor is the money regulated by the government or insured, so investors and currency owners are a bit vulnerable. Cryptocurrency is mined. For instance, Bitcoin currency must be mined for Bitcoins to be released. There is an actual number of Bitcoins (21 million) that are buried in blocks under difficult mathematical problems that must be solved for Bitcoins to be released. The miner that solves an equation is then awarded a specific number of Bitcoins. When a problem in the block is solved, the block of transactions is added to the ledger for public record. With the transactions, blocks, and blockchain ledger working together there is no way known to add or change a block at will, so the currency cannot be duplicated.
Cryptocurrency like Bitcoin is considered a high-risk investment. However, they are designed with different measures so that the cryptocurrency steadily inflates in value, and works on both large and small scales. For instance, Bitcoin is designed to allow a block to be mined every ten minutes, so approximately 12.5 Bitcoins are released every ten minutes, provided that the mathematical problem is solved. With every 2016 blocks or every two weeks, the algorithm adjusts to get easier or harder, based on how long it took for the 2016 blocks to be mined. With Bitcoins, the equations are said to get harder as fewer Bitcoins are left to mine. As time goes on, the number of coins released per block also become fewer.
With cryptocurrency, a cryptography system is used that controls the creation of the coins, as well to verify transactions. Cryptocurrency is controlled by code, not like currency that is controlled like a centralized government; however, it is not a physical currency like currency controlled by a centralized government, and are typically open source, meaning they are created by developers.
With cryptocurrencies or most of them, a proof of work system is used, since the currency needs to be mined to be released. This assures that there is a record of the mining and transactions. For instance, you solve a mathematical puzzle in a block for Bitcoins to be released, and the proof of work or the solution for the equation and the miner is recorded in a public ledger. However, the Bitcoin currency is not associated with a person’s identity, but a person’s wallet which will have an encrypted address and number as a means of identity, so it is virtually anonymous.
Cryptocurrency is designed to inflate in value. There are a specific number of coins that are generated and hidden in blocks that must be “cracked” for the coins to be released. When all the coins are mined, all the currency is in the hands of consumers and investors.
Cryptocurrency is unfamiliar to many people; and, many were introduced to cryptocurrency with the excitement of Bitcoin. Bitcoin is the world’s first cryptocurrency of its kind and one that has skyrocketed in value within a matter of years. Cryptocurrency like Bitcoin is considered a high-risk investment, but one that has the interest of even the general consumer. It is predicted that the last Bitcoins will be mined in 2040, which leaves plenty of time for the currency to continue to inflate in value.
As to what will happen when all the Bitcoins are mined; there are many guesses.