What is Bitcoin mining? Does it mean I can generate free Bitcoin from my computer? Is it still profitable to mine Bitcoin these days? Well, stick around... Here on The VIP Show, I’ll answer these questions and more. Bitcoin was created as a decentralized alternative to the banking system. This means that the system can operate and transfer funds from one account to the other without any central authority. With a central authority, transfering money is easy: Just tell the bank you want to remove $50 from your account and add it to someone else’s account. In this case, the bank has all the power, since the bank is the only one who is allowed to update the ledger that holds the balances of everyone in the system. But how do you create a system that has a decentralized ledger? How do you give someone the ability to update the ledger without giving them so much power that they will become corrupt or negligent in their work? Well, the rules of the Bitcoin system, known as the protocol solves this in a very creative way I like to call “Who Wants to Be a Banker?” In short, anyone who wants to participate in updating the ledger of Bitcoin transactions, known as the blockchain, can do so. All you need to do is guess a random number that solves an equation generated by the system. Sounds simple, right? Of course this guessing is all done by your computer. The more powerful of a computer you have, the more guesses you can make per second, this increasing your chances of winning this game. If you managed to guess right - you earn Bitcoins and get to write the “next page” of Bitcoin transactions on the blockchain. Here’s a more detailed breakdown of the mining process: Once your mining computer comes up with the right guess, your mining program determines which of the currently pending transactions will be grouped together into the next block of transactions. Compiling this block represents your moment of glory as you have now become the temporary banker of Bitcoin who gets to update the Bitcoin transaction ledger known as the blockchain. The block you’ve created, along with your solution is sent to the whole network so other computers can validate it. Each computer that validates your solution updates its copy of the Bitcoin transaction ledger with the transactions that you chose to include in the next block.As you can imagine, since mining is based on a form of guessing; for each block, a different miner will guess the number and be granted the right to update the blockchain. Of course the miners with more computing power will succeed more often, but due to the laws of statistical probability, it is highly unlikely that the same miner will do so every time. After this stage is complete, the system generates a fixed amount of Bitcoins and rewards them to you as a compensation for the time and energy you spent in solving the math problem. Additionally, you get paid any transaction fees that were attached to the transactions you inserted into this block. So that’s Bitcoin mining in a nutshell.
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