8 Easy Facts About How To Buy Bitcoin In Canada Shown
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Chances are you hear the term bitcoin mining and your mind begins to wander to the Western fantasy of pickaxes, soil, and striking it rich. As it turns out, that analogy isnt too far off.
Far less glamorous but equally uncertain, bitcoin mining is performed by high-definition computers which solve complex computational science issues (read: so complicated that they cannot be solved by hand). The fortune and work demanded by a computer to solve one of those problems is that the equivalent of a miner striking gold in the ground while digging in a sandbox.
The end result of bitcoin mining is twofold. To begin with, when computers resolve these complex mathematics issues on the bitcoin networkthey create new bitcoin, not unlike when a mining operation extracts gold in the ground. And second, by solving computational mathematics issues, bitcoin miners make the bitcoin payment network trustworthy and secure, by verifying its transaction information. .
Theres a good chance all of that only made so much sense. In order to explain how bitcoin mining functions in detail, lets begin with a procedure thats a tiny bit closer to home: the regulation of printed currency.
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Consumers tend to trust printed currencies, at least in the United States. Thats because the U.S. dollar is backed with a central bank called the Federal Reserve. In addition to a host of other responsibilities, the Federal Reserve modulates the production of new money and prosecutes the usage of counterfeit currency. .
Even digital payments using the U.S. buck are backed by a central authority. When you make an online order using your debit or credit card, by way of example, that transaction is processed by means of a payment processing company such as Mastercard or Visa. In addition to recording your transaction history, these companies verify that transactions are not fraudulent, and that's one reason your credit or debit card may be suspended while traveling. .
Bitcoin, on the other hand, is not controlled by a central authority. Instead, bitcoin is endorsed by millions of computers throughout the world called miners. This network of computers performs the same function as the Federal Reserve, Visa, and Mastercard, but using a few key differences. Like the Federal Reserve, Visa, and Mastercard, bitcoin miners record transactions and assess their accuracy.
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When look these up someone makes a purchase or sale using bitcoin, we call that a transaction. Transactions generated in-store and online are documented by banks, point-of-sale systems, and physical receipts. Bitcoin miners achieve the exact same effect with no institutions by clumping transactions together in cubes and adding them to a public record called the blockchain. .
When bitcoin miners useful site put in a new block of transactions to the blockchain, part of their job is to make sure that these transactions are accurate. (More on the magic of the way this happens in a second.) In specific, bitcoin miners make sure that bitcoin are not being reproduced, a unique quirk of digital currencies called double-spending.
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Once you spend $20 in the store, that invoice is in the clerks hands. With electronic currency, however, it is a different story. .
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If the numbers were identical, then the clerk could know the money had been duplicated. This analogy is very similar to what a bitcoin miner does when they verify new transactions. .
With as many as 600,000 purchases and sales occurring in a single day, nevertheless, verifying each of those transactions can be a lot of work for miners, which gets at one other key difference between bitcoin miners and the Federal Reserve, Mastercard, or Visa. As compensation for their efforts, miners are given bitcoin whenever they include a new block of transactions to the blockchain.
In 2009, it was 50. In 2013, it was 25, in the time of writing it's 12.5, and sometime in the middle of 2020 it will halve to 6.25. .
At this speed of link halving, the total number of bitcoin in circulation will approach a limit of 21 million, making the currency more scarce and precious over time but also more expensive for miners to produce.
Here is the catch. In order to get bitcoin miners to really earn bitcoin from verifying transactions, two things must occur. First, they need to verify 1 megabyte (MB) worth of transactions, which can technically be as small as 1 transaction but are more often several thousand, depending on how much information each transaction shops.