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Chances are you listen to the phrase 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 away.

Far less glamorous but equally uncertain, bitcoin mining is done by high-definition computers which solve complex computational math problems (read: so complex that they cannot be solved by hand). The luck and work demanded by a computer to solve one of those problems is 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 solve these complex mathematics issues on the bitcoin networkthey produce new bitcoin, not unlike when a mining operation extracts gold in the ground. And second, by solving computational math problems, 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 greater detail, lets begin with a procedure thats just a little bit closer to home: the regulation of printed currency.

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Consumers tend to anticipate printed currencies, at least in the United States. Feeling because the U.S. dollar is backed by a central bank known as the Federal Reserve. In addition to a bunch of other responsibilities, the Federal Reserve regulates the production of new money and prosecutes the use of counterfeit currency. .

Even digital payments using the U.S. dollar are backed by a central authority. When you make an online purchase using your debit or credit card, by way of example, that transaction is processed by a payment processing company such as Mastercard or Visa. In addition to recording your transaction history, those companies verify that transactions are not fraudulent, and that's one reason that 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 backed by millions of servers throughout the world called miners. This network of computers performs the same function as the Federal Reserve, Visa, and Mastercard, but with a few important differences. Like the Federal Reserve, Visa, and Mastercard, bitcoin miners record transactions and check their accuracy.

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When someone makes a purchase or sale using bitcoin, we predict that a transaction. Transactions generated in-store and online are documented by banks, point-of-sale methods, and bodily receipts. Bitcoin miners achieve the same effect with no institutions by clumping transactions together in blocks and adding them into a public record called the blockchain. .

When bitcoin miners add a new block of transactions to the blockchain, a part of their job is to ensure that those transactions are accurate. (More on the wonder of how this happens in a second) In particular, bitcoin miners be certain bitcoin are not being reproduced, a unique quirk of digital currencies known as double-spending.

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Once you spend $20 in the shop, that invoice is in the clerks handson. With electronic currency, nevertheless, it is a different story. .

Digital information can be reproduced relatively easily, so with bitcoin and other digital currencies, there's a threat that a spender can make copy of their bitcoin and send it to another party whilst still holding onto the original. Let's return to printed currency for a moment and say someone attempted to replicate their $20 bill in order to spend both the original and the counterfeit in a supermarket shop.

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If the numbers were identical, then the clerk would know the money had been replicated. 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, however, verifying every one of these 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 had been 25, at the time of writing it's 12.5, and sometime in the middle of 2020 it will halve to 6.25. .

At this speed over here of 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 costly for miners to produce.

Here's the catch. In order for bitcoin miners to really earn bitcoin from verifying transactions, two things have to occur. To begin with, they must confirm 1 megabyte (MB) worth of transactions, which can technically be as small as 1 transaction but are far more often a few thousand, depending on how much data each transaction stores.