This is a very interesting question that is being asked many times.
What is bitcoin?
Why should I take an interest in it?
As this cryptocurrency enters the mainstream, it’s important to understand how it works. So, what is bitcoin?
- Bitcoin is a digital asset that is kept on a public ledger.
- It operates on the blockchain.
- It is decentralised and unregulated.
- It is not like government-backed currencies.
What is the Blockchain and How does it Work with Bitcoin?
The blockchain is a public ledger that keeps a record of all bitcoin transactions, as well as filling and generating new ones.
- So, when Person A initiates a transaction to send to Person B, this creates what’s called a block on the blockchain.
- This block gets verified by hundreds, if not thousands, of computers all across the world.
- These computers all verify different cryptographic information of the block for the transaction. This way, the network cannot be easily tampered with.
If criminals try to compromise the transaction, they would have to compromise not just one computer, but thousands.
They would have to do it within minutes. This isn’t really possible. This system makes the network very secure.
What is Bitcoin Mining and How does it Work?
The blockchain operates by having many computers verify cryptographic information of the block.
These computers are known as miners. These miners are people living all over the world. A large number of them are based in China. They mine all the blocks that get created on the blockchain.
You may ask yourself: ‘What’s in it for the people mining bitcoin from their computers? Why would they go out of their way to consume electricity and computing power? What do they get out of it?’
Surprisingly, they can get a lot.
Currently, there is something called a block reward. When miners contribute to mining part of the block, bitcoin that is stored in the blockchain gets distributed out to these miners as a reward. This encourages them to keep mining.
There can only be a maximum circulating supply of 21 million bitcoin. Block rewards get halved roughly once every 4 years. As of November 2020, the block reward per block currently mined is 6.25 bitcoin. Block rewards are expected to hit zero by the year 2140.
So, at the moment, for everyone who is mining bitcoin on the blockchain, they get rewarded a piece of the 6.25 bitcoin that they mine.
Obviously, the more computing power a miner has, the bigger the contribution. So, the bigger the reward they might receive.
However, it’s important to understand that it is getting progressively harder to mine bitcoin. For example, back in 2009, the block reward was 50 bitcoin per block. Today, it is 6.25, and it’s going to shrink even further. This keeps the supply of bitcoin scarce and valuable.
How to Stay Up to Date with the Latest News on Bitcoin
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