Since the dawn of commerce, humans have debated about the means of exchange. Bitcoin is a term we hear more often than once today, which is why we begin to wonder what is Bitcoin mining? From ancient bartering to the earliest coins out of Mesopotamia, the concern over actual value was constant.
In fact, Mosaic Law from the Old Testament states, “You must have accurate and honest weights and measures, so that you may live long in the land the LORD your God is giving you.” (Deuteronomy 25:15)
The world has come a long way since then, battling over gold standards and bimetallism as the basis of sound currency, and later over fiat money, the value of which is declared by government. Inevitably, 21st century monetary controversies involve the employment of technology that holds the potential to completely decentralize currency and the foundation of its value. The product of this technology is known as Bitcoin and its value rests purely in demand. That fact is central to what is Bitcoin mining.
What Is Bitcoin Mining?
Bitcoin is digital currency. Use of Bitcoin differs from other electronic financial transactions in that the latter represents real cash whereas Bitcoin represents only itself. Since no tangible money is exchanged, Bitcoin accruals and expenditures are listed on a public ledger.
Bitcoin balances are altered by means of keys: the public key is akin to an account name or number while the private key is more closely guarded. These keys are alpha-numeric sequences produced by a mathematical coding process. Those entities with computing power to generate these keys are then compensated in new bitcoin, which is said to be “mined.”
Who Mines Bitcoin?
The short answer is that anyone can mine Bitcoin – anyone, that is, who can group recent transactions into blocks and solve the algorithmic puzzle to release more bitcoin. With an internet connection and suitable hardware, anyone is enabled to perform Bitcoin mining. The size of block rewards of bitcoin is halved every four years as more Bitcoin is released. Bitcoin protocol calls for a limit of 21 million, after which no more Bitcoin will be mined.
However, if a transaction block is disputed, Bitcoin relies on consensus among miners to determine if the block in question should be added to the chain. The danger here is if one entity gains enough computational mining power to overwhelm the consensus, an episode known as a “51% attack.” Those with more block reward of Bitcoin have, accordingly, more mining power. This is why decentralization is so valued among bitcoin miners. Monopolies undermine security.
How Does Bitcoin Mining Work
All that said, what is mining Bitcoin precisely? Computers gather hundreds of pending transactions into a block every 10 minutes or so and create an associated mathematical problem. The first to decode the riddle then announces the answer to the network. If consensus confirms the answer, the block is added to the public ledger and the miner gets the reward in bitcoin… but not right away. Before the miner can collect, 99 more blocks need to be added. This requirement spurs miners to solve more algorithmic puzzles and validate the solutions of others. As a result, decentralization is preserved and the 51% attack noted above becomes less likely, a positive element of what is Bitcoin mining.
Still, the Bitcoin network is nevertheless vulnerable to combinations and monopolies. What is data mining, after all, if it can not be shared? Combinations of miners that merge their computing power are more apt to solve the puzzles more quickly and with greater frequency. When the price of bitcoin falls, so too does the value of mining, making 51% more achievable by determined crypto-cartels. To be sure, concern is widespread that such consolidation could occur where electricity is less expensive, thereby empowering those governments to a dangerous degree.
Three Tips for Mining Bitcoin
1. Take the time to understand what is Bitcoin mining software
This software works in two directions: it conveys the transactions to the miners and returns their efforts to the network block chain. The application is compatible with most operating systems and it provides up to date tallies of the miner’s activities. Some software works best for solo miners while other versions are optimal for those who pool their activity with others. The best systems have easily accessible – but totally secure – Bitcoin “wallets” to store bitcoin, while enabling the miner to buy and sell Bitcoin with little fuss. Research is key to purchasing the most effective software for executing what is Bitcoin mining.
2. Keep tabs on Bitcoin value
Bitcoin can fluctuate greatly in value. The market price of Bitcoin is often volatile and billions of dollars have come and gone in a matter of days. Understandably, if value sinks low enough, the effort required for bitcoin accumulation becomes more expensive. In this way, Bitcoin activity can become cost-prohibitive, especially for solo miners. Fortunately, there are several websites that keep track of bitcoin international exchange rates. Important to remember is that bitcoin is not issued by governments or central banks. Thus, announcements on interest rates and bond markets do not affect this cryptocurrency. Since its worth is dictated purely by demand, Bitcoin operates more like a hard commodity than does fiat money.
3. Be aware of competition
Although Bitcoin is the first and most famous electronic money, it is no longer the only cryptocurrency out there. Competitive miners are constantly working to determine what altcoin to mine. Litecoin, Peercoin, Primecoin and Namecoin are but a few of the newbies on the virtual currency scene. Although Bitcoin remains the dominant player in this field, do not discount the smaller competitors yet. In the 21st century, the only constant is change. What is Bitcoin mining today could be obsolete tomorrow.
All this should be encouraging to those interested in what is Bitcoin mining. Taking care to keep transactions secure; timing those transactions for best positioning in international markets; and keeping an eye on other cyber-currencies can all work together to make Bitcoin a wise investment.