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12.10.2018

Mining Bitcoin What is Mining Bitcoin?

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In order to understand fully what happens, it is necessary to get a little bit technical. When miners identify the block, it is relatively useless in its current form. However, when the bitcoin hash algorithm is applied to a particular block, and it matches, the miner receives a particular number of bitcoin. Think of the hash algorithm as a sort of converter. When the block which can be arbitrary — meaning it can be of any length and composition is inserted into the hash algorithm the algorithm converts it into a standard length output called, in the world of cryptography, a digest.

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If the hash algorithm you calculate produces the right digests, you receive bitcoin. This, however, is not all. When mining bitcoin, you are also validating bitcoin transactions. When the block of transactions is created through the mining process, miners apply the hash algorithm as mentioned to the block.

The hash that this creates then gets stored alongside the block at the end of the blockchain. Without getting too technical, the key part of this process is that the hash of any block is created using the hash of the block before it in the block chain. Through this process, it validates the block that came before it in the chain, and in turn, the transaction.

This is a key part of the mining process and one that allows the bitcoin ecosystem to effectively regulate itself and avoid the need for external regulators such as central banks. So how can start mining bitcoin for yourself? The computer power required to generate a hash was far less than it is now, and so the cost of the electricity necessary to produce one bitcoin made it a profitable endeavour.

This may will be the case in the future, if the price of bitcoin rises further.

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