How does Bitcoin mining work?

Bitcoin operates as a peer-to-peer network and anyone using Bitcoin has a known fraction of all the Bitcoin that will ever come into the system. It was programmed in such a way that only 21,000,000 Bitcoins will ever be mined on the network. All Bitcoin will have been mined by the year 2140.

The Blockchain

The blockchain is a distributed ledger of every transaction that has ever happened on the Bitcoin network. Miners who verify the transactions on the network will be awarded Bitcoin.

The way Bitcoin comes into circulation isn’t determined by the central bank or government. Bitcoins are not controlled by anyone in particular, rather it is decentralized.


How does Bitcoin mining actually work?

Bitcoin mining involves creating specially made hardware to hash SHA-256 algorithm hashes as quickly as possible. With this capability it is possible to search for and verify new transactions that have been broadcast onto the network.

The first miner who successfully completes a 10 minute block of transactions will be awarded a certain number of by the network, this number halves every 4 years.

What is “Hash” and “SHA-256″?

In order to decide which block of transactions will added next on the blockchain. Some sort of contest is held on the network to the miners. Say you are given a riddle, but you can’t solve the riddle logically, you have to take random guesses. These random guesses are called “Hashes”. Your “Hashrate” is essentially the number of guesses you can do per second.

SHA-256 is a computational algorithm used widely for encryption purposes. SHA is an acronym for “Secure Hashing Algorithm”.

What is Bitcoin Mining infographic