If you have been hanging around the Internet cryptocurrency circles for some time, inevitably you may wonder “How is Bitcoin itself created?” The short answer to that is that Bitcoin is produced through “cryptocurrency mining”. But that may puzzle you even more, especially if you come from a layman’s perspective. So let’s explore Bitcoin mining in more detail then.
The Practicality Of Mining Bitcoin
The very first aspect of Bitcoin mining that you should know is that it is very expensive to engage in it. The mere act of creating one Bitcoin is so expensive that it is not economically practical to produce it.
This means you would be spending so much electricity to create one Bitcoin that the cost would greatly surpass the economic value of each cryptocurrency. It’s akin to spending 1000 US dollars to produce one penny – it doesn’t make sense, does it?
But there are still people who aspire to become Bitcoin miners since they anticipate the financial rewards that come with success. So how does the mining process itself work? Well, you have to understand complex math formulas to fully understand it.
Basically, it all starts with one coin being mined. There is one “block” added to each coin “block”. The idea is to connect each block in the “blockchain” one after the other with one block considered one transaction.
The key to the blockchain’s trustworthiness is that anyone who would want to alter one block in the chain would have to alter all the blocks in that particular chain to succeed.
Otherwise, the other blocks would reflect that an anomaly has occurred and the alteration would show up. For this reason, many people think that blockchain technology itself is credible.
The Bitcoin Mining Process
You need to understand Bitcoin mining in the context of the proof-of-work system (or PoW) and its effect on the peer-to-peer network of cryptocurrency. The proof-of-work system refers to the mathematical problem itself that is the basis of blockchain technology. But the key is that this problem can itself be verified, hence there is “proof” of the “work” done.
Without a PoW system, blockchain technology would not be trustworthy. And to understand PoW completely, as mentioned, you need to solve complex mathematical problems that will, if you’re lucky or exceptionally gifted in these, result in creation of one Bitcoin.
In fact, many of the people who attempt to enter Bitcoin mining may fail because they just don’t know the solutions. And they might also not know how to “verify” the solution itself. For some, this is a tantalizing challenge that they have to address over and over again until they get it right.
A “Brute Force Attack”
One concept that you may also find interesting that could be related to Bitcoin mining is a “brute force attack”. At its simplest, this means that someone who is trying to solve a particular mathematical problem in a computer system (usually to find the correct password) may just send solution after solution to the system itself until he accidentally hits on the correct solution to gain entry.
So, in the context of Bitcoin mining, a “brute force” follower could keep trying to solve the complex mathematical problems given in multiple attempts that might or might not result in creation of one Bitcoin.
Since we now know that it is very costly in terms of electricity usage to do Bitcoin mining, this process of “brute force” attempts would be instigated by individuals or groups that have access to cheap electricity or have very large budgets for their actions. Or perhaps they just don’t realize how hard this kind of “campaign” would be until their subsequent attempts have failed.
Bitcoins as Tokens
The miners who are lucky or skilled enough to discover the solution that will create one Bitcoin are actually rewarded with tokens by the network itself. As Investopedia describes it, these Bitcoin miners are considered “auditors” who are tasked with “verifying” the blockchain’s transactions to see if they are “trustworthy”.
The Double-Spending Problem in Bitcoin Transactions
One reason that Bitcoin miners are rewarded as auditors is that they help solve or prevent the “double-spending problem”. Investopedia explains that it is possible that digital money such as cryptocurrency can be “copied” so that the user will be able to use the same cryptocurrency in multiple transactions. (For ease of thinking, it is called double-spending).
This means that if User A tries to buy an ice cream cone from Merchant A with a Bitcoin, User A might use a copy of that same Bitcoin to buy another ice cream cone from Merchant B.
This is an important problem because if this were to work then the whole trustworthiness of the blockchain, particularly Bitcoin, would be compromised. It would mean that Bitcoin itself is not a credible currency to use in any transaction, which would be disastrous for the entire network.
For this reason, the community of Bitcoin advocates and users allow Bitcoin mining to continue and even encourage it. The community believes that Bitcoin miners will help assure everyone that the network is safe to use over time.
Bitcoin miners also receive support from the Bitcoin community that they may be able to produce new Bitcoins into the system. Though this is incredibly expensive and difficult, it is still possible but increasingly projected far off into the future.
Investopedia claims that the final bitcoin would gain circulation only by the year 2140. It remains to be seen however if it will come to pass. For now, Bitcoin mining is something that anyone can aspire to, assuming you have the resources to carry it out.