Many people have heard about the term Bitcoin floating around, but fail to understand properly what it is. This article looks at what Bitcoin is, and dissects one of the most important processes associated with this cryptocurrency – Bitcoin mining.
Bitcoin – A Brief Introduction
Bitcoin is a form of digital currency, or a cryptocurrency. Bitcoin is unlike traditional currency as it has no physical tokens or coinage, and there is also no centralized control in the way that banks or the government dictate the exchange rates of dollars – although it is possible to exchange Bitcoin for physical currency and vice versa. Bitcoin uses blockchain technology where transaction data is stored on a public ledger visible to everyone. This helps improve security as Bitcoin transactions are encrypted as a further safety measure.
Bitcoin was first developed and released in 2009, and since then the volume of Bitcoin circulating in the world has risen to huge levels. This is undoubtedly the most popular and widely known cryptocurrency available, and it is the digital currency that is most accepted as a form of payment in business.
Bitcoin Mining – The Integral Cog Of This Cryptocurrency
With traditional money, new currency such as banknotes and coins are simply produced by the government. This creation is regulated to avoid hyperinflation and the money is circulated into public use through various avenues.
The creation of Bitcoin currency, however, is completely different and uses a process known as mining. Bitcoins are effectively created as a reward from the mining process. This mining process is based on what is known as the Bitcoin protocol. It states that a total of 21 million bitcoins will exist at some point in the future. Bitcoin mining effectively brings these potential bitcoins into existence and thus fills the quota.
The actual mining process involves adding new transactional data to the Bitcoin blockchain ledger. In essence, the Bitcoin miners are enabling the bitcoin system to work by facilitating transactions. As a reward, they are granted Bitcoins. Whilst this may sound like an attractive and lucrative way to make some money and get involved in the Bitcoin phenomenon, there are several drawbacks to consider:
– The mining process requires a powerful computer with large storage capacity
– The mining process also uses a great deal of electricity
– There are many other miners to compete against for the available Bitcoins
– The mining rewards will slowly decrease as the number of Bitcoins in circulation increases
As you can see, it is not just a simple case of setting a computer up and downloading the mining software! As Bitcoin starts to become more popular and talked about in the general public, the negative aspects of the mining process are also starting to rear their heads. More people are realizing about the huge power consumption required and the negative impact this is having on our environment.
The consoling fact, however, is that eventually there will be no need for mining. Once all of the 21 million Bitcoins are mined, this operation will no longer have any value or requirement.
Article and infographic created by the crypto specialists over at BTXchange.io.