How Bitcoins Are Made for Dummies

The 6-Minute Rule for How Bitcoins Are Made


Let's say you had one legit $20 and one quite good photocopy of that same $20. If someone were to attempt to spend both the true bill and the fake one, someone that took the trouble of looking at either of those bills' consecutive numbers would see that they were exactly the same number, and consequently one of them had to be false.

That isn't a great analogy--we will explain in more detail below. .

Once a miner has verified 1 MB (megabyte) worthiness of Bitcoin transactions, they are eligible to win the 12.5 BTC. The 1 MB limit was established by Satoshi Nakamoto, and is an issue of controversy, as some miners think the block size ought to be increased to accommodate more information.

Note that I said that verifying 1 MB value of transactions makes a miner eligible to earn Bitcoin--not everyone who supports transactions will get paid out.

1MB of transactions can technically be small as 1 transaction (though this is not in any way common) or several thousand. It depends on how much data the transactions consume.

In order to earn Bitcoin, you need to meet two conditions. One is a matter of work, one is a matter of luck.

2) You have to be the first miner to reach the perfect answer to some numeric problem. This practice is also known as a proof of work.

The good news: No advanced math or computation is involved. You might have discovered that miners are solving difficult mathematical problems--that's not true in any way. What they're doing is trying to be the first miner to think of a 64-digit hexadecimal number (a"hash")  which is less than or equal to the target hash.

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The bad news: Because it is guesswork, you need a lot of computing power in order to get there first. To mine successfully, you need to get a high"hash rate," that is measured in terms of megahashes per second (MH/s), gigahashes per second (GH/s), and terahashes per second (TH/s).

If you want to estimate how much go to these guys Bitcoin you can mine with your mining rig's hash rate, the site Cryptocompare offers a very helpful calculator.

Either way a GPU (graphics processing unit) miner or an application-specific integrated circuit (ASIC) miner. These can run from $500 into the tens of thousands.  Some miners--especially Ethereum miners--buy individual graphics cards (GPUs) as a low-cost way to cobble together mining operations.  The photo below is a makeshift, home-made mining machine.  The graphics cards are such rectangular cubes with whirring circles.  Note the sandwich twist-ties holding the graphics cards into the metal rod.

ExampleI tell three friends I'm thinking about a number between 1 and 100, and I write that number on a sheet of paper and seal it in an envelope. My friends don't have to guess the specific number, they simply must be the very first person to guess any number that is less than or equal to the number I'm thinking of.

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Let us say I'm thinking of the number 19. If Friend A guesses 21they lose because 21>19. If Friend B guesses 16 and Friend C guesses 12, then they've both theoretically arrived at viable answers, since 16<19 and 12<19. There's no"extra credit" for Friend B, even though B's answer was nearer to the target answer of 19. .

In Bitcoin terms, simultaneous answers happen frequently, but in the end of the day there can only be one winning answer. When multiple simultaneous answers are presented that are equivalent to or less than the target number, the Bitcoin network will determine by a simple majority--51%--which miner to honour. Typically, it's the miner who has done the most work, i.e.

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The losing block then becomes an"orphan block" .

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Now imagine that I present the"figure what number I am thinking of" question, however I'm not asking Check Out Your URL only three friends, and I am not thinking of a number between 1 and 100. Rather, I'm asking millions of would-be miners and I'm thinking of a 64-digit hexadecimal number. Now you see that it's going to be extremely hard to guess the right answer.

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The number preceding has 64 digits. Easy enough to understand so far. As you likely noticed, that number consists not only of numbers, but also letters of this alphabet. Why is that

In order to understand what these letters are doing in the center of numbers, let's unpack the term"hexadecimal."

As you know, we utilize the"decimal" system, which means it is base 10. This in turn means that each and every digit has 10 chances, 0-9.

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