Part of the hesitancy of some people to accept Bitcoin stems from the elusive answer to what should be a very simple question: Where do Bitcoins come from? Did someone just write a program—like an app that’s money? If so, how does one acquire this digital money? Further, how does it even have real value? Why do people pay thousands of dollars for just one of these things? The answers to all of these questions stem from an understanding of how Bitcoin mining works.
Bitcoin Mining In the Most Simple Terms Possible
To mine, or earn, Bitcoin, you have to solve hashes that are headers of blocks and blocks go in something called a blockchain. Bitcoin uses the SHA256 hash function to create its hashes. Let’s break this down into simple terms. Hashes are just big numbers. Here’s the easiest way of looking at it. Take a coin and flip it 256 times. Each time, write down whether it’s heads or tails. Now tell somebody to guess what every single flip was for all 256 flips. Impossible. Even with a computer, this is incredibly hard. Solving hashes are a primary task of bitcoin mining. After that, there must be a proof of work performed.
How Proof of Work Works
So why does proof of work even exist? If proof of work wasn’t there, people could regenerate solutions to the hash problems that had already been used. In other words, you could spend money that had already been spent. The only way to prove the hash of the header in the block is legitimate is to ascertain how much work went into figuring it out. Hence, Bitcoin mining also involves checking whether or not solutions to the hash problems are legitimate.
How a Hash Can Fail
If you have a normal computer, and you try to use it right now to solve a hash, it will likely take a long time. This is because your computer’s processing speed isn’t fast enough. If you used your computer to solve a hash and it got it right, the answer and what it took to solve it would be sent to the network to get verified. Because your computer took too long, your hash would get rejected, and you have to start all over again.
The Valuable Thing That Is Being Mined
Diamonds are expensive because it takes a lot of time and energy to find them. It’s the same with Bitcoins. As time goes on, the difficulty of the hash problems is increased. This means it takes a faster and more powerful computer to solve each problem. When digging for diamonds, you pay for huge drills, other equipment, and teams of miners to get down to those diamonds. With Bitcoin, you just pay for a powerful computer. This computer needs a lot of electricity to run. Therefore, you’re also paying for the Bitcoin you mine by paying high electric bills. In many places, no matter how fast your computer, you simply cannot make money off mining Bitcoin because it would cost you more in electricity to solve the hashes than you would make off the Bitcoin you earn.
A Bitcoin miner is able to do all of the above in an efficient enough manner to earn Bitcoin without using more electricity than the Bitcoin it earns is worth. It is a computer that works tirelessly to solve the hash, and it’s also part of the network that verifies proof of work. If you have access to a source of electricity that is free or very inexpensive, you can get in on the action by purchasing the right computer. On the other hand, you can also just join a cloud mining service and try to earn money with other people’s computers. Either way, you don’t need to be a mathematical whiz to make money off solving the math problems that are redefining what money is in the 21st Century.