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Dear Stevo,

What is Bitcoin mining? How do you mine Bitcoin?

-Don W., Chicago, Illinois

Bitcoin mining shouldnt really be called Bitcoin mining. Its a deceptive and confusing metaphor. It should be called something much more boring like payment processing.

Every ten minutes or so, the Bitcoin network batches transactions and processes them.

This happens around the clock. No human is involved. Machines do all the work. Your neighbor may have a computer doing exactly that at this moment. The payments that are processed during that ten-minute period, along with some other information, is called a block. All the blocks are linked to each other, all the way back to the very first block. That is why people say Bitcoin is built on the blockchain. Its an uninterrupted chain of blocks, created every ten minutes, going back 11 years.

To incentivize people to participate in this process, the Bitcoin network offers a reward for processing payments. The current reward is 12.5 Bitcoin, or roughly $125,000, using the average price of $10,000 / Bitcoin.

$125,000 is a lot to pay someone for processing ten minutes worth of payments. Everyone would want that job.

Thousands of people, and millions of computers, at any given time, want that job, in fact. To figure out who gets the job, the Bitcoin network has a rationing system.

Every ten minutes, the Bitcoin network produces a random number. The first computer to guess that random number gets to process the payments for that ten-minute period. It also gets to be the first to broadcast the results of that ten minutes to the rest of the Bitcoin network, and receives 12.5 new Bitcoin as a reward for their work.

This procedure of Bitcoin payment processing is called Bitcoin mining because, new Bitcoin are created as a reward when that payment processor successfully does its work.

There is also an additional reward paid for guessing the number. People pay fees when they send their transactions through the Bitcoin network. This is another rationing method. The more one pays, the more likely it is that their transaction will appear in the next block. If youre in a hurry, you pay more. If you can wait for the next lull in the network, you pay less. These fees paid to speed up the processing time for a transaction, often called mining fees, are an additional reward to payment processors in the network.

To answer the question - if you want to mine Bitcoin, the way to mine is to hook a computer up to the Bitcoin network, and to instruct your computer to guess at the random number every ten minutes by running mining software.

At $10,000 / Bitcoin, and 12.5 Bitcoin per reward, $17 million in block rewards are available each day. With so much money to be made in this process, many options exist for how to participate. New options are constantly being developed.

Mining, or payment processing, is a fun way to participate in the Bitcoin network. Some even do this for a fun hobby, others do it to learn a new skill, still others might do it with the intent of strengthening the network, regardless of the reward that could be involved.

Allan Stevo is a cryptocurrency industry veteran and author of The Bitcoin Manifesto.

Email him atBitMatts@protonmail.comwith your questions for the column.

Original post:
Bitcoin Mining is a Silly and Confusing Term - Anchorage Press