Bitcoin Mining is a decentralised computational process which in fact serves two purposes. Firstly, it confirms transactions securely when enough computational power is devoted to a block. Secondly, it creates new bitcoins in a block.
In essence, with Bitcoin Mining, transaction records are added to Bitcoin’s public ledger of past transactions, or blockchain. This blockchain is basically a ledger of past transactions. It is called a blockchain, because it is literally, a chain of blocks. The block chain is there to confirm transactions to the rest of the network as having taken place.
In order to prevent attempts to “re-spend” coins elsewhere, Bitcoin nodes uses the blockchain to compare legitimate Bitcoin transactions and in that way prevent this from happening.
I still don’t understand this Blockchain business?
On this page, What is Bitcoin?, we have a video explaining it in a more simplified manner. Here is that video again:
Keep in mind, Bitcoin mining is not easy and it is very resource intensive. Each of these individual blocks need to contain a proof of work. Without the proof of work, the block is considered invalid. Bitcoin nodes verify this proof of work each time they receive a block. Bitcoin uses the hashcash proof-of-work function.
The whole purpose of Bitcoin mining is to allow the Bitcoin nodes to reach a secure consensus. It is through mining that new Bitcoins are introduced into the system as miners are rewarded in bitcoins for their efforts.
As you can see, in this manner, Bitcoin mining assimilates the process of actual mining of gold, silver, platinum and other commodities. It requires, time and effort, and in this way, it also slowly makes the currency available over time, giving it its value.
Where does the value come from?
Bitcoin mining requires a lot of processing power. You need special hardware, lots of electricity and time. For this reason, we club together. Everyone joining, pays for their own hardware. The hardware is installed and maintained by a team of professionals in our data centre. Once you have your hardware, you purchase a mining contract in order to start mining. The larger contract you purchase, the more power you have to your availability and the more bitcoins you are able to mine.
This takes away the difficulty of setting up your own expensive hardware at home, then having to battle with setting up software, worrying about security, and needless to say, saving you from a very hefty electricity bill at the end of each month. In most cases, owning a single server setup at home, will cost you so much in electricity, that it won’t be worth the return on investment.
