These days, you can be extremely wealthy without having a single penny in your bank account. All you need is a couple of bitcoins in your electronic wallet and you are good to go. Bitcoins are a form of digital currency alternatively known as a cryptocurrency. Cryptocurrencies have been around for almost a decade, and they are quickly taking over the economic and financial sectors.
The very first cryptocurrency introduced to the world was Bitcoin. It was propounded and facilitated into existence by a person/group of people using the pseudonym Satoshi Nakamoto in 2009.
Since its creation, it has exceeded all expectations. Bitcoins are now the world's most valuable cryptocurrency. Somewhat stable and liquid, it has become a source of income for many business enthusiasts around the world. Many businesses now accept Bitcoin as a form of payment.
Bitcoin is a decentralized currency. It works without a central bank and has no sole administrator. In fact, bitcoins are not minted and put into distribution by a central regulator. Of course, since it is a digital currency, it exhibits no physical presence. How then are bitcoins created? How are they put into circulation?
Bitcoins are created by a process known as mining. Bitcoin mining is the process of solving computational problems and puzzles. When answered, the solution to these problems allows miners to add new blocks to the blockchain and allows third parties to continue exchanging Bitcoin.
The blockchain is a list of permanent records called blocks which are interlocked and linked with one another and secured by cryptography. When this is done, 12.5 bitcoins are released to the miners as a reward for their efforts. When Bitcoin mining first began, the compensation for each block successfully added to the blockchain was 50 bitcoins. However, the system has been designed to reduce the rewards by half every four years.
You might be worried that miners can cheat the system and obtain bitcoins without solving any computational problem. That is impossible. The issuance of bitcoins as a reward is set in code and therefore unlikely for miners to cheat by creating them from nothing.
In essence, Bitcoin mining is critical for the system to work. It increases the security of the system making it nearly impossible to alter in any way. It also aids with the confirmation of transactions.