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Chances are you hear the phrase bitcoin mining and your mind begins to wander to the Western fantasy of pickaxes, soil, and striking it rich. As it turns out, that analogy isnt too far away.

Far less glamorous but equally uncertain, bitcoin mining is done by high-definition computers which solve complex computational science issues (read: so complicated they cannot be solved by hand). The luck and work required by a computer to solve one of those problems is the equivalent of a miner striking gold in the ground while digging in a sandbox.

The result of bitcoin mining is twofold. First, when computers solve these complex math issues on the bitcoin networkthey produce new bitcoin, not unlike when a mining operation extracts gold from the ground. And second, by solving computational mathematics issues, bitcoin miners make the bitcoin payment network trustworthy and secure, by verifying its transaction information. .

Theres a good chance all that only made so much sense. In order to explain how bitcoin mining works in detail, lets begin with a process thats a tiny bit closer to home: the regulation of printed currency.

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Consumers tend to trust printed currencies, at least in the United States. Feeling because the U.S. dollar is backed with a central bank known as the Federal Reserve. In addition to a bunch of additional responsibilities, the Federal Reserve regulates the production of new money and prosecutes the use of counterfeit currency. .

Even digital payments using the U.S. dollar are backed by a central authority. When you make an online purchase using your debit or credit card, for instance, that transaction is processed by means of a payment processing company such as Mastercard or Visa. In addition to recording your transaction history, those companies verify that transactions are not fraudulent, which is one reason your debit or credit card may be suspended while traveling. .

Bitcoin, on the other hand, is not controlled by a central authority. Instead, bitcoin is endorsed by millions of computers across the world known as miners. This network of computers performs the identical function as the Federal Reserve, Visa, and Mastercard, but using a couple of important differences. Like the Federal Reserve, Visa, and Mastercard, bitcoin miners record transactions and check their accuracy.

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When someone makes a purchase or sale using bitcoin, we call that a transaction. Transactions made in-store and online are documented by banks, point-of-sale systems, and physical receipts. Bitcoin miners achieve the exact same effect without these institutions by clumping transactions together in blocks and adding them to a public record called the blockchain. .

When bitcoin miners add a new block of transactions to the blockchain, part of their job is to make sure that those transactions are accurate. (More on the magic of how this happens in a second.) In particular, bitcoin miners make sure bitcoin are not being reproduced, a unique quirk of electronic currencies known as double-spending.

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Once you spend $20 at the shop, that invoice is in the clerks hands. With digital currency, however, it is a different story. .

Digital information why not try these out can be reproduced relatively easily, so with bitcoin and other electronic currencies, there's a threat that a spender can create backup of the bitcoin and send it to another party whilst holding onto the original. Let's return to printed currency for a moment and say someone tried to duplicate their $20 bill in order to spend both the original and the counterfeit at a grocery store.

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When the numbers were identical, the clerk would know the money had been replicated. This analogy is similar to what a bitcoin miner does when they confirm new transactions. .

With as many as 600,000 purchases and sales occurring in a single day, however, verifying each of those transactions can be a great deal of work for miners, which gets at one other crucial difference between bitcoin miners and the Federal Reserve, Mastercard, or Visa. As compensation for their efforts, miners are given bitcoin whenever they include a new block of transactions to the blockchain.

In 2009, it had been 50. In 2013, it had been 25, at the time of writing it's 12.5, and sometime in the middle of 2020 it will halve to 6.25. .

At this speed of halving, the total number of bitcoin in circulation will approach a limit of 21 million, making the currency more scarce and precious over time but also more costly for miners to make.

Here's the catch. In order for bitcoin miners to really earn bitcoin from verifying transactions, two things have to occur. To begin with, they must confirm 1 megabyte (MB) worth of transactions, which can theoretically be as little as 1 transaction but are more often a few thousand, depending on how much data each transaction shops.