One of the most common questions that those who are about to start out with bitcoin ask themselves is where bitcoin comes from. When compared to traditional currencies, bitcoin doesn’t have a central government to decide when it’s time to print more, or distribute the currency.
The Bitcoin protocol is created in such a way, where people known as miners use dedicated software to solve complex mathematical problems, in exchange of which, they are issued a certain number of bitcoins.
Bitcoin mining serves two main purposes, these being: the confirmation of transactions once enough computational power is dedicated to solving a block, alongside with the creation of new bitcoins when each block is mined. Once a block is mined, miners are given a reward of 25 bitcoin- with the reward halving every couple of years until all 21 million bitcoins are mined.
The actual mining process is quite simple, and can be divided into a total of five steps. Miners receive a bundle of transactions in a block, which they then verify to check whether the transactions are valid. Once this is done, the header of the most recent block is selected, and then inserted into a new block as a hash. To mine the actual block, computing power needs to be used to solve something known as a ‘proof of work’ problem. Once the solution is found, the block is then mined and added into the blockchain, only to be then distributed on the market.
Another common question revolves around whether bitcoin mining is profitable. The answer is yes, as long as there’s a good investment backing the process up. With this in mind, to actually get rich from mining the coin, users would have to invest into powerhouse computers, but also in high electricity bills.