A4 How Is Bitcoin Created?

Bitcoin is created through what is called mining.  Now, I do not want to make this guide overly technical in nature, so I am going to keep this short.

Remember, the Blockchain is the public ledger of all Bitcoin transactions.  Identical versions of the ledger called “blocks” are linked together like the links of a chain.  And in order to make sure the new blocks are the same as all the other blocks linked to it in the chain, there must be a verification process.

There in lies the problem.  Remember, Bitcoin is a decentralized system.  Therefore, you cannot have a central authority responsible for verifying each transaction and the new blocks that are created. 

The solution is mining.

Here is a quote taken from Wikipedia:

Mining is a record-keeping service.  Miners keep the Blockchain consistent, complete and unalterable by repeatedly verifying and collecting newly broadcast transactions into a new group of transactions called a block.

In order to be accepted by the rest of the network, a new block must contain a so called proof-of-work.

https://en.wikipedia.org/wiki/Bitcoin

OK, so think of this proof-of-work as solving a complex mathematical equation.  In order to solve these equations, the miner must have a vast amount of computing power.  There are costs involved like computer hardware and electricity. 

To reward the miner for their effort and compensate them for the cost involved in keeping the Blockchain up to date and validated, the miners are rewarded a certain amount of newly created Bitcoin and transaction fees.

This is how  Bitcoin is created without a central authority.  When the miner creates a new block in the chain and verifies the block is the correct with proof-of-work… new Bitcoin is created and some is given to the miner as compensation for their efforts and expenses.

Becoming a Bitcoin miner is not within the scope of this guide.  And quite frankly, I would not recommend it.  It is too late, in my opinion, to get in on mining by buying your own mining hardware.  This means you would have to join a group of other miners through a service or a mining pool.

If you do go this route, make sure you are dealing with a reputable company and do your due diligence before deciding to give you money to anyone for a percentage of their mining operation.

Just keep in mind that Bitcoin is created through the mining process and new Bitcoin is rewarded to miners in compensation for their efforts and expenses in keeping the Blockchain up to date and validated.

In the next lecture, let’s talk a little about how much Bitcoin will be created…

Go To Next Lesson: How Much Bitcoin Will Be Created?

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