Bitcoin is a decentralized digital currency. The heart of bitcoin is a big ledger that records all Bitcoin transactions. This ledger operates as a peer to peer network of computers that hold that ledger. You will be asking: Where do Bitcoins come from? And you may have heard of Bitcoin mining. Understanding Bitcoin requires understanding Bitcoin mining a little bit. With paper money a government decides when to print and distribute money. Bitcoin doesn’t have a central government. It has Bitcoin mining.
There are a limited number of Bitcoin that will ever be issued (21 million, in fact). These Bitcoin are hidden behind mathematical problems which are related to the addresses used to identify transactions. Bitcoin miners use special software to solve these math problems and are issued a certain number of bitcoin in exchange. This is a smart idea because what the miners are doing is uncovering new blocks of Bitcoin as well as confirming the transactions in Bitcoin that are happening at the same time.
What is also pretty smart is that the problems get harder and harder to solve and this keeps the flow of new Bitcoin into the system in some sort of balance.
The way I like to think of it is a whole pile of gold nuggets that have been hidden away and gold miners have to solve clues and do difficult technical jobs to find the gold. It took some time for people to discover gold in the creeks in California and the early gold miners could find nuggets easily by panning those creeks. Later on they had to work out how to dig for and crush the rock to find the gold embedded in the rock. They also needed to find ways to pump water uphill to make sure there was a ready flow of water to keep panning. Meanwhile smart miners could compare geology of California and Australia and go looking for gold there after a ship and wagon journey to Bendigo and Ballarat. And so the complexity of gold mining has grown as it has become harder and harder to extract the gold deep under the earth (in South Africa the deepest mines are 4,500 metres underground.)
The video does a good job at explaining what is going on and shows how computer needs and electricity needs have grown. Now the only way to mine Bitcoin is in mining pools where resources are shared.
You may be interested in the mining pool I belong to – called BitClubNetwork. It is also different as it is structured as a network marketing business that pays people for adding new members who buy mining pool shares. That way we can get enough cash together to buy enough mining equipment to keep growing the size of our mining pool – and we are growing and are currently in the top 10. Click BitClubNetwork to join for Free.