Quick Lessons about Cryptocurrencies and Bitcoin
How it Works
For the Bitcoin miners to perform the verification tests, two things need to happen:
- At least 1 megabyte (MB) must be verified by the value of the transactions, which can theoretically be as small as one transaction, but are often several thousand, depending on the amount of data stored by each transaction. This is the easiest step.
- In order to add a transaction block to Blockchain, the miners must solve a complex computational math problem, also called “work test.” What are they trying to do is getting to the hash that is less than or equal to the destination hash.
Basically rows of mining computers hashes at speeds of megahashes per second (MH/s), gigahashes per second (GH/s), or even terahashes per second (TH/s) depending on the unit, divining possible 64- digit numbers until they reach a solution.
It’s practically a game of chance: the difficulty level is adjusted every 2016 blocks or roughly every two weeks to keep steady rates of mining. I.e., the more miners are no longer competing for a solution, the harder will be to solve the problem. The opposite is also true. If the computation power of the network is retired, it will be adjusted to a lower difficulty to make the extraction easier.
As compensation for their efforts, bitcoin miners are awarded each time a new transaction block is added to the Blockchain. The amount of new bitcoin released with each extracted block is called the “reward block.” The reward block is halved every 210,000 blocks or roughly every four years. In 2009, it was 50. In 2013, it was 25. In 2018, it was 12.5, and at some point in the middle of 2020, it will be halved to 6.25.