The terms Bitcoin and cryptocurrency are steadily entering our daily vocabulary. Many entrepreneurs have at least heard these two words once, but only a handful of them have a clear idea of their actual meaning. Nevertheless, Bitcoins play a vital role in modern business. From donations to large purchases and transfers, digital currencies are the fuel powering today’s global economy!

Above all else, it is their origin that makes these currencies extremely peculiar. While traditional cash would be issued by a sovereign government, bitcoins and the likes are mined through the use of specific software. Want to know more about what that means? Keep reading, then!

How Mining Works

To get a clear picture of how mining works, we should first understand how the entire system is structured. Bitcoins utilize peer-to-peer technology to keep track of all transactions. In layman’s terms, users in the network contribute their hardware’s computing power to the system itself. With thousands of transfers taking place every day, the amount of data grows to unimaginable sizes.

To ensure proper functionality, each node has the ability to independently processes a fraction of this pool of information. Whenever an exchange takes place, details about it are collected and stored in a list known as a block. Blocks are then linked together to form what experts call a Blockchain.

A constantly updated version of this large collection of data allows anyone taking part in the exchanges to know exactly what is going on. Just like it would happen in the physical world, though, these financial operations are prone to counterfeiting. The blockchain could be tampered with. It could be modified so as to show transactions that weren’t there or as to hide something that shouldn’t be seen.

In an effort to limit anyone’s ability to pollute the data stream, cryptosystems are used. Computers all over the world apply specific mathematical formulas to the blockchain and turn it into shorter alphanumerical strings. These hashes contain all of the information that an unencrypted ledger would, but can’t be understood by simply looking at them.

So, Where Does Mining Come In?

Hashes also have a specific structure that the system will look to check whether that fragment of data is to be considered valid. While the creation of new strings takes a humongous amount of effort, success is not as impossible as one might think.

That’s exactly what Bitcoin miners aim for. Through various approaches, extensive resources, and large amounts of time, these people attempt to synthesize valid hashes. Whenever any of them is successful in finding the right string, the result of their efforts is added to the blockchain and shared with the whole network.

Fame isn’t the only perk of bitcoin mining, though. Successfully adding a block to the chain yields 25 Bitcoins or roughly $145,000 at the time of writing this. This encourages miners all over the world to try their hand, keeps the network alive, and ensures an extremely vicious competition.