|
Bitcoin is a digital and global money system currency. It allows people to send or receive money across the internet, even to someone they don't know or don't trust. Money can be exchanged without being linked to a real identity. The mathematical field of cryptography is the basis for Bitcoin's security.
Blockchain, Cryptocurrency and how are they actually made?
The blockchain is the technology that underpins virtually every cryptocurrency. It is a decentralised and distributed digital ledger that is used to record transactions across many computers so that the record cannot be altered retroactively.
Over the past several years, cryptocurrencies like Bitcoin have been quietly growing in popularity, with an ever-larger number of people buying and selling them. There are several different types but the most popular ones are Bitcoin, Litecoin, Namecoin and Swiftcoin, to name just a few.
The production of cryptocurrencies is nothing like that of normal money. There is no Bank of England issuing new notes. Instead bitcoins are generated through a process known as 'mining'.
Cryptocurrency mining and the blockchain
Transactions are collected into 'blocks', which are then authenticated by 'miners' and the next subsequent block of transactions is then linked to it. This forms the basis on which cryptocurrencies are built, but it's also how new units of those currencies are generated.
Mining new blocks
Each time a bundle of transactions are collected into a block, it is added to the blockchain. Whoever assembled the block is rewarded with units of the currency.
In order to prevent the currency being devalued by miners creating large volumes of new blocks, the task of creating a block is made artificially harder. This is done by requiring miners to solve a complex mathematical problem called a 'proof of work'.
Calculating hashes
To successfully create a block, it must be accompanied by a cryptographic hash that fulfils certain requirements. The only feasible way to arrive at a hash matching the correct criteria is to simply calculate as many as possible and wait until you get a matching hash. When the right hash is found, a new block is formed and the miner that found it is awarded with units of cryptocurrency.
Cryptocurrency mining limits
This means that miners are competing against each other to calculate as many hashes as possible, in the hope of being the first one to hit the correct one, form a block and get their cryptocurrency pay-out.
Every new block of bitcoins becomes harder to mine. Many cryptocurrencies also have a finite limit on the number of units that can ever be generated. For example, there will only ever be 21 million Bitcoins in the world.
|
