BTC.com is always looking to bring new users into the world of bitcoin. We understand, however, that the technology can seem overwhelming to someone with little experience using it. With that in mind, we have decided to create a series of blog posts explaining certain topics in a concise and easy to digest manner. We’ll start from the beginning — short and sweet — with blockchain, blocks, and bitcoin miners.
A blockchain is the digital ledger in which bitcoin transactions are recorded. It comprises individual blocks, which contain information about transaction. The bitcoin blockchain is decentralized, meaning it does not exist in a single location, but rather, exists everywhere, with all participants in the network having their own copy.
If a blockchain is a ledger, blocks are the pages inside it. Blocks are added to the blockchain in sequential order. A blockchain, then, is technically infinite, and constantly expanding.
Single blocks contain a reference to the transaction directly preceding them. This means that all blocks are linked — hence, blockchain. Additionally, all transactional records within a blockchain are permanent and irreversible.
To be added to the blockchain, a block must contain an answer to a mathematical equation. In addition to verifying the authenticity of blocks, the equation acts as a mechanism that keeps the blockchain orderly, preventing it from becoming flooded.
The act of solving equations is known as “mining.” Mining can prove financially lucrative, as a bitcoin reward is given to those who are able to solve blocks.
This reward, however, decreases every time 210,000 blocks are mined. Currently, the reward sits at 12.5 bitcoin per block. This number will continue to halve until all 21 million bitcoin have been released, at which point new bitcoin will stop being created. This system is known as a controlled supply.
Typically, blocks are solved by a machine called a bitcoin miner, which works around the clock to add blocks to the blockchain. The more blocks are solved, the more a bitcoin miner (and, by proxy, the miner’s owner) stands to make. This is why you will sometimes read about “mining farms,” where many miners owned by the same individual or organization will be simultaneously working to mine bitcoin.
Note: Bitmain, BTC.com’s parent company, manufactures many different types of bitcoin miners. If you want to learn more, or just check out what’s on the market, click here.
Reddit user mperklin last year posted an apt metaphor for bitcoin miners that we think bears mentioning. Take a look:
Because bitcoin is purely digital, there are obviously no blockchain employees. The blockchain is instead operated peer-to-peer, with each user or miner doing a small part to keep the system running.
This is why bitcoin is so safe. Because there are no large organizations, such as banks, acting as middlemen, bitcoin users are offered a great deal more control over their funds. No bank involvement also means that fees for bitcoin transactions are (generally) lower than those involved with other financial transactions.
That said, because of its relative youth, buying bitcoin is always an investment, meaning the market is potentially volatile. You should always make an informed decision before making a large transaction.