As viewed by its creator Satoshi Nakamoto, Bitcoin aims at providing a virtual way to exchange tokens of value on the web without reliance on centralised entities, example banks. Instead of letting a third-party institution know about your transactions, all such records are stored in a virtual “blockchain”; it is an ever-expanding ledger, available to all individuals connected in a Peer-To-Peer (P2P) Network, which stores all Bitcoin transaction details in it.
However, the absence of a central authoritative entity or institution brings forth a number of questions — Who decides the validity of the transactions? And how is it possible to ensure that this utopian system will never allow room for double-spending?
The answer is Bitcoin mining.
In every ten minutes, computers programmed to mine Bitcoins collect some pending bitcoin transactions (around a hundred transactions), store them in a “block”, and make it mathematically uncrackable. This is how the procedure takes place —
- The first mining computer to solve the mathematical puzzle of the particular block announces it to the other nodes
- The other mining computers confirm whether the sender has enoigh funds to conduct the transaction, and checks the accuracy of the solution
- If most of those computers approve of it, this new block is cryptographically added to the Blockchain
The first miner to get the solution is rewarded with 25 bitcoins as a reward, but that happens only after 99 more blocks have been added to the same chain. Thus functions as incentives to miners to actively participate in the same. This, after all, assures financial protection — double-spending bitcoins would require the robbers to rewrite the blockchain, and that would require the herculean task of meticulously distorting information in every block that is located in the same Blockchain. Therefore, such a situation is next to impossible.