Mining

Those who take part in maintaining the block chain are called miners and are rewarded with newly created bitcoins and transaction fee payments. Miners all over the world process payments by verifying each transaction as valid, adding it to the block chain and therefore secure the network. Because the Bitcoin network is not controlled by a single repository, like a central bank, the US Treasury has called Bitcoin a decentralized currency. As of 2014 payment processing is rewarded with 25 newly created bitcoins per block. To claim the reward, the miner includes in the block a special transaction called the “coinbase” that assigns the reward bitcoins to an address of the miner’s choosing.

All bitcoins in circulation can be traced back to such coinbase transactions. The Bitcoin protocol specifies that the block reward will be halved to 12.5 bitcoins in 2017 and again approximately every four years thereafter. By 2140 there will be 21 million bitcoins, and transaction processing will only be rewarded by the transaction fees. Users that pay a fee may have their transactions processed more quickly. The most efficient mining hardware makes use of custom designed application-specific integrated circuits, which are much faster mining and have low power consumption compared to general purpose microprocessors, such as x86 processors.

 

Next concept you must know – Buying and selling bitcoins