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Definition: Bitcoin Mining
A technology developed by a pseudonymous person or group of persons, called Satoshi Nakamoto, revolutionized the world of electronic money transfer in 2009. The disruptive technology was called “bitcoins” and it was claimed to be the first cryptographic digital currency in use.
Bitcoins belong to the category of peer-to-peer technology and enable transactions between users without the intervention of a third party. The verification of transactions happens by means of people belonging to the same network, called “miners”. Through this way of decentralized verification, bitcoins protect the anonymity of users and also prevent cases of double spending.
Whenever a user transacts through bitcoins, he/she utilizes the currency from the digital wallet, hashes it using the previous transaction code, signs it using his/her private key and encrypts it using the public key of the receiver. This transaction forms a part of the “block”. When many transactions build up, technology buffs called “miners” start verifying the transactions by way of solving complex mathematical algorithms and cryptographic codes using high computation power. Once an entire block of transactions is validated, that block is authorized and added to the block chain. The first miner to solve a block and add to the chain earns rewards in the form of new bitcoins. This process is termed “bitcoin mining”.
Though usage of bitcoins has increased worldwide over the years, bitcoin transactions are not deemed legal in many countries. Countries like India are yet to regulate the use of bitcoins because of the ambiguities and complexities surrounding the legal aspects of bitcoins.