In this lesson I want to explain the poorly understood concept of mining. This explanation is for non-technical people:
This video continues my series of videos on Bitcoin and Cryptocurrency Basics Explained for Non-Technical People – make sure to watch the other videos if you missed them!
With traditional currencies and payment systems there is a network needed for the system to work. Decades ago this was a physical network of human tellers handling cash and checks sent through the postal system or carried from one location to another. Over time, this gradually migrated to a digital computer network used today by banks and payment companies such as Visa, Mastercard, Paypal, and Western Union.
The computer networks in traditional payment systems are owned and maintained by those companies, and the way they fund these networks is by not allowing us to use them to send, receive, or hold onto money without them getting a pretty substantial cut of every transaction. Since they control the network they also are the ones who maintain their centralized ledger system. This allows them to do things such as manipulate the order of deposits to your account to charge you a fee and further increase their profits.
Mining exists to create a network of computers to allow people to send, receive, and hold onto funds without a centralized, profit-driven company owning it.
Miners are people who volunteer to run special software on either computers or specialized computing devices. The miners are giving everyone the use of their computing power and electricity to power this decentralized network and in the process allow for people to make transactions with a public ledger system that is extremely difficult or impossible for anyone to manipulate to their advantage.
As a reward and encouragement for people to volunteer their computing power, miners are paid for each “block” (set of transactions) they validate and enter into the public ledger system known as the blockchain.
With this, we have a system that allows the people to own and use their currency and not have to ask anyone’s permission. If you want to help out and contribute to powering the network, you get a financial reward of Bitcoin, Dogecoin, or whatever currency you’re mining.