Demystifying Bitcoin Mining
There are only 21 million bitcoins that can be mined. Bitcoins use a public decentralized ledger called the block chain where all the bitcoin miners and users are connected on the network. The miners continuously agree about the current state of the ledger for each and every transaction in it. In case of a corrupt transaction, the mining nodes will not arrive at a consensus and the transaction will not be registered. Every transaction is public and all the nodes agree that the transaction is not bogus. It has occurred at a particular date and time. Every miner or the user keeps a ledger and the ledger is updated whenever a transaction occurs. Bitcoin requires proof that the sender is the real owner of the account. But it is based on math rather than handwriting. A new account comes with a private key linked to that account number. A bitcoin wallet is basically used to store the private keys.
Unlike traditional banking, order of payment is much harder to determine in bitcoin payments. In traditional banking, if A writes two cheques to B and C and B deposits cheque before C then B gets the money. This is because the order is very clear. There is a worry that senders could lie about time stamps on a bitcoin network. To solve this problem, the bitcoin miners came out with a cryptographic hash. This hash is irreversible. The hash function needs to be fed with random numbers to get the right solution. Solving this problem is called mining and the output of this system is bitcoins. The main purpose of the math is to see that everyone’s ledgers agree.
This idea basically eliminates the need for a central bank. With a typical fiat money, the government is in charge of printing the money. But in the case of bitcoins, this task is given to the bitcoin miners. While the government has complete control over the printing of money, the same cannot be said for the bitcoin miners.
Application specific integrated circuit chips are designed for bitcoin mining. Mining bitcoins takes a lot of electricity. That is why mining works better in countries where the cost of electricity is cheap. Typically, in a country like Venezuela which has gone through a political crisis, bitcoin mining has been very cheap because the cost of power is free. Similar is the case in certain parts of China. In India, bitcoin mining becomes difficult because the cost of power is high.
Bitcoin coin miners are always looking for digital gold. They compete with other miners to earn bitcoins. The miners have to solve a math problem to win a bitcoin. Faster computers help a lot. So there is a race to go for computers that are super-fast. Faster computers are able to attempt more tries per second to mine the bitcoins. On the other hand, the bitcoin network maintains the difficulty of mining bitcoins even as more and more miners join. Higher the number of miners the more secured is the network.
When a miner wants to enter a block into a blockchain and get a reward, he / she will be given a combination lock. One needs to guess the combination to enter the block. So if the miner’s hash rate or the computing power is the number of combinations that the miner can guess in a second, and if the computing power is higher, then the miner can guess the combinations in record time. Since the bitcoin network wants to keep the blocks created on the blockchain constant, as more miners add to the network it becomes harder to guess the combination. As more people compete, the miners are given locks with more combinations. A hash is a method to guess the combination for the lock. It is used by turning a large random number into a smaller number by taking certain actions. Let’s say if the miner can pick up the first, middle and last number from a large random number and if this doesn’t work, then the miner will pick up a different large number and guess again. The idea is that the miner decides certain method of action to guess the number and execute it till the answer is arrived at. The SHA -256 or secured hash algorithm is a specific way of hashing. Using this method keeps the bitcoin network from altercation or fraud.
Chief Architect , Internet dollar.org
Tags: Demystifying Bitcoin Mining, bitcoin, bitcoin mining, vishal gupta, vishal gupta Chief Architect, varindia, Bitcoin coin miners, bitcoin, bitcoin wallet
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