Did you recently hear about bitcoin mining? Bitcoins and Bitcoin Mining is so popular nowadays that you probably did. Bitcoin is an entirely new currency, a new payment system that is a digital asset. Bitcoin is a global currency which was invented by an anonymous person in the year 2008.
Bitcoin is largely credited to someone with the pseudonym “Satoshi Nakamoto” who published a paper describing the Bitcoin concept. Satoshi is either an individual developer or a group of developers behind the creation of the proof-of-work system that utilizes Bitcoin Mining.
There is no central person or central authority in charge of Bitcoin. Many programmers spend their time developing the open source Bitcoin software. They can make changes which are approved by the lead developer Gavin Andresen. The individual miners can choose if they update their mining software to the new version or continue using their old one.
- Bitcoin wallet program, which connects you to the Bitcoin network, is needed to make Bitcoin currency transfers. Bitcoin aren’t stored in your Bitcoin wallet. They are stored in the Bitcoins network and your Bitcoin wallet gives you access to them.
- Wallets communicate directly with each other to send and receive payments within the Bitcoin network. In the process the network collectively verifies payments and records them in a public ledger which is huge in size. That public ledger is called the block chain or blockchain. This is similar to an accounting ledger that records transactions.
The transactions in the blockchain are recorded and confirmed anonymously. It is a record of events that is shared among many parties. Once information is entered, it cannot be altered. Since everyone has access to the ledger, anyone can verify a transaction.
The blockchain’s integrity is secured by a cryptographic process called proof-of-work, which we mentioned earlier. It is a very hard mathematical puzzle that is solved by powerful computers in the network in order to validate a block.
Miners collect transactions and put them into a single block. A block generally contains four pieces of information:
- Reference to the previous block
- summary of included transaction
- time stamp
- and Proof-of-Work that went into creating the secure block.
There are no bad checks in the system. Once a transaction is added to the blockchain, it is essentially “locked down” and is used for the base of the next transaction. All blocks are strung together in one chain.
A fluid chain doesn’t allow any inconsistencies. All transactions entered are valid and can be processed. The entire system is effectively self-regulated and fully secure because it self-checks the Blockchain and confirms the preceding transactions. Each block is securely hashed. It is rendered into seemingly random data and it is nearly impossible to invert or undo. Once a transaction is stored in the blockchain it stays there forever.
Miners need to spend a lot money to buy expensive hardware for mining so the first miner that solves the mathematical puzzle is currrently rewarded with 25 freshly generated Bitcoins.
The reward is halved for every 210.000 block until the maximum number of available Bitcoins is reached. The maximum number of available Bitcoins is 21 million and at some point all of these will be mined.
In order to compensate for the ever increasing hardware speed the difficulty of mining is increased roughly every two weeks. Often the computing power is bundled together to reduce variance in miner income. Individual miners often have to wait for long periods of time so that the block of a transaction is confirmed and the payment is received.
For the miners that were working together in a “mining pool” the payment is proportional to the amount of work the individual miner helped in finding that block.
Mining was typically done with a CPU in the beginning, but it evolved to mining with a GPU and now is mining occurs with specifically designed chips called ASICs.
Bitcoin is not perfect.It has a lot of problems that need to be overcome. It’s clear that bitcoin is evolving. As time goes on and Bitcoin gains acceptance, it is increasingly likely that the future of bitcoin is bright.